Robo advisors, human investors

Like all things modern, investing is rapidly changing. One such change is so called Robo advisors.

Before Robo advisors, brokerage services used to cater to investors' needs. Brokerage services often give out some bonus for opening account and depositing a certain amount of money for trading. But they charge you per stock purchase/sale. Example brokerage services are E*Trade, Fidelity, TDAmeritrade. They do not charge any account maintenance fee. All you pay them is when you trade. These are good for those who know what they are doing. Robinhood is another such brokerage service but it has free trades. So, how can Robinhood do it for free but not E*Trade, Fidelity, TDAmeritrade? It's because Robinhood does not have extensive research tools like others do. Robinhood is good if you are already well versed with the stock market. E*Trade, Fidelity and TDAmeritrade on the other hand provide tons of resources to make informed decisions. You can sign-up for free Robinhood account using this link and you will get a free stock.

At your service, my master

Example Halal Robo advisors include Wealthsimple and Wahedinvest, among others. They both differ significantly. Wealthsimple has three different Halal portfolio offerings through their Socially Responsible funds depending on your risk appetite. But all three invest in various US and foreign Halal stocks directly. They charge 0.5-0.4% fee based on your investment amount, which is much better than mutual funds. The main disadvantage I found with Wealthsimple is that they are not transparent on the Net Asset Value(NAV) of their portfolio. To put in other words, they do not tell how many units of their portfolio you are gonna get when you want to invest, lets say, $1000. Also, they take 2-3 days after you initiate deposit to make that investment for you. Given the current volatility of the market, this is very important. One reason they gave me for not being transparent on the NAV is that they process trades in batches to reduce expenses. Hence, even though you initiate a sell today, they can take 3 days to actually sell those and you might not get the same amount you were expecting in the first place. For this reason, I have not pursued them big time.

Wahedinvest on the other hand has completely different approach. They too charge you fee based on your investment amount. But they purchase mutual funds and commodity stocks depending on your risk profile. I do not like this approach because, mutual funds themselves carry expense fee of about ~1% and on top of that you pay Wahedinvest to manage. Though, this might be good for those who want hands free approach.

Viola, now you know a little bit about Robo advisors and how they differ.

#roboadvisors