Over the past two weeks, I’ve explained how automated investment services, or “robo-advisors,” are generally wired.
Today, I’m tackling what the real problems are with robo-advisory services – who should use them, and how not to get crushed when they go haywire.
Depending on what theories and math robo-advisors are wired for, they construct a “personalized” portfolio based on forms you fill out online, and they automatically rebalance your portfolio when threshold weightings of positions in your portfolio get out of balance.
Everyone was surprised to see how quickly the markets rallied after the election, and it’s even more surprising that we’re still riding that high. During his recent appearance on Making Money, Shah outlined how Trump can keep the skies looking blue.
Now that Dow 20,000 is right on the horizon, Varney & Co. host Stuart Varney asked Shah what it would take to get even further. Considering the trillions of dollars on the sidelines, the lack of resistance to the upside, and how a Trump presidency will affect the economy… Shah says 21k is attainable.
He also talked about Twitter’s “internal mistake” and how it will impact the stock, and Apple’s desperate return to Black Friday.
There are so many things we can learn about investing from automated investment services, otherwise known as robo-advisors, that it staggers the mind.
After all, they’re computer-driven platforms imbued with advanced Sharpe, mean variance, and Modern Portfolio Theory that produce “efficient frontier” portfolios, and whose proprietary algorithms rebalance your portfolio based on threshold continuums and your personal dreams and goals.
Oh yeah, they’re complicated.
But there’s one lesson (one you were never taught) you can learn from taking a good, long look at how these robo-advisory services construct and rebalance your personal portfolio.
Because as we’re driven toward a future programmed by algorithms and dominated by Fintech innovations, it’s important to stop and take stock of some of the basic assumptions that will inform that future.
As you’ll see, there’s one fundamental assumption – upon which millions of portfolios have been built – that’s simply dead wrong.
Automated investment services – more commonly known as robo-advisory accounts – are relatively simple to understand, on the surface at least.
We talked about this last week – robo-advisories were created by millennials in response to the dot-com collapse, the financial crisis, and traditional fee-based advisory services.
But all is not what it seems. And if you dare dig into how they actually work, you’d be surprised how complex they are.
Today, I want to show you how these services actually automate portfolio selection and perform rebalancing acts, and help you understand some of the complex portfolio management theories providers have to use.
Because what you don’t know can really hurt you – and you should know how your money is being managed.
I’ve been telling you for most of 2016 that financial technology, or Fintech, is changing the investing and trading landscape.
One of the most profound Fintech disruptors is the creation of automated investment services, more commonly known as “robo-advisors.”
The idea of automating investment services was the brainchild of a handful of millennial-focused Fintech entrepreneurs, most of whom are millennials themselves.
With their general aversion to traditional fee-based advisory services, their experience of living through the tech-wreck of 2000 and the 2008 market shellacking, their comfort and trust in computers and technology, millennials (the generation born or coming of age between 1982 and 2000) were presumed to be the perfect audience for robo-advisory services.
Sure enough, assets under management by robots (and their human helpers) exploded into the billions this year.
But millennials aren’t the only group who are enamored with these low cost, automated investment services. They’re catching on with lots of investors.
If you’re not one of those investors, today, I’m going show you how robo-advisors work and what they cost, as well as the pitfalls associated with this newfangled investing horizon.
The stock market was supposed to have a major beef with Donald Trump’s election.
Now that Mr. Trump is the president-elect, everyone’s asking “Where’s the beef?”
That famous quip comes from a 1984 Wendy’s commercial assailing claims that Big Macs and Whoppers had meatier patties. That same year, Walter Mondale used it to mock Gary Hart’s proposed agenda, and later used it against Ronald Reagan, who eventually won a second term.
The answer today, as far as stocks are concerned, is there looks to be a lot of red meat in the economic future president-elect Trump’s proposing.
And as U.S. investors start to get it, they’re rotating into select stocks instead of shedding positions as everyone expected.
It’s too early to tell what investors are or aren’t going to fully embrace, since we don’t know who president-elect Trump will surround himself with and what exactly his agenda will be.
But that doesn’t mean investors should stand by with their wait-and-see glasses on.
There’s one opportunity in our future that’s a no-brainer – because it’s the central pillar of Donald Trump’s economic plan.