By Edward Kholodenko, Questrade
Special to the Financial Independence Hub
Uber has quickly become the largest personal transportation company in the world, yet it doesn’t own a single vehicle. That’s because there’s more to Uber than just hailing a ride from your phone. It’s providing more convenience at a lower price and in turn, transforming the transportation industry.
Substitute Uber for Amazon, Airbnb, or any other tech disruptor and a common theme emerges. On the road to becoming mainstream, applications that reduce cost and improve convenience are often first adopted by millennials and the tech-savvy. While the early adopters reap the many benefits of these innovations, those who hesitate are missing out.
Retirement challenge and the Robo-Revolution
When it comes to financial technology, there are certain populations that can no longer afford to be late adopters. Thanks to the innovation in the investment space, preparing for retirement has become easier than ever. Enter robo-advisors: an online wealth management service that provides diversified investing, much like a mutual fund, but at a much lower cost.
Given the current state of retirement savings in Canada, it’s apparent that this technology has great value to those willing to take the leap.
There is concern that 80 per cent of middle-income Canadians nearing retirement won’t have enough to support themselves. The average Canadian’s retirement savings of $71,000 will last only a few years, and, 50 per cent of Canadians are not confident they will have enough to retire comfortably.
Not only are Canadians saving far too little for their retirement, but also many can no longer depend on company pension plans to provide the income needed to stop working. Our golden years are increasingly self-funded and investment decisions now fall on the shoulders of the individual. There’s a fantastic opportunity for new solutions in this space, and those willing to embrace a solution provided by fintech providers are reaping the reward.
Robo-advisors, in spite of the name, aren’t actually robots. Professional (human) portfolio managers handle all of the investments. In fact, there are two types of managed robo-advisor accounts: actively- and passively-managed:
Actively-managed advisors have a dedicated team of portfolio managers who select investments and adjust the portfolio to take advantage of market opportunities, all of this at a low cost. Passively-managed advisors typically invest according to set investment rules that only track the market.
These advisors use leading technology and proven strategies to provide a better investment experience at a lower cost to the consumer. And, by reinvesting the money you save in fees, individuals are able to increase their retirement savings and returns.
Robo-advisors are helping Canadians retire wealthier