Robot Dreams

What is a robo-advisor?

Global Market Update - Lost_in_Space_Jonathan_Harris_&_Robot_1967
Source: Wikipedia

Robo-advisors are web-based financial applications that offer to make investing easy, inexpensive, and even fun. They start with an online questionnaire, apply one of several asset-allocation models, and offer index-based buy-and-hold portfolios using low-cost Exchange Traded Funds. They also rebalance the portfolio periodically, and can sometimes do tax-loss harvesting. Their fees are low, and they’re fully transparent. What’s not to like?

One issue is the nature of their “advice.” They don’t really offer any. Their service model is built around a few questions, your age, and income. These businesses have only been around during the latest bull market. And during a bull market, everyone feels good. But even experienced and aggressive investors get antsy when their portfolios are down 10%–and have been known to get conservative at just the wrong time.

Global Market Update - south-park-s15e01c07-im-gonna-clickdeclineSource: South Park

People like to talk to people. There’s a reason why Apple has Apple Stores, rather than just selling their devices online. People especially need to talk to knowledgeable people when things go wrong. A text-box or live chat doesn’t calm my nerves very much when I’m facing significant losses. So I’m much more likely to panic at just the wrong time.

Shakespeare notes that to be honest in this world is to be one in a thousand. It goes double for web-services. In a world of flash-crashes, financial crises, bubbles, and negative yields, it helps to know someone who has seen it before.

Human nature doesn’t change. There will always be new, new things. Robo-advisors may be cheap, but sometimes the cheapest things end up costing the most.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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By | 2017-07-17T12:23:01+00:00 March 12th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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