Trading Systems

Should You Trust a Robot to Manage Your Money?

The projections for the expansion of robo-advisors are bold, to say the least. But simply because it is a rising pattern doesn’t mean it is best for you. It depends upon how you want to function as an investor and what your objectives are. So, let’s take a closer look at these automated providers.

Who Are the Robo-Advisors?
A number of the most well-liked robo-advisor providers are Wealthfront, Betterment, Personal Capital and FutureAdvisor. These are all impartial platforms, although large funding administration agency BlackRock acquired FutureAdvisor in 2015. Several different brick-and-mortar monetary establishments have launched robo-advisors to complement their providers. Among them: Charles Schwab, with its Intelligent Portfolios service; Wells Fargo, with its Intuitive investor; and Vanguard, with its Personal Advisor Services.

Wealthfront has a minimal funding of $5,000 and between this and up to $10,000, the service is free. After $10,000, there’s simple a 0.25% charge. Betterment works in a different way with no minimal funding required and a 0.35% charge if the entire funding is under $10,000. If the funding is between $10,000 and $100,000, there’s a 0.25% charge. If the funding is above $100,000 then the charge is 0.15%.

The monetary institution-owned robos have comparable, if barely increased, prices; they usually give current investors a low cost. Schwab’s Intelligent Portfolios have no charge and it makes profit by means of its proprietary exchange-traded funds (ETFs) and third-party ETFs.

Why Are Robo-Advisors Popular?
A major motive for robo-advisors’ reputation is affordability. For example, 90% of Wealthfront’s 30,000 purchasers are under the age of 50 and 60% of these purchasers are under the age of 35. This factors in to the Millennials, a technology that’s nonetheless within the early levels of constructing wealth. Most Millennials can’t afford the charges of a conventional monetary advisor, who additionally will often require a minimal funding of six figures.

Another motive for the recognition of robo-advisors is tax-loss harvesting, which mechanically minimizes tax obligations in your worthwhile trades and maximizes tax reductions in your dropping trades. And, best of all, it’s all done on a laptop, requiring zero effort on the part of the investor.

What Is the Risk With a Robo-Advisor?
Millennials have seen the worst of markets and investments throughout their lifetimes, together with the Dotcom Bubble and 2008 monetary disaster. Many are risk adverse and cautious of the markets. Unfortunately, the same circumstances that helped create previous disasters is probably going happen again. This is because (at the time of writing this) the markets are rising more and becoming noticeably overheated only this time, the issue is international. Where-as previously companies simply became overextended and unable to service debt, this time when development stalls the issue will be compounded by having to service this on an international level.

Is a bear market approaching? Even if it isn’t on the immediate horizon, it’s only a matter of time before it happens. It’s necessary to understand that where-as robo-advisors can consistently rebalance portfolios, these portfolios are going to be virtually 100% long term investments (excluding money positions). It is therefore unlikely that robo-advisors will be able to give a shorter term optimistic return and investors may effectively see their portfolio depreciate in value. This result will inflict a waning reputation for robo-advisors.

Paying for a good monetary advisor is likely to be cash well-spent in a bear market. Unlike a robot, a human can take a look at traits, factor in all of the up-to-the-minute headlines and make sense of them in an approach that only a human mind can. At least there is the potential of navigating a bear market when you have got a human monetary advisor. When you utilize a robo-advisor and the markets head south, your investments are probably going to head in the same direction.

In Summary
Spending cash on a top level monetary advisor that actually understands the financial system and markets will likely be the best approach going forwards. If you are utilizing a robo-advisor, you are essentially betting on a bull market to carry on working, which in the long term is unrealistic. However, for very long term investors (such as those who are younger) or those seeking to wait for many years for an acceptable return such as saving for retirement, then a robo-advisor may be a viable option.

Dan Moskowitz has written numerous articles for, Motley Fool and and his work is regularly published on Yahoo.

Dan Moskowitz has written numerous articles for Investopedia, Motley Fool and and his work is regularly published on Yahoo. He purports the view that industry and consumer trends combined with fundamental analysis are the best long term indicators of company performance especially those that may exhibit parabolic movement.

Dan Moskowitz has written numerous articles for Investopedia, Motley Fool and and his work is regularly published on Yahoo. He pu...
The answer to the headline question, is of course "It depends". If you have simply bought a robot from a marketplace without adequately testing it on a wide range of assets and through a wide range of market conditions, then the answer is 'no'. If you have developed your own algo (robot) based on sound research you have undertaken, based on a logical and meaningful premise, then rigorously backtested it in a statistically significant way, and proved that it works for a wide range of assets, and you know which market conditions it should be traded in (and which should be avoided), then the answer can, of course, be yes. It's the same as everything else. The right approach requires a lot of effort and dedication. In trading, there are no easy options.


Junior member
My answer would be "that depends." Robots are useful and make trading less exhausting. However, we are talking about a market that changes drastically in seconds. Can robots beat human analysis?