The world is a lot different today than it was for the previous generations. The way your parents or grandparents prepared for their retirement and future and the strategies they used likely can no longer be applied today. The prices of real estate have increased considerably and inflation has risen manifold in the last few decades. The advent of technology has also created newer expenses and needs. Renting a house alone in a posh urban location can cost more than the mortgage paid by your parents or grandparents on their home purchases back in the day. But these changing times have also ushered in some advantages for us. Out of these, one of the most beneficial advancements in our present-day is digitalization.
Digitalization makes things simple, quick, and a lot more effective. It is also constantly evolving and likely to change several other aspects of our lives in the future. Of the many advantages that technology offers, one that can bring an immense amount of change to your future is the use of technology in financial planning. With the popularity of robo advisors, automation, virtual meetings, digital money, etc., your financial planning methods also need to be revised and kept up to date.
Here are some important aspects of financial planning in the new digital economy that you must know of:
1. The arrival of Robo advisors:
Robo advisors are digital advisors that offer financial assistance based on algorithms. They are not humans and merely advice based on the information you feed the platform. Normally, when you sign up for a Robo advisor, you are asked certain questions about your income, budget, debt, preferred investment risk, future long-term goals, and short-term goals, etc. Depending on how you answer these questions, the Robo advisor will recommend some investment options that you can choose from. The entire process is very concise and there is no human bias or conditioning behind the recommendations.
Although Robo advisors give you advice without prejudice, they also present many challenges. They do not offer personalized advice and hence lack the empathy and understanding of a human advisor. Hence, Robo advisors may come across as cold and unemotional. They also may not always guarantee great results and can lack the human intelligence needed to make smart and prompt decisions.
While Robo advisors may not have reached the pinnacle of success yet, they already seem to be a popular choice for millennials. A Vanguard survey reported that millennial investors are twice as likely to use a robo-advisor as compared to older investors. Millennial investors represent the future of the market, and, given that robo advisors may be here to stick around for a long time, it may help you to get accustomed to them.
2. The popularity of bitcoin and other cryptocurrencies:
A cryptocurrency is a digital currency. It works similarly to physical money and can be used to buy or sell goods and services. However, they are considered to offer more security than physical money. As per CoinMarketCap.com, there are approximately 6,700 different cryptocurrencies being publically traded in the world right now. These cryptocurrencies make for $2.2 trillion in total value as of April 13, 2021, making them ideal for investors. The value of cryptocurrencies is likely to increase with time and is being touted to become extremely valuable in the future. This is why many financial experts believe that buying them now can be an advantage for investors. However, many others have also dismissed them. Investor Warren Buffet believes that “Cryptocurrencies have no value and they don’t produce anything”.
It can be hard to predict how cryptocurrencies fare in the future, but understanding their role in the times to come is crucial. With newer and more digital forms of payments, such as e-wallets, bank transfers, scan and pay methods, etc., a complete transition to cryptocurrencies in place of fiat currencies may just be a reality in the years ahead.
3. Virtual financial advice:
The year 2020 increased the need for virtual financial advice as the entire country shut down and lockdowns were imposed everywhere. However, even though the pandemic will not be around forever, virtual work is likely to stick around for good, considering how convenient it has been for all parties involved. Virtual financial advisors can communicate with clients from different time zones, locations, and industries. The need to set up a meeting, waste time in traffic, and meet the client in person is eliminated. Advisors can simply schedule a meeting from home and connect virtually using a video call or email. Virtual financial advisors also make it easier for investors to take out time from their busy routines and connect with their advisors regularly. Instead of one long meeting in a month, investors can seek out their financial advisors for shorter meetings every week. The advisor can then help them keep track of their financial progress and guide them in taking timely actions to ensure better investment returns. Financial advising firms are also using chatbots and round-the-clock customer care services to ensure a better customer experience. This ensures a quick turnaround, faster customer redressals, etc. Virtual meetings, chatbots, and customer service options deliver fast results – something that people value immeasurably in today’s time. The time spent on planning or strategizing is greatly reduced and instead diverted to taking action.
4. Customized financial services:
Financial planning in the digital age allows you to benefit from customization. Banks let you automate your account and schedule savings and payments to your specific needs. Automation takes the burden off your shoulders and ensures that you stick to your goals no matter what. With automated payments, your money gets saved every month before you can let human emotions like impulse buying get in the way.
You can also use income and spending trackers, retirement calculators, goal-based investment calculators, and more to see how you are doing and how much more you may need to save or invest over a given timeline. These digital tools let you make better decisions, plan more strategically, and use resources more effectively to reach the desired results. The efficiency of these tools is also considered excellent. Most retirement calculators are very precise, taking into account inflation, rising needs, your present age, income, future liabilities, etc. before calculating the amount of money you would require for retirement. The same applies to investment calculators, inflation calculators, and more. You can target every goal optimally and reduce the chances of falling short on money at the time of maturity.
5. Reduced human errors and biases:
Digitalization lowers the scope of errors as there are no human errors or biases and all recommendations and suggestions are generated as per algorithms. Moreover, automation removes the chances of missed dates, payments due, etc. Digitalization offers other benefits too. For instance, you can check feedback and online reviews of any financial tool before investing. Financial advisory firms also have customer reviews on search engines like Google that can help you pick the right companion for your needs. The chances of errors and fraud are greatly lowered, you can connect with like-minded people, and you are also able to invest in financial instruments after learning all their pros and cons.
6. Increased security:
Technology helps to ensure safety too. Digital financial transactions are a lot safer as compared to physical transfers of money. Every payment or transfer has a unique digital signature that makes it difficult to commit fraud. You can track your payments and request details for older transactions from your bank to keep track of how you spent your money. Cryptocurrencies further increase financial security. For instance, the Blockchain ledger uses many different mathematical puzzles. This makes it nearly impossible for scammers to hack into the system. The word crypto comes from encryption, and thus cryptocurrencies are secured by cryptography which is why they are hard to counterfeit. Moreover, since they are not operated or managed by a centralized bank, they are free from any political or government interference. The developers of the cryptocurrency manage them.
To sum it up
The new digital wave is bound to bring in some changes that may or may not appeal to investors, but change is the only constant and investors need to adapt to newer practices sooner rather than later. Technology has penetrated every aspect of life and the financial world is one platform that has been deeply impacted by it. Digitalization certainly makes financial planning a lot more streamlined and easy to manage. It also ensures more security and maintains privacy, all the while making things more accessible. While certain aspects of digitalization, such as the relevance of cryptocurrencies and the dependability of robo advisors are still debatable, it is also hard to completely ignore them. Therefore, it may be advisable to keep an open mind and use every tide of change to your advantage.
If you want to know more about financial planning in the new digital economy, you can get in touch with a professional financial advisor in your area.
To learn more about the author William Hayslett view his short bio.
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