Tag Archives: Robo Advisors

Aman Raina’s 4-year Robo Advisor review

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By Aman Raina, SageInvestors

Special to the Financial Independence Hub

Four years ago, Obama was President of the United States and Stephen Harper was Prime Minister of Canada. A Liberal was running America and a Conservative was running Canada. The New England Patriots were still making it to the Super Bowl, even winning a few…

…and I had opened my Robo Advisor account.

Yes it been a full 4 years since I opened up my Robo Advisor account. For those new to investing, a Robo Advisor is a new wave of wealth management companies that invest on behalf of others using an online platform and a combination of algorithms and computer coding to buy and sell specific investments and manage portfolios. Four years ago these firms were just stepping into the investing conciousness, but since then they have mushroomed and even traditional investment companies are now offering some flavor of online investment management services. It all seemed quite appealing however there was one thing that many marketing materials, blogs, and mainstream media was avoiding (and still are I might add)…do these types of services make money for investors?

Since no robo advisor company back then was interested in disclosing their performance (they still avoid it) other than citing research that their strategy is superior, I decided four years ago to try an experiment and find out for myself. I setup an account with one of the big Robo Adviser firms. My goal was to go through the process and blog about my experience and more importantly, the results. I’ve always said that we need a good five years to really get a handle on how effective these services are compared to traditional wealth management services. Well, we’re at the 80% mark of my ROBO journey, so let’s check back in and take a look at how it’s doing now and see if we can squeeze any conclusions about the service.

In previous years, I have stated that for us to get a real handle on their effectiveness, we need to see these robo-portfolios experience some stress. Up until 2018, the markets have been quite tame. We’ve seen how these portfolios operate in a period of rising stock prices. In 2018 we finally hit some periods where there were major swings in stock prices around the world. In February we saw the Dow Jones on several days drop more than 1000 points and in December we had the Christmas Eve Massacre where stock prices fell off a cliff creating a lot of hand wringing over the Christmas break. Finally meaningful, although short-term stress points for the ROBO portfolio.

Performance

Below is the current status of my ROBO portfolio as of January 30, 2019 and below that is the chart of annual returns over the past four years.

My ROBO Advisor portfolio as of January 30, 2019

My ROBO Advisor portfolio as of January 30, 2019

ROBO Portfolio Annual Return

(annual returns)

 The first year was a rough one for ROBO as it had lost 2.15 per cent. In the second year and third year, ROBO picked up its game. The portfolio generated a 13.2 per cent return in Year 2 and in Year 3 it posted another solid year with a 14.2 per cent return. In 2018, the portfolio pulled back going down a total of 2.1 per cent. The loss was tempered by dividends, where the portfolio generated $142.91 in dividend income. The ROBO was also saved a bit by a strong rebound in stock prices in January coming off the correction in December. The losses could have been much worse. Considering the largest component of the ROBO portfolio was concentrated in US and Canadian stocks and where the S&P500 and TSX/S&P Composite were down 6.3 and 11.7 per cent respectively in 2018, a 2.1 per cent drop is very reasonable. I lost money but not as much. Since January 2015, the portfolio is up 22 per cent over the last 4 years.

Asset Allocation

When I set up the account I answered a series of questions about my financial literacy and risk tolerance. ROBO took my responses and crafted a portfolio that it felt was compatible with my profile. As I am pretty experienced with investing and have a long-term investment horizon, ROBO determined that a portfolio mix of 85 per cent stocks and 15 per cent bonds would work for me. It has since then retained the same stocks/bonds ratio.   Continue Reading…

ETF investors sitting comfortably in the Balanced Growth sweet spot

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By Dale Roberts
Special to the Financial Independence Hub

In October I penned this blog post, The Balanced Growth Portfolio. The Investor’s Sweet Spot. A Balanced Growth model with typically be in the area of 70-80% in stocks and the remainder in bonds. It’s a growth portfolio, but with a modest allocation to bonds to reduce the price risks. As I often write, those bonds work like shock absorbers through market volatility or market corrections. They help smooth out the ride.

