The Robo-Advisor

Over the past several years there has been a slew of robo-advisors introduced to the market. I see the appeal.

Part of it is that people don’t know what investment advisors or wealth managers do. They have been satirized for sure. The other part is that most people just aren’t that familiar or comfortable with finance.

The truth of the matter is, making money in the market isn’t rocket science. Eugene Fama has showed that if you just invest in a no load fund that has no/low fees replicating the S&P 500. The state of Nevada has switched to this strategy and saved a boatload while having outsize returns. Mark Levine at the state of Illinois has moved to this form of investing as well.

The trick to markets isn’t when you get in necessarily.  It’s how you get out.  Good wealth advisors have a strategy around that.  They also will advise you to allocate your assets according to your needs.  If you have a nice bit of wealth, $5M or more, you should allocate a small amount to alternatives.  Jason Calcanis talks about this in his book Angel.

A company I invested in a few years ago, Riskalyze, just put out a white paper analyzing robo-advisors. I think you will find it interesting. Here is the link.

Robo-advisors are not going to be the be all end all.  They can do certain things but I think really great wealth advisors will figure out how to harness them to help them do the things they need to do better.