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This is how a Robo Advisor works for your assets

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Imagine successful investments are like a finely-tuned football team. Everything hinges on having a good coach. In the financial sector, this could be a digital investment consultant (Robo Advisor).

Classic versus digital

People who want to invest their money usually go to their bank. But banks also have many products in their portfolio that do not suit their customers, and which are subject to high issuance charges and ongoing fees. And the result: after the deduction of costs, you achieve low yields on investments made with banks.

Digital asset managers, also known as Robo Advisors, have been around for several years. They are also accessible to investors who do not have assets worth millions and they often offer interesting deals. Robo Advisors make use of technical innovations to streamline many of the processes. This means that they can be more cost-effective and flexible than banks and traditional investment advisors.

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The financial line-up

Digital asset managers who only charge their clients a moderate management fee are the most cost-effective.

But just how do Robo Advisors exactly go about investing your money? The best way to imagine it is to consider that the work of a digital asset manager is similar to that of a football coach. Because football has so many similarities to investing money: if you want to be successful in the long term, you should not put all your eggs in one basket. A football coach does not let his team onto the pitch with eleven strikers either. Translated to your investment portfolio, this means: with absolutely no protection, the team would be exposed to the risk of a major setback. As in football, the right team line-up is therefore also important when investing money.

soccer ball pressed into soccer net after a goal

Goalkeeper: the emergency fund

The goalkeeper is the last line of defence in football. When investing money, this is the emergency fund you can access at short notice in the case of an emergency. For example, account balances, call money, fixed-term deposits or money market funds. These types of investment do not fluctuate in value or only insignificantly, but you receive practically no interest. This emergency fund should therefore not exceed two or three months’ salary.

Defensive players: government bonds

Government bonds are the defensive players in investment. In football, defensive players block attacks from the opposing team, thus strengthening the side. They also launch counter attacks after the ball is won. Similarly, government bonds are an anchor of stability in the portfolio. Here it is important to choose the right fixed income securities.

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Midfield players: high-yield and emerging market bonds

In football, the midfielders are pivotal. They stage attacks, dribble, serve the strikers with passes, crosses, free kicks and corners and often try a shot at goal themselves. They also try to intercept the opponent’s attacks early on.

In the portfolio, the midfielders find their counterparts in high yield and emerging market bonds. These offer a high degree of security, but also provide a boost in returns thanks to higher interest rates. This also involves a slightly higher risk: the investor takes a currency risk and, in the worst case scenario, must accept a potential default of the bond. However, in a balanced portfolio put together by a digital asset manager, selected high-yield and emerging market bonds should certainly play a role.

soccer on the grass in illuminated stadium

Striker: equities

The strikers are the ones who provide the most important thing in football, the goals. They often do nothing for a long time, they don't stand out and then suddenly strike. Sometimes they experience longer dry spells and don’t get a goal for weeks.

When it comes to investing money, it is equities that take on the role of strikers. Their prices often fluctuate sharply, and they can also lose a lot of value. Sometimes almost nothing happens for weeks on end. But positive news can boost the share price at a stroke. For all their ups and downs: equities offer better long-term returns than the other asset classes described here. They are the stars of the portfolio.

The trainer: Robo Advisor

The coach is the one who forms a successful team with good players. On the one hand, he has to find the right tactical balance between courageous offensive play and solid defence. At the same time, he has to find the best possible solution for each position from the large supply of talented footballers – a tricky task. And when things don’t work out on the pitch, he sometimes has to substitute a player.

The digital asset manager faces a similar challenge: he must set up the portfolio in such a way that it generates attractive returns in the long term without taking excessive risks. In addition, he may need to substitute securities in order to keep the portfolio in the right balance.

Searching for a coach

Our Miles & More partner LIQID is a suitable digital asset manager for investors who want to invest a minimum of 100,000 euros. If you decide to invest with LIQID, as a Miles & More member you will receive 25,000 award miles when you open a securities account for the first time with a value of 100,000 euros. After that, you can earn in total up to 100,000 miles.

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