Robo-Advisors take care of your investments. You set up and manage a securities account. In this guide you will find out whether the digital investment helpers could be something for you.
Do you want to invest your money but don't know exactly how? Don't have the time or inclination to look for the right investment products yourself? And you don't want to worry about your depot once it's set up? Then you should look at robo advisors. These are systems that automatically take care of your money. The respective provider collects a fee for this.
How exactly does a robo advisor work?
A robo advisor is a digital investment advisor that invests your money in the capital market. To do this, the system first asks about your assets and your willingness to take risks. Based on the answers, it determines how the money is divided into different asset classes - usually bonds and stocks, but also commodities.
The general rule is: the more bonds, the safer the portfolio. The larger the equity component, the riskier the investment. If the investor agrees, the robo-advisor opens a securities account and invests the money. He keeps an eye on the portfolio and adjusts it depending on the stock market situation.
Active robos move money more frequently based on certain assumptions about the market. Passive robos only ensure that the split between bonds and stocks is always restored.
What can robo advisors do?
The magazine "Finanztest" last looked at the common robo-advisors on the market in 2021. Result: Four providers were "good", eleven "satisfactory", but also eight "poor". The robots often received "good" sub-grades for their information on the product and costs, while the annual costs themselves usually did not go beyond "satisfactory". In other words, many providers were too expensive.
But the robots did what they were supposed to. The testers had a suitable investment suggested for different types of investors. Result: "Most of the portfolios were not objectionable."
"Finanztest" project manager Yann Stoffel is an expert for digital investment helpers. Not much has changed in the robo market since the last test, he says. There are some new providers, existing ones have reduced costs or adjusted their terms and conditions. According to Stoffel, the portfolio often fits well with the risk profile of the investor. "But it can also be too risky or too conservative." That depends on how precisely you answer the questions. However, the right risk assessment is generally difficult: the bank advisor or friends and acquaintances do not necessarily do better.
Niels Nauhauser from the Baden-Württemberg consumer advice center positively emphasizes that the vast majority of robos use ETFs to invest customers' money. This is often better than the offers from the banks, where index policies, investment certificates or expensive, actively managed mixed funds are often sold - because of the commissions.
However, it also depends on which ETF the robos work with. "Most of them don't offer a broad investment," says Nauhauser. This means that they tend not to invest in the entire stock market, which reduces risk, but instead focus on certain regions, sectors or other special topics.
What do robo advisors not do?
The systems do not ensure that you make above-average money, nor do they protect against stock market crashes. "The robo-providers are liable for investing the money as they previously promised the investor in writing," explains Yann Stoffel. "But they don't promise a specific rate of return." So there is no guarantee that you will outperform the market.
"There are no investment strategies that reliably achieve excess returns," confirms Niels Nauhauser. Neither actively managed funds nor robo-advisors managed to do that. The automated investment via Robo also offers no protection against price losses. "You cannot eliminate the market risks," says Nauhauser. "If they eliminated the risk, then so would the return." Because both are inextricably linked.
How much do the digital investment assistants cost me?
The costs of the robos are made up of two components: the fees for the investment products, such as the ETF, and the fees of the robo providers themselves, which they collect for their service. According to Nauhauser, the fees for an ETF on the broadly diversified MSCI World Index are around 0.2 percent. The robo advisors incur additional costs of between around 0.7 and 1 percent of the investment amount per year. These extra costs reduce the return.
Rule of thumb: Yann Stoffel believes that with total costs of more than one percent per year, it becomes far too expensive. That is achieved quickly.
Who are robo advisors suitable for?
The automated systems save time and nerves. "Anyone who does not want to take care of the investment themselves can use the advisors, but forego the return," says Niels Nauhauser. "But investors should already have an idea of what they are looking for," says Yann Stoffel. This is the only way they could compare different robots and make a selection.
The expert knows from readers' letters that many private investors have a wrong image of robos: "Once you've set it up, you can no longer influence the investment. You can't add topics yourself. And you can't say: Now it's a crash, please get out of shares out and buy annuities."
Stoffel concludes that a robo is not for anyone who wants to tinker with the portfolio themselves. "A robot is for everyone who really wants to give up control." And that can have advantages.
There are many investors who know theoretically how to invest their money themselves, but are still reluctant to do so, says Stoffel. "Investing 20,000 euros in an ETF with one click is not easy for many."
The same applies to shifting the portfolio. "Here, the robo can prevent you from making stupid decisions," says Stoffel - as if in a crash for fear of selling all the shares at a loss. Because sooner or later, prices usually recover.
Can I take care of the investment myself?
Yes, and consumer advocate Nauhauser also advises this. "A solid investment strategy with ETF is not as complicated as the financial industry would have us believe," says the financial expert.
A simple recipe results from the research findings: diversify widely at minimal cost, for example with an ETF savings plan on a global index such as the MSCI World or the FTSE All World. Buy and leave. "It's nothing more," says Nauhauser.
Conclusion of the consumer advocate: "If you know that and how much you want to invest in the stock market, you can do it cheaper without a robo-advisor and simply buy one or two ETF."
