Rise of the Robo Advisor
We live in the age where computers far outstrip the abilities of the average brain. Just look at the two billion lines of code Google uses as it finds what you are searching for in less than a second. Or try to play chess against your iPhone and watch it run circles around your smartest friend.
The next big thing for robotics is in the financial sector. There is a reason for this and it is the reason for a lot of things in the world – money. In a financial world where owning a supercomputer that is 1 millisecond faster than a competitors can make the difference of millions of dollars, it is no surprise that money and research is pouring into robo investing. There are two ways in which we are seeing the trend arise, via individual wealth management, and via high frequency trading.
High frequency trading refers to using extremely fast and powerful supercomputers that trade millions of times in a single day. They capitalize on tiny irregularities and by buying up shares milliseconds before a slower computer, then turning around and selling for a higher price to that computer's owner. As one can imagine, having a slightly faster supercomputer, or finding a slightly better algorithm can result in billions of dollars when so many trades are on the line.
The second way in which we are seeing an explosion of robo computing is in private wealth management. This refers to using complicated algorithms to take in large amounts of data about an individual's situation, market's situation, and world's situation, then making investing decisions based on all the available data. The more data, the better the decisions. These companies, such as Betterment, or Motif Investing are still unproven to be able to beat humans in long-term investing strategies. Part of this is the length of time they have been around, another part is the sheer amount of data and chance that goes into an investment decision. An algorithm may be late in catching onto the success of a company as it cannot recognize the usefulness of a product, or how a certain company may get virality, such as the recent boost of Pokemon Go.
It will not be long before a large majority of investing decisions are made by robots and algorithms. As data becomes more readily available and shared, and robo advisors and machine learning comes into play, those that lead the pack will find themselves making more money than they thought possible.