Some Alt Text Here

4 Reasons Why Millennials Are Crazy About Robo-Advisors

Investing 101 | April 03, 2017

4 Reasons Why Millennials Are Crazy About Robo-Advisors

Wahed Editors

It’s about time people started using advanced technology to manage their investments

 

In the past few years, we’ve seen breakthrough innovations such as autonomous trucks, packages delivered by drones, and wireless phone charging. We’ve also finally started to see equivalent innovations and advancements in the financial industry.

Robo-advisors, or automated financial advisors, have grown significantly in the past two years. Bloomberg reports that robo-advisors’ (or RA’s) assets under management will grow from $50B in 2017 to $2T just in the U.S. by 2020. That’s more than Russia’s GDP!

A large driver of that asset growth under management has been millennials. The demographic loosely defined as those born in the 1980’s to mid-1990’s has seen technology shape nearly every aspect of their lives. In that sense, they’ve become the de facto early-adopter generation with new technologies.

While this interest in new technology may have driven many millennials to experiment with robo-advisors, their approach to finance has also been a perfect match with the features that robo-advisors provide.

Let’s break this down to understand the main reasons behind the breakthrough for robo-advisors and the growing interest in using them among millennial clients.

 

  1. Low Fees


Traditional financial advisors typically charge 1.5% of your assets annually, and that can be higher in some cases. For a young investor growing their portfolio over a long period, this can end up being a very substantial expense year-over-year.

In addition, as millennial investors get started early with long-term investment planning, every dollar counts. Simply, they don’t have the money in their bank accounts to pay large fees. That’s one reason why Wells Fargo believes only 16 percent of millennials work with a financial advisor.

RA’s, on the other hand, can be much more efficient. They have passed a chunk of this cost saving to the end user. Fees are usually less than 1% and can go as low as 0.25% for larger accounts.

That’s 83% less. Who doesn’t like saving money? Millennials for one, love it! For less money they can receive more efficient portfolios, while tracking their investments in nearly real-time from their iPhones.

 

  1. Low Minimum Investment


Advanced technology is allowing robo-advisors to offer account minimums as low as $500. As we mentioned above, millennials are cash conscious and don’t have a lot in their bank account to start investing with - so that’s music to many of their ears. RA’s can offer sophisticated investment services with low minimum investments for a few reasons.

Firstly, since the back end processes are all automated, RA’s costs of handling a client with an account balance of $100,000 are the same as handling one with a $500 balance.

Secondly, some RA's have the ability to buy fractional shares from brokers. Some large brokers provide this service due to their technology and the volume that they handle (your daily dose of financial jargon, that's as technical as this post gets). However, this wasn't always available to investors of all sizes. While we'd all like to have $100,000 in savings, we don't. RA's know that, and they're here to cater for the other 99%.


  1. Liquidity


Millennials can be commitment-phobes. Far from buying homes, this generation is not even renting. The percentage of this demographic – aged around 18 to 35 – who end up living with their parents has been increasing steadily since the Great Recession, peaking at about 36% last year.

They may also be taking this fear of commitment to their investment thesis as well. A Bloomberg survey of millennials found that they only wanted to lock up their money with a max one-year investment commitment.

Luckily for this generation, robo-advisors generally invest in highly liquid and low-cost funds. These funds are typically traded millions of times a day. Clients can therefore request to fund or withdraw money from their account at almost any time.

Funding can take as little as one day and withdrawals can be received in as little as 4 days. No lock up period, no exit fees. Simple.

 

  1. Convenience


Technology is continually reshaping the lives of millennials. Need a ride? Tap an iPhone to order. Need to deposit a check? Take a photo with your phone.

Robo-advisors provide a simplified wealth management service with generally low costs

that meets expectations millennials have with technology to simplify their lives. They can get started fairly quickly. There’s no need to schedule calls and meetings during the day, no small talk, and no need to fill countless forms.

In most cases, all they need to do is answer a quick risk questionnaire, which enables the RA to recommend an optimal and diversified portfolio to suit the client’s risk profile. It’s broken down to make the process as efficient as possible. Most importantly, clients can view their positions at any time, in nearly real-time.

 

For American Muslims Wahed is Changing the Game in Halal Investing


While it’s easy to group all millennials into one basket, we also need to consider that we can’t typecast millennials as all having the same needs, wants and desires. Muslim millennials for instance, have certain needs to be met to ensure their investments are Halal.

