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Investing with Smart Software: Can an Algorithm Beat your Broker AND Save You Money?

Think an algorithm can beat your broker?  Very possibly…and the FinTech (financial technology) industry is on it!

With the significant fees associated with financial advisors, as well as their ongoing inability to even beat the S&P 500, it was only a matter of time before the tech world (and the big financial advisors themselves shutterstock_59021842-2it turns out- Vanguard owns Betterment and Fidelity owns Wealthfront) would start to market a product with little to no human involvement in managing your portfolio.

Fuck you Gordon Gecko!  Hellooo IBM’s Watson!

Here are some basic PROS and CONS of software managing your investments-

Pros

  •  Lower fees: this is the big difference- some of the lower ones can range from .3 to .5%, while the ‘humans’ can easily charge 4X that
  • Cut Out the Middle Man: you now probably have a similar system to what your broker would be using anyway, but now you can learn/play/perfect it…if you’re willing/inclined/(Man)Smart
  • Different Ideas: tech is trying to differentiate itself further than just recommending stocks and bonds- want to invest in Income Inequality (basket of luxury and working-class stocks), how about the idea that parents spend money on their children?  There’s an algorithm for that…
  • No Human Touch: we fuck up, we can be grumpy, and sometimes its just nice to get straight answers from a computer (we already prefer our banking apps to tellers)

Cons

  • No Human Touch: when the markets go to shit and you want someone to tell you its going to be ok, don’t overreact (or if you just want to yell at someone), sorry Mr. Zero and Mr. One won’t take your call
  • Personalized Portfolio Not So Personal: do they know about your tax situation?  How about wanting to move abroad?  Or your daughter that wants to be an ‘actress’?  This could be important for managing your financial future
  • May Not Be That Smart: often, these algorithms are simply investing in a basket of mainstream ETFs…how brilliant is that?

Here are the players-

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Takes investment ideas (e.g. interest rates going up) and creates customized portfolio for flat fee

 

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This is the largest automated investing service; will rebalance your portfolio for you and make efficient tax moves

 

true     Get 6 months of money management for free

 

true     Get $15k managed free

 

true     Will also track your cash flow

 

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