Bloomberg: robo-advisors increasingly popular

Bloomberg reports:

Banks are watching wealthy clients flirt with robo-advisers, and that’s one reason the lenders are racing to release their own versions of the automated investing technology this year, according to a consultant.

Millennials and small investors aren’t the only ones using robo-advisers, a group that includes pioneers Wealthfront Inc. and Betterment LLC and services provided by mutual-fund giants, said Kendra Thompson, an Accenture Plc managing director. At Charles Schwab Corp., about 15 percent of those in automated portfolios have at least $1 million at the company.

While I have no problem whatsoever admitting I have a bias here, I seriously think that this is going to end very badly for a lot of people. When everybody shifts toward the advice of the algorithms, everybody is on the same side of the trade; “going with the flow” is the antithesis of prudent investing. Not only because there are underlying misconceptions relating to the theory of investing, but because markets shouldn’t work like that. The only reason they might appear to in the short run is because the Fed causes the “stock market” to rise and fall as a collective. Compare this to a free market, in which equity market averages would be relatively stable as the flow of money into capital markets wouldn’t be as sporadic as under a fiat money regime. In such a context, one makes a profit by making correct entrepreneurial judgements, not by following the advice of the “computer models.” But if the market overcomes the Fed in the medium run, which I believe it must, what will happen to those who spent their life savings betting on the Fed?


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