Are 93% of Australian investors missing out by opting out of robo-advice?
A new report found that 7% of Aussie investors use robo-advice apps and just 12% have heard of micro-investing.
Robo-advisors like Betterment and Acorns are hugely popular in the US – but it seems few Australian investors are opting for them.
That's a far cry from the United States, where close to a quarter (23%) of online investors use robo-advice platforms, while 13% of investors do so in the UK.
Considering the size of the US market, the numbers aren't surprising, Chris Brycki CEO and founder of robo-advice platform Stockspot told Finder.
"Robo advice in Australia has been about 4-5 years behind the US since I started Australia's first robo advisor, Stockspot, in 2013," he said.
"The largest independent robo advisors in the US (Wealthfront and Betterment) were founded in 2008 and now have about US$20B under management. These are now mature businesses, whereas we're seeing the growth that they did 4-5 years ago."
What are robo-advisors?
The definition is somewhat vague, but robo-advisors are typically low-cost auto-investment platforms.
In most cases, you'll have a list of portfolio options to choose from and your money is invested on a monthly or weekly basis.
While you're not actually getting any personal advice, the platforms suggest stock or ETF portfolios based on how much risk you're willing to take on and how much you want to invest.
Micro-investors are robo-advisors that allow you to invest very small amounts at a time. For example, Raiz Invest collects and invests your spare change while Spaceship automates regular investments starting from $1.
Robo-advisors in Australia
Although relatively new to the investment world, there are around a dozen robo-advisors in Australia and hundreds more around the world.
The most popular in Australia (according to SensorTower data) are the micro-investors Raiz Invest followed by Spaceship. Other robo-advisors such as Stockspot, SixPark and Investsmart have higher minimum investments, starting at $1,000 up to $10,000.
You can see how some of the most popular robo-advisors compare in the table below. When comparing it's important to check your fees and investment options available.
|Platform||Monthly fees||Minimum investment||Investment options|
|Raiz Invest||From $2.50 per month||$5||Choose from 6 portfolios containing a mix of ETFs based on risk level.|
|Stockspot||$5.50 per month for a balance up to <$10,000 or 0.66% per year for a balance $10,000 - $200,000||$2,000||Choose from 5 ETF portfolios based on risk level.|
|SixPark||From $9.95 per month||$10,000||Choose from 5 ETF portfolios based on risk preferences.|
|Spaceship Voyager||$0 for balances up to $5,000||$0||Choose from 2 portfolios of Australian and US stocks, one index fund and one actively managed fund.|
Why use them?
The big selling point is easy access to a diversified investment portfolio. Stocks are a great investment but it's expensive to build a portfolio – and risky to buy shares in just a few companies.
Robo-advice portfolios usually hold a collection of ETFs, which are investment funds with hundreds or thousands of company stocks. You're not buying stocks directly, instead you're investing in a bundle of them.
Because robo platforms are automated, they're also cheaper than traditional financial advisors, making them more accessible for everyone.
This makes them a good choice for new investors. Instead of investing hundreds or thousands of dollars into the stock market as you'd normally need to, you can start from as little as a few dollars at a time.
Raiz Invest CEO George Lucas told Finder that robo advisors are a safer option during volatility as they allow you to invest smaller amounts over a long time, but warned they're not for everyone.
"Given each person’s situation is different and they have different aims... robo advice will be good for some of these situations but not all, it depends on the individual and their goals," said Lucas.
How to invest in a robo-advisor
It's important to properly compare your list of options first. You can head to our robo-advice homepage for a list of platforms available in Australia and make sure to compare fees and investment options.
Once you've decided, you'll need to sign up by providing proof of ID, home address and bank account details.
Each robo-advisor has its own process from there, but typically you'll be asked a few questions about your investment goals and how much risk you'd like to take on before being recommended a portfolio.
While the idea for these apps is to "set and forget", you'll want to check in at least once every six months or so to see how your funds are tracking.
Just remember, because you're invested in the stock market, the value of your funds can go down as well as up. The key here is to invest for the long-term.
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