Yahoo Finance Would you trust a robot to manage your money?
Would you trust a robot to manage your money?
More and more investors are turning to so-called "robo-advisors," or automated investment services, which use proprietary software programs to determine how investors should best allocate their investments. Using an online questionnaire, investors share information online such as their age, risk tolerance, and investment goals, and receive an investment plan tailored to their needs.
The programs offer big savings over traditional investment services, but is this the right way to plan your investments?
Naureen Hassan, head of Charles Schwab’s robo-advisory service Intelligent Portfolios, says “there hasn’t been a specific target, like a millennial or a boomer. Our clients have ranged from 18 into their 80’s. It’s anybody who’s comfortable with technology and wants help in an automated and easy way to manage their money.”
Retail-investing giant Charles Schwab is the latest entrant to the fast growing robo-advisory field, and has come under fire for its requirement that a portion of clients' investments be held in cash. Competitors Wealthfront and Betterment have loudly criticized Schwab's cash requirement. Waterfront CEO Adam Nash even blogged about the issue, pointing out that Schwab’s offering, pushed as having no management fee, typically includes a significant cash position on which Schwab’s in-house bank will earn an interest spread. Betterment's director of behavioral finance and investments, Dan Egan, went at Schwab separately, weighing in against the very notion of holding cash in an investment portfolio. Schwab counters that cash allocations provide stability and diversification benefits, as well as a protection against inflation.
While every robo-advisory services uses a different mix of investments, Schwab defends their cash allocation requirement. “We believe cash is an important ballast in down markets,” says Hassan. “If you’ve got a short term goal, or if you’re an older investor, having cash is an important part of having a diversified portfolio.”
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While some investors will prefer the human contact of a traditional financial advisor, with hundreds of companies entering the robo-advisory field, it’s never been easier or less costly for self-directed investors to access broad exposure to financial markets through software that embeds the best research on building wealth over time.
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