Our columnist Margarethe Honisch invested via a robo advisor three years ago.
On the one hand, she had expected more from the investment strategy created for her.
On the other hand, after three years of investment and deduction of all costs, the return was thin.
We live in the age of artificial intelligence, which should finally make our lives easier: Our personal assistant is called Siri, our car ensures that we can finally park sideways and when our partner is sleeping, we can read all his private messages in peace thanks to facial recognition. No, of course you shouldn’t do this.
So why not simplify our lives with AI when investing? To find out, I tried it and my Money Invested using a robo advisor.
Standardized investment strategies and a lack of individuality
First of all, how does AI work in investing? A Robo-Advisor uses algorithms and AI models to make predictions about future market developments based on historical data and market trends. Based on these predictions, investment decisions are then automatically made that are tailored to your individual needs and goals.
What robo advisors have in common with investment advisors is that they first want to find out what type of risk you are by asking standardized questions. To do this, you answer the classic questions: How long do I want to invest my money? What return do I want to achieve? What losses am I willing to take if there are even higher profit opportunities?
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Anyone who has never dealt with the subject must understand that returns are always associated with risk. If I want to have the chance for more growth, I have to accept that I can lose some of the money.
In my test, I decide to take full risk. Based on this, the computer then determines the appropriate investment strategy. Here I can already see the first problem: There are only a handful of ready-made investment strategies, and I will now be assigned to one of them. At this point I would have wished for more individuality.
I can opt for one again equity ratio decide and choose the maximum that is possible: 70 percent equity quota. Personally, I would have taken even more, but the AI won’t allow that.
After a few moments, my investment strategy is complete and I can now see where I will invest my money over the next few years: 70 percent Shares, 25 percent bonds and 5 percent money market. Sounds very reasonable so far, and at least risk-takers who, like me, would rather go full-on stocks are reminded to keep their feet on the ground.
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Actually quite good, I think to myself. How many times have I seen people invest all their money in the stock market without realizing the risks. Anyone who uses a robo-advisor has either not yet sufficiently dealt with investing, has not understood it – or does not feel like selecting the right assets and maintaining the portfolio once a year.
Now I’m curious about the breakdown: What exactly is in the depot?
And quite honestly – this is where the disillusionment comes. Because you really don’t need AI for that. My portfolio now consists largely of an MSCI World and an MSCI Emerging Markets. The popular hits of the financial sector, so to speak. There are also a few classic state and Corporate Bond ETFs. Okay, I really didn’t need AI for that.
And even anyone who takes a whole day and deals with the matter will quickly come across a similar investment strategy: 70 percent should be invested in stocks worldwide, 30 percent in bonds with good credit ratings, preferably Europe.
I invest my first 50 euros, which I set up as a monthly savings plan – and wait and see what happens.
The disappointment after three years: my return
We all know that the last few years have been a tough time stock exchange were. Nevertheless, there were also many recoveries and an AI is also there to recognize downturns and switch to the right securities in good time – right?
A look at the portfolio is sobering after three years: My total return is around 1 percent! Because even though I didn’t achieve any returns, I still continued to pay fees on my portfolio value. When I factor in inflation, I’ve actually lost quite a bit of money. In comparison: With the MSCI World alone, I would have achieved a return of 7 percent in the same period, adjusted for inflation.
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My summary: With a robo-advisor, inexperienced investors can save a lot of time at the beginning, but if you choose the wrong offer, you can lose returns over a long period of time – at least that’s my personal experience.
If you want to start with a robo-advisor, find out beforehand exactly how your money is invested, what returns have been achieved in the past and how high your fees are.
I find that investment thanks ETFs really easy and can be learned quickly by anyone. Hence my personal tip: invest a few evenings a week to inform yourself about it instead of putting your financial future in the hands of an unknown AI.
Margarethe Honisch is a financial blogger and author. On your website Fortunalista and her eponymous Instagram-Account She gives tips on retirement provision and investments. She writes the column “Make more with money” for Business Insider.