What’s going to happen to the robo-advisors the next time the market crashes?

QuietGrowth - Robo Advisors the next time the market crashes
I have come across this question few times. Below is my response.

The next time the market crashes, people who would have previously burnt their hands while investing in individual stocks or in not-so-highly-diversified portfolios, will migrate to a highly-diversified portfolio managed by a high-quality digital investment management service.

Typically, people assume that they know more about the markets than others. People assume that they can time the market.

But the reality is that the best approach is a highly diversified portfolio that consists of low-cost investments. So, after a market downturn, this truth will dawn on more people, especially those who would have burnt their hands playing the markets with their bravado or ignorance.

That said, there is no denying that digital investment services will face the risk of redemptions during a downturn. However, this is a risk faced by any wealth management service (except those who market themselves to make money even when the markets go down!). So, there is a possibility of decrease in the revenue of an digital investment service during a downturn, more so when the downturn is prolonged over multiple years. In such situations, only the best of the digital investment services will move forward, while few others might throw up their hands, as they run out of money to fuel their operations. There can be a consolidation in the industry at that time (who knows!). May be. However, the industry itself will move ahead to innovate more towards a superlative online product/service to the clients.

So, a major market downturn might pave the way for further validation of the service among the people.

Related information

Read the answers to the related questions:

QuietGrowth has been publishing content in this blog or in other sections of the website. Contributors for this content may include the employees of QuietGrowth, or third-party firms, or third-party authors. Unless otherwise noted, such content does not necessarily represent the actual views or opinions of QuietGrowth or any of its employees, directors, or officers.

Any links provided in our website to other websites are for the purpose of convenience, or as required by any such other websites. Unless otherwise noted, this does not imply that QuietGrowth endorses, is affiliated, and/or promotes any information, or products or services of those websites. Please read the advice disclaimer section of the website too.

Get started. Start investing.

Select the type of investment account you want to create




Individual: A personal account for you to invest for yourself.
Joint: An account for you and another person to invest for both of you.
SMSF: An account for the trustees of a Self-Managed Super Fund to invest through it.
Trust: An account for the trustees of a trust to invest through it.
Let QuietGrowth manage your investments for you.