What Do Robo Advisors Invest in?
Robo advisors invest exclusively in Exchange Traded Funds, or ETFS. These instruments are traded just like stocks on a stock exchange but unlike stocks, they represent a group of underlying securities, which could include a particular group of stocks like gold mining stocks or tech stocks. They also basket together other assets like bonds and currencies.
They are an extremely effective way to gain exposure to different asset classes. In the world of portfolio management, ETFs allow allocation to any asset quickly and cheaply. You can buy and sell them through any broker, which is exactly what Robo Advisors do. In Short, they are the ideal investment tool.
What Kind Of ETFs Do Robo Advisors Invest In?
The assets that a robo advisor invests in depends on the economic climate, as macro-economic factors will dictate which asset classes (like equities, bonds etc.) are increasing in value, and which are decreasing.
Common assets that robo advisors (and portfolio managers in general) invest in are:
- Equity markets: The broader stock markets of any given country. Many robo advisors will invest in US, UK and European indices, as well as emerging market indices.
- Bonds: Bonds are government issued debt. Governments sell debt to investors to raise money to meet their spending obligations. Bonds are staple investment as they are low-risk and provide safety in times of economic uncertainty.
- Foreign exchange: When certain economies are growing, an effective way of getting exposure is to buy the currency. The US dollar, Euro and British pound are common investment choices, as well currencies of emerging economies.
- Gold: Gold is a go-to safe haven in times of economic trouble. Investors typically move out of equities and into gold when uncertainty arises, or indeed when crisis hits.
- Cryptocurrencies: Most robo advisors stay away from cryptocurrencies. Despite their potential to be truly revolutionary, cryptocurrencies like Bitcoin, Ethereum and LiteCoin are relatively new instruments and as such, their future is uncertain. This creates volatility, which is not ideal for a portfolio designed for steady growth. More information on investing in cryptocurrencies can be found at Top Ten Crypto. For further information on cryptocurrencies, visit www.invezz.com.