Investing in the financial markets can build wealth over time, but it can be challenging for beginners or individuals without financial expertise. Some people lose money in the market because they follow trends carelessly without the essential knowledge and basis, assuming that investing is a quick way to be rich.
However, according to Vivi Handoyo Lie, the Head of Investment Research at Bibit & Stockbit, the barriers to entry for novices in the financial sector are now being reduced. This is supported by a fund investment platform that is becoming more intelligent and helpful. “Our goal is to assist Indonesians in better wealth management,” explained Vivi during the MSM in Finance Guest Lecture Series presented by SBM ITB on Thursday (28/7/2022)
In a guest lecture entitled “Investment Portfolio from Theory to Practice,” Vivi stated that Bibit is a platform providing users with ease through robot advisors. By machine learning mechanisms, users will get a personalized financial plan based on usage data. The application will collect data on user behavior and patterns.
Robo advisors will categorize users based on their risk profile. Risk levels consist of conservative, moderate, and aggressive. The risk profile is obtained from several determinants, such as risk tolerance and the user’s ability to take risks. These risks are then categorized, and machine learning automatically recommends the most optimal financial decisions based on that risk level.
“One theory underlying this mechanism is Markowitz ‘s Modern Portfolio Theory,” explained Vivi. MPT departs from the assumption that investors will only make high-risk investments if they can reasonably expect large returns.
Markowitz’s concept led to the development of a formula that adjusts the level of risk and expected return to generate the ideal portfolio.
Vivi concluded that robot advisors are merely a starting point for newcomers to learn the fundamentals of making financial decisions. As knowledge and skills develop, users can make their own decisions ideally. According to Vivi, users with refined experience can make better decision with their calculations.