While online investing may seem unorthodox to some American Muslims, Muslim millennials in the U.S. have been interested in digital investment services and computer-generated, wealth management advice for some time. To date, they have been forced to use automated investment platforms that don’t mirror their beliefs. Wahed offers clients a solution to invest online in a way that is both sophisticated and true to their identity.

With Wahed, they can start with just $500 and get access to a variety of investments, including Sukuks or Islamic Bonds. We automatically rebalance portfolios so you don’t have to worry about managing your investments. Furthermore, clients can have peace of mind knowing that their money is being invested ethically as our Ethical Review Board monitors all investments to ensure they are Halal.

Finally, millennials will also be investing in socially responsible companies, whose missions include improving our communities!

 

Are you looking to invest ethically as you enter your mid-to-late twenties or thirties? Start investing with Wahed today.

 

Disclaimer

This material is for informational purposes only. The information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any decision based on any specific information contained herein.

Any links to third-party websites are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites.
 
 
Note: No Articles published on this website shall be reproduced in any form without the prior written permission of Wahed Invest.

15 thoughts on “4 Reasons Why Millennials Are Crazy About Robo-Advisors”
  • Danish - May 21, 2017

    I’ve been waiting for something exactly like this! Very excited to get started.

    5
  • Mohammed - November 23, 2017

    I am interested in investing Halal Way
    I live in England UK and I am 64 years old
    Next year in few months time July 2018 I will be retiring age 65
    I am interested in long and short term investments
    Want are the charges if Invest with UK £s
    Do you have branches in UK
    Can Someone with Halal Way knowledge contact me.
    Thank You
    Mohammed Hawa

    0
    • admin - November 25, 2017

      Hello Mohammed, we are actually going to be launching in the UK very soon! Currently, we are only on-boarding US clients. A member of the team will be reaching out to you shortly.

      0
  • Nasir Hussain Irshad - November 26, 2017

    Assalamualaikum, my name is irshad and i am from india I am interested in halal investment, i am a self oriented person and i am 29 years old, please advice me and explain me how to invest.

    0
    • Wahed Support - November 26, 2017

      Hello Nasir, thank you for your interest! We are currently on-boarding US clients only, but planning to expand internationally in 2018. However, you can see how our portfolios look like by signing up here https://wahedinvest.com/app/home/register

      0
  • Rajab - November 26, 2017

    this is really great bt i stay in Uganda, how can i be helped to invest, do u already have some offices?

    0
    • admin - November 26, 2017

      Hello Rajab, thank you for your interest! We are currently on-boarding US clients only, but planning to expand internationally in 2018. However, you can see how our portfolios look like by signing up here https://wahedinvest.com/app/home/register

      0
  • OLA - December 1, 2017

    Salam Alaikum Waramatulahi Wabarakatuhu.

    I am interested in your investment, and I will like to know more about it. I am based in Ghana and would like to know if you have any office in Ghana or Nigeria.

    0
    • Wahed Support - December 2, 2017

      Wa Alaikum Assalam Ola, thanks for reaching out! We’re currently only on-boarding clients in the US but will be expanding internationally soon. Feel free to register at https://wahedinvest.com/app/home/register to stay informed!

      0
  • mukhtar umar - December 2, 2017

    thank you very much waheed investment for the showing concern to the muslism ummah and i pray for you the large reward from Allah as promised and also we are awaiting of your great achievement in this coming 2018 as you promise us particularly non american citizen thank you God bless you.

    0
  • Abrarul Hasib - December 2, 2017

    Assalamualaikum. I live in the US and am interested in halal investment.

    5
    • Wahed Support - December 3, 2017

      Wa Alaikum Assalam Abrarul, we sent you an email with more information and how to proceed – please let us know if you have any questions!

      0
  • munzali m suraj - December 2, 2017

    l only want to say thank u for your consideration to this great cause.

    0
  • adnan qureshi - December 5, 2017

    Assalam o alaikum,

    I would like to find out more about this investment option. I will greatly appreciate more info..

    0
    • Wahed Support - December 7, 2017

      Wa Alaikum Assalam Adnan,

      We’ll email you more information shortly, thanks!

      0

Add Your Comments

Your email address will not be published. Required fields are marked *

Get a free portfolio recommendation
in three minutes!