The Dow goes up, the Dow goes down … and down … and down. The stock market has sent us on a wild ride in Q1, but unlike the rides at Disneyland, the volatility of the stock market is not fun for all. Many investors are watching their lifes’ savings fall each time the Dow drops. The good news? Innovative technologies capable of mitigating investment risks are swooping in to save the day – and investors’ retirement accounts.
Wealth technology, commonly known as wealthtech, is upending the traditional way we manage risk. We’ve seen the tech revolution produce self-driving vehicles, transport us to other worlds via virtual reality, and connect people across the globe. Though this consumer-centric technology captures our attention, the greatest benefits of next-gen tech can be seen in the financial sector – wealthtech can transform our lives by helping individuals ensure they are financially equipped for the future.
Investment professionals and analysts are human, meaning they are limited in terms of the amount of data they can analyze and the algorithmic processes they can perform. Though humans are still essential in the money management process, leveraging tech augments their abilities to predict returns, effectively allocate investment funds and spot risks before retirement accounts take a hit. How is this possible?
- Big data affords machines the power to pull tremendous amounts of data such as historical performance of stocks, bonds and alternative assets, as well as data on economic conditions and other factors, such as interest rates, political climate, etc.
- Artificial intelligence and machine learning utilize algorithms to make connections between data points and performance – determining the factors that have historically affected investment performance and this extent of the role they played. Further, this tech can help predict the future performance of investments by analyzing data from the past and comparing it to current and potential economic climates.
- Quantamental analysis takes the capabilities above a step further, not only analyzing the numbers, but also sentiment from communications – resulting in near-accurate predictions on future performance of investments.
For example, if a CEO of a publicly traded company makes a speech publicly or on an earnings call, tech leveraging quantamental analysis will break down the words used, compare it with historical data, and determine the underlying meaning and likely impact on the company’s stock. It blends psychology with business.
If the CEO uses phrase A to position an impending deal, it means they believe it will be a success, compared to using phrase B, which foreshadows potential turmoil. To the human ear, both phrases may seem positive, but in analyzing each word, history tells us that phrase B actually means trouble.
Quantamental analysis is also used to evaluate communication from the federal government. For example, words and phrases used by George W. Bush and his administration in the months and even years leading up to the housing collapse actually foreshadowed the imminent collapse – the tech used in quantamental analysis today could have predicted the bubble was about to burst before it came to fruition. Imagine how powerful this information would have been in shaping investment strategies in the early 2000’s!
Wealthtech is essential for all investors, wealth managers and financial advisors. Robo-advisors like Betterment utilize new-age tech to make smart decisions and automate investment for individuals. factorE, just launched by AlphaCore Capital, leverages tech to help advisors diversify investment portfolios and clearly spot risks associated with stocks, bonds and alternative investments, which affords them the information needed to allocate money and customize portfolios as needed to fit the unique needs of each investor and protect their portfolios from taking a major hit. eMoney offers financial advisors a comprehensive armory of tools for analyzing investment options, uncovering risks and fostering client relationships through ongoing communications – it’s fully customizable to help investors meet the unique needs of their clientele.
Technology to safeguard investors’ hard-earned money exists today – if we fail to leverage new innovation in wealthtech, we are gambling with our financial futures.