I’d call this model the sweet spot as it might offer the best balance of very good total return potential with less risk compared to an all-stock portfolio. It many periods it will deliver the best risk-adjusted returns.

In fact, in many periods the Balanced Growth portfolio model can deliver the same returns as an all-stock model, while taking on less risk. Stock market corrections become the great equalizer. The pure equity model will certainly outperform in a long bull market run, but then the stock market corrections come along and bring the stocks down to earth while the Balanced Growth model then moves into the lead. They might play a game of tortoise and the hare for many years or decades.

See my above post link for charts on that comparison.

Let’s look at the ETF holdings of Canadians

Industry statistics are published by the Canadian ETF Association. You can access the December 2018 report and commentary here.

The chart at the top of this blog shows the monthly breakdown of assets held in ETFs. Current Month is month’s end December 2018, Previous Month is November, of course. Keep in mind that the assets will be affected by the total inflows and outflows (purchases and sells) and also the market variance. The stock markets fell in December and that will bring down the total stock assets number.

 

We see that Canadian ETF investors are in that sweet spot of near 70% equities and 30% bonds. And the good news is that while the stock markets were pulling their little December hissy fit, investors were adding new monies to their ETFs: both Fixed Income and Equities. And you’ll see that Canadian ETF investors are acquiring within the Balanced Growth band.

We see that investors did respond to the stock market price risks and moved more monies into the fixed income side of the ledger in December. No problem there. Sometimes Mr. Market gives us a little love tap and reminds us that markets can go down in a hurry. We get a very considerate warning shot across the bow. On that here’s my Seeking Alpha article from one year ago Mr. Volatility is Asking You, Taunting You – So You Wanna Go?

Many of us might be getting a little flabby with respect to our risk taking ability. We have not been tested much in the last decade coming out of the Great Recession. We should always remember that markets can be volatile and they can fall by some 30%, 40% or 50% or more in a major market correction. I reminded readers of those risks in my first post to the Tangerine Forward Thinking blog with Why You Might Still Want Bonds In Your Investment Portfolio.

Ensure that you know your risk tolerance level and that your portfolio is best matched to you risk tolerance level. Have a more than solid investment plan but consider that emotional risk. From that Seeking Alpha article and offered by the most ferocious heavyweight boxer of all time, Mike Tyson …

Everyone has a plan until I punch them in the face.

Yes, Mr. Market may punch you in the face one day. Are you ready? I can take a punch in the market and in the boxing ring. I grew up with a boxing ring in the backyard so that my older brother could practice punching someone in the face as he prepared for and kept in fighting shape for playing Junior ‘hockey’. He only ever lost one hockey fight. Me and my face take full credit. Mr. Market has thrown a few punches too.

All said, be prepared.

How are Robo-Advised Canadians putting monies to work? 

Keep in mind that many investors will create their own ETF Model Portfolios through their discount brokerage. But of course there’s a massive move to the Canadian Robo Advisors, where investors can access digital and human advice that will then lead to the recommendation of risk-appropriate ETF portfolios. That risk assessment is key. Continue Reading…

How to get the better of the big Canadian banks

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By Larry Bates

Special to the Financial Independence Hub

The big Canadian banks, and by extension the entire Canadian financial industry, occupy a position of paternalistic authority that too many individual investors respect unquestioningly, and even appreciate to some extent. The industry brilliantly capitalizes on a combination of poor understanding of fees, deep loyalty, and misplaced trust by charging Canadians the highest mutual fund fees in the world. This leaves most Canadian retirement investors with 100% of the market risk but only about 50% of market returns.

The impact of these high (and often unseen) investment fees on Canadian retirement accounts is more than a consumer issue, it is a major social issue of our time.

Government pensions will not be nearly enough to provide a satisfactory retirement lifestyle for most Canadians, and guaranteed employer pensions are rapidly becoming a thing of the past. In order to live well in retirement, you now likely need to build significant savings and make those savings grow through investment. So,while previous generations of