November 14, 2014

Robbie the Robot

In retrospect the markets impressive recovery from the well-advertised, if not well organized, lists of impediments to investor confidence is all the more impressive since most of the said impediments still exist.  That’s because the market is becoming increasingly sensitive to the rapid dissemination of fear that our crowded social platforms allow us.  But while that certainly explains some of the volatility that must be accepted as part of the new normal investing environment, I couldn’t help being distracted by the financial services industry calling out the 10% decline in the market as the best reason to buy and hold , an opinion I strongly disagree with.
That’s because most in the financial services industry are in the business of selling a product whereas many are also doing what I do which is to provide a service  that can be described as focusing more on the management of the products available. The difference isn’t subtle either since while both sides agree that the benefits of professional advice are crucial to meeting the expectations of the clients, there has more recently been disillusionment, especially among younger investors concerned that the bottom line is more important than the service. Hence the introduction of Robo-Advisors, those websites that offer investment advice based on an algorithmic model that crunches your personal information with many years of investment product results to present an allocation that is, or rather claims to be, personalized.

Besides the obvious comparison to the concept of buy and hold, in that both strategies utilize what is referred to as Passive Management*, one could easy visualize the more dynamic use of digital investing, and that’s where I come in. As many of you know I use the breadth of technology that is offed by TD Ameritrade, the firm that is custodian of your assets. The liquidity that comes when I allocate, buy, sell and rebalance accounts with common characteristics is arrived at in as short as 15 minutes is invaluable when managing risk in today’s volatile markets.

There is no best method when investing actively or passively since people who recognize the value of investing for the long term can see value in one or the other. And there are numerous other factors at play that revolve around risk and liquidity as today’s clients want access as much as they want results. Each method ensures that there is room for professionals and robots especially when today’s modern technology can deliver the experience of investing more efficiently and sometimes cheap enough so that most people can have both.