Anyone remember the 2018 robot revolution where a collective artificial intelligence rebelled against human control and conquered the earth? Me neither. Or maybe that’s what we have been programmed to think.

Jokes aside, digital technology permeates our society’s every sphere of influence. Want a doctor to see you but don’t want to wait at the clinic? Telemedicine. Want to gain an audience with your superiors in another country? Teleconference. Want to automate your investment patterns? Utilise an investment bot. Don’t know what to invest in? Capitalise on robo advisory and it’s advantages.

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor asks questions about your financial situation and future goals through an online survey; it then uses the data to offer advice and automatically invest for you.

The best robo-advisors offer easy account setup, robust goal planning, account services, and portfolio management. Additionally, they offer security features, attentive customer service, comprehensive education, and low fees.

So why bother taking up your precious time to analyse data and pick the best financial decisions? Why not heed the advice of an objective analytical robo-advisor.

Unfortunately, it is only practical if this bubble were to be burst. Notwithstanding the inherent advantageous with this innovative technology, there are glaring detrimental disadvantages with using these forms of advisory.

Firstly, the robots do not have feelings. So when the market dips 10% a rational human investor may start to panic and consider pulling out of the market. However, the bot you have pre-programmed me be unfaced in such a crash and not pull out of the market even though it’s contrary to intuition.

Secondly, there is limited human interaction when investing. In traditional banking apparatus, the presence of customer service allows for better human connection, humanising the investment process. However, with a robo-advisor, one may lose sight of the great goal of humanity.

Despite these disadvantages, the pros do indeed outweigh the cons. In the ever changing globalisation of the world, more and more investors have begun to incorporate such technological advancements in their investment techniques. If one were to compete with these investors, we will have to accept these robo-advisors too.

So why not start today? Learn more about robo-advisors.

In 2014, bitcoin exchange crashed when the My Gox exchange collapsed. In 2018, bitcoin prices crashed 80% below initial coin offerings. And on may 16, 2022, terra stablecoin collapsed when the algorithmic stable coin lost its peg to the financial less turbulent US dollar, ending with a bank run rendering $40 billion dollars worth of tokens worthless. In another sense, assuming an average Singaporean household of 4 mouths to feed requires an average of S$6426 a month for basic standard of living, this means that the amount rendered worthless could feed 8.65 million households when accounted for currency exchange rates. A lot of money was lost.

But this begs the question. Why could a crash happen in the first place? It must mean that a boom had taken place before.

If so, then why did people choose to invest their money in a currency that may or may not be financially backed by the government? Isn’t there a lot of risk associated with cryptocurrency?

Well, the answer lies in human nature and interest rates.

Interest rates is what the amount the bank gives as a form of stipend for putting your money with them. In another similar vein, if you borrow money from the bank to invest in an asset, interest rates apply to your monthly loans. Interest rates work in different types of interest types. For instance banks commonly utilise simple interest (one time interest payment sum) or compound interest.

Compound interest is a very ingenious and interesting form of interest. It follows the formulation of the exponential function.

Where CI stands for compound interest and r stands for ratio (the percentage interest rates), t stands for the number of time frames, and P stands for the principal amount.

To deabstractise this. We can consider the Lee family’s bank account of $10000, of which is deposited in a bank with 1% compound interest rate per annum.

At the start of January, the Lee family happily deposits this amount into a newly set up bank account, having a balance of $10000. At the end of the first year, assuming they are purely saving this money and have not withdrawn nor deposited any additional money, the bank happily awards the family with 1% of the $10000, which accounts for $100. Therefore on the last day of December, they have $10100 in their account. On the next year however, their principal amount remains constant but the interest rate of 1% is now on the new 10100 rather than the original 10000. Therefore, on the last day of December on the last day, they receive an additional interest of 101 dollars which is higher than in previous years! Tada! Ergo, the compound interest awarded increased as the years progresses so long as the balance does not decrease year on year.

Now that you know how compound interest works, we can better explain why people resort to investing in other forms of assets and not place their money in the bank. Due to the world’s changing sociopolitical global climate, interest rates are bound to fluctuate to fulfil the aims of the government. In some instances, banks place very high interest rates on loans. Therefore, people will be less inclined to take out a loan to invest in a high-ticket asset such as property as they see future profits as more lean than they would have wanted. As such, they may have the tendency to invest instead in other forms of assets, independent of the influences of government interference (ie interest rates). Therefore, they may likely invest in cryptocurrencies like bitcoin and Ethereum as these are independent of government control.

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