July 8, 2016
Show notes: http://optionalpha.com/show52
Doesn't it just sound so cool even saying it: Robo Advisors. And although some of these automated investing companies have been around for 5+ years now, the recent rise in popularity of robo advisors like Wealthfront and Betterment is alarming.
If you haven't been keeping up with the latest FinTech craze, robo advisors are simply the next logical Wall Street sequence or disguise for money management. Instead of having a financial planner or "human" directing your portfolio, a computer algorithm or "robo advisor" makes investment decisions on your behalf. You input your age, current portfolio value, risk tolerance, etc. and the algorithm automatically determines the optimal allocation of stocks, bonds, cash, ETFs, emerging markets, and so on. All the number crunching and modeling are supposed to ensure that your portfolio is accurately diversified and theoretically safe.
The robo advisors lure being that computers are never emotional and can often make better decisions than humans. And since you don't have to hire a certified financial advisor that charges a higher fee, you'll save money with lower fees and other premium features like automatic rebalancing, tax-loss harvesting, etc. Now, while I generally agree with the premise of what robo advisors are trying to accomplish, I believe that they are incredibly inefficient it helping the average investor or retail trader.
In today's podcast, I'll help you understand exactly why these robo advisors are not the investing wave of the future and why you should steer clear of them. I'll even prove that some of the most popular and widely "respected" robo advisors underperform the benchmark S&P 500 index despite what you might read on their website homepages. I think the results and data we present might make you think twice about investing your money with them.
