Money Rehab with Nicole Lapin - Should Robots Invest for You? Probably— Here's Why

Episode Date: January 25, 2024

ET(F) phone home?  It may sound too sci-fi, but robo-investing can help you meet your financial goals— and, at a fraction of the cost of working with a human advisor. Today, Nicole explains why we should all lean into robots. To find the best investing app for you, click here: https://link.chtbl.com/5JRVPwmO $ Investors: Robinhood has the only IRA that gives you a 3% boost on every dollar you contribute when you subscribe to Robinhood Gold. Learn more at Robinhood.com/boost  $ Want the kiddos in your life to become money masters? Check out Greenlight, the best money app and debit card for families (and get one month free!): http://greenlight.com/moneyrehab $ Is mental health a resolution for 2024? Get 10% off your first month of therapy with BetterHelp at: http://betterhelp.com/moneyrehab  $ The secret to health and wealth is in your gut. Literally. Get 20% off a 90 day bottle of Just Thrive Probiotic and Just Calm. Try it at: justthrivehealth.com and use promo code: MONEYREHAB. $ Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. it's time for some money rehab. Would you let a robot make financial decisions for you? And this isn't hypothetical. Most, if not all, of the big brokerages offer users programs where they can have their money invested by what they call robo-advisors. At first, that concept might make you feel a little uncomfortable, right? I

mean, it's your hard-earned money, and if you were going to get help making investment decisions, you might think that you would want help from an actual human who understands the emotional significance of money. But actually, you don't. While stock trading by artificial intelligence, or AI, sounds sophisticated and complicated, just think of it as investments executed by computers. And it's really common. It's estimated that between 60 and 73% of all U.S. equities trading is conducted using AI algorithms. I'll say that again for the folks in the back. It's estimated that between 60 and 73% of all U.S. equities trading is conducted by AI algorithms. I've found that a lot of people are surprised by that figure and assume that there

are just more humans in the market. But no, it's robots. So the majority of investing on Wall Street happens via AI. But what does that actually mean? It doesn't mean that chat GBT is making our investments for us. And side note, for those of you who have been living under a rock like I occasionally do, chat GBT is an AI chatbot that has become an internet sensation. People are using chat GBT for all sorts of things that may or may not be kosher, like prompting the bot to write college essays, op-eds, breakup texts, and so on. But that kind of AI isn't what brokerages use for their investing and trading. In fact, if you go to ChatGPT and type in, what should I invest in? ChatGPT will tell you it can't answer that. I have checked. The type of AI that's used by financial institutions is essentially

algorithms. And so I'll be honest, it wasn't totally accurate for me to refer to AI as robots. But picturing robots is way more fun than picturing an algorithm. Come on. These algorithms used on Wall Street are programmed to make investments based on real-time information plugged into what-if situations. In other words, the algorithm will only buy and sell an investment if certain thresholds are hit. For example, one of the only truisms on Wall Street, buy low, sell high, can be translated into an equation where an algorithm will execute a buy if the stock price dips to a certain low, and the algorithm will execute a sale if the stock price dips to a certain low, and the algorithm will execute a sale if the stock price hits a certain high. Of course, it's not as simple as A squared

plus B squared equals C squared. These AI programs are made up of several complex statistical models developed to rapidly analyze exchange data. However, even though these models are sophisticated enough to consider lots of inputs, there is one key input they are ignoring. Emotion. And that is what makes AI so powerful. Humans are, well, human, meaning that something as important as money comes with an emotional premium. Losing money is stressful. Even just the potential of losing money is stressful. And any investor knows that signing up to invest in the stock market comes with the potential of losing money.

So that stress is part of the deal. money. So that stress is part of the deal. And on the other side, gaining money can lead to making irrational decisions based on excess or greed. All of the associated emotions actually add a layer of complexity to decision-making that really should be formulaic. That's why AI is such an asset here. AI will stick to the strictest guidelines that ensure action is only taken when the conditions are ideal. And when the conditions are not ideal, the AI is not going to freak out like us humans might. But far and away, the most compelling part about investing with AI is the price. about investing with AI is the price. Opting into a brokerage's robo-advisor program will mean that you're charged on average 0.5% of assets under management, which is the term for the lump sum that you have invested with a brokerage. If you opt into a brokerage's program with a

human advisor, you'll likely be charged on average 1% of assets under management. likely be charged on average 1% of assets under management. I know it's only half a percent difference, which doesn't sound like a lot, but the big picture is investing with a human advisor will cost you double what it would cost you to work with a robo-advisor. And that adds up. I mean, for example, if you had a hundred grand in your brokerage account, and if you don't already, you soon will, a human advisor would charge you $1,000. The robots? Only 500 bucks. So should you be scared of the robots? No. The robots are awesome. The opportunity you get from leveraging the power of these algorithms is incredible. Take it from those of us who remember the pre-AI days. These algorithms can examine millions of conceivable situations, analyze vast amounts

of historical data, and trade in 100 markets simultaneously in a split second. Net-net, while I love humans most of the time, AI is more cost-effective, logical, and efficient with your time. And we know what time is. It's money. For today's tip, you can take straight to the bank. You can enroll in a robo-advisor program through pretty much every big brokerage. If you haven't opened a brokerage account yet, I've got you. I've linked in the show notes an episode where I go through the major brokerages

and how you can choose the one that's best for you. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Our executive producer is Morgan Lavoie. Do you need some money rehab? And let's be honest, we all do. So email us your money questions at moneyrehab at moneynewsnetwork.com to have your question answered on the show or even

have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. Seriously, thank you for listening and investing in yourself, which is the most important investment you can make.