Robots are doing more and more these days, so why not be your financial advisor, too?
Believe it or not, that is happening. What I am talking about is the new “automated advisory” industry –or as I like to call them: robo-advisors. Instead of investors taking their money to a living, breathing financial advisor, more and more people are headed to the Internet to seek advice from a computer-automated advisor that builds portfolios based on complex algorithms.
Robo-advisors are popping up all over the place. And as the low-cost service is becoming more attractive to the everyday investor, it appears that the industry is throwing in the towel and saying, “If you can’t beat ‘em, join ‘em.”
In October 2014, brokerage firm Charles Schwab Corp. (NYSE:SCHW) announced that it would begin offering an automated online investment advisory service. It’s recently been coming on extremely strong in this industry and is adding hundreds of accounts each day. So far, its raked in more than $500 million in assets.
Today, Charles Schwab has taken $1.5 billion under management. But the robo-advisory industry as a whole is managing $18 billion.
The attention that these kinds of advisory services are attracting makes it clear that there are many investors out there who have no problem with the notion of letting a computer do their thinking and stock-picking. In fact, artificial intelligence has already taken over a large part of American’s lives today.
Even still, I’m not so convinced that robo-advisors are the best way to invest.
Given a robotic way of thinking, one would assume that the portfolios robo-advisors build would all be relatively similar, correct? Well, that’s not the case. In fact, robo-advisors’ portfolios are vastly different from one another.
Some portfolios recommend investing more heavily in the U.S. stock market. Others recommend putting the majority of your money in U.S. bonds. And there are others still that tell you to invest the heaviest in international markets!
I think back to 2000 when there was a similar craze to the one currently surrounding robo-advisors. It was the “black box” model, where computers would basically spit out a bunch of supposedly great trading ideas. But where is that black box model now?
All of that stuff is interesting, but when the world seemingly comes to an end and everything hits the fan, the majority of investors want someone there to be able to pick up the phone and talk to.
I understand that low-priced advisory services are a draw for many investors, especially Millennials who are used to getting all of their information from a computer, but I do have concerns about these robo-advisors.
I learned a long time ago that timely communication is a paramount concern of my clients and my subscribers, and I intend to continue doing that through my Wall Street Strategies firm as well as the upcoming project you’ll be hearing much more about shortly.
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