It’s undeniable that automation has transformed the world beyond recognition in recent decades. We have robots feeding our pets, cleaning our houses and driving us to work. But did you know that robots invest our money as well?
Robo-advisors came onto the scene in 2008, when people were looking for new ways to manage their money. After the greed-fuelled frenzy of the financial crash, the world turned towards a decision making tool based on caution, data, and the cold emotionless heart of a robot (think the Terminator, not Wall-E).
Since their debut, robo-advisors have transformed the way we invest. If you wanted to invest in the stock market twenty years ago, you’d have needed a great deal of knowledge, experience and time to spend scrutinising statistics. Or a lot of money to pay something to do all of that for you. Nowadays, investing is now open to everyone. Companies like Nutmeg and Betterment have used robo-advisors to dramatically lower the costs of investing in the traditional financial market.
While robo-advisor technology is recent, the underlying algorithms have much more history. Based on the Nobel-prize winning work of economist Harry Markowitz, robo-advisors usually plan their course using a series of formulas developed in the 1950s to minimise risk in investing.
Combined with modern computing power, robo-advisors are now able to process more data than any human could digest in a lifetime — every minute — and feed it into these time-tested calculations. And they can do it at all hours of the day and night without rest. Their capability has given rise to the concept of ‘passive investing’ — being able to invest in the market without having to lift a finger.
So, what do they actually do? Much like a human advisor, a robo-advisor will ask you a series of questions to establish your risk profile and calculate how much volatility you’re willing to accept in your investments. Your answers are fed into an algorithm which crunches the numbers and designs a portfolio of investments tailored specifically to you. That’s the first part.
Once your portfolio is designed and built, the robo-advisor will monitor the performance of your investments constantly. When the robot detects market fluctuations, it will rebalance automatically to keep you on track to reach your financial goals. You can leave it for weeks, months, or even years, and be confident that we’re keeping your portfolio in great shape.
The role of robo-advisors has been growing in the traditional financial sector for over ten years, but their adoption in the cryptocurrency space has so far been limited. That’s beginning to change. With the growth of DeFi products designed for long-term stability, the robo-advisor has discovered a whole new field to play on.
CryptoSimple is a robo-advisor based investing tool for the cryptocurrency and decentralised finance (DeFi) markets. The app is already live and you can download it here: https://www.cryptosimple.app/