How does robo-investing work?

Money expert Robyn Thompson explains how to use artificial intelligence to invest your money, and to understand your goals and risks.

Artificial intelligence is increasingly being used to help with everything from weather predictions and university course plans to even fielding police non-emergency calls. And now, it’s helping Canadians invest their money.

On Tuesday, money expert Robyn Thompson explained to CTV’s Your Morning that robo-investing works on a platform with an algorithm, which trades on the user’s behalf.

Once an online account is set up, the algorithm will ask a series of questions.

“It’s going to look at the different parts of your life that you tell it about, and then it creates a portfolio based on your needs,” Thompson said.

Several of Canada’s major banks have robo-adviser services. Some include Bank of Montreal’s Smartfolio, RBC’s InvestEase, which “combines smart technology and personalized advice,” and TD’s Automated Investing.

Thompson explained that the key is for the user to get as specific as possible about goals and what they’re looking to achieve.

Once the user’s goals are established, the algorithm will rebalance and automatically invest into a set of exchange traded funds, known as ETFs, to insure the user has diversification across the board.

Thompson said robo-advisers can take the emotion out of investing, which “takes away that trigger need to buy and sell based on what’s happening in the market.”

Along with preventing “snap responses,” it also gives users access to a broad selection of assets in sectors they may not normally go in, she said.

“But if you still want to go in and tinker around with it, you can. So it’s also about making sure that you understand the level of diversification and the level of output and input that it’s gonna take,” Thompson said.

She also stresses that it’s important to read the fine print when it comes to where the your data is going, who owns it and where it’s stored - just as you would if you’re using online banking or online insurance.

“Investing is just another one of those steps, but you need to make sure that you understand what the security and protocols are around your money, as you make sure you have some protection,” she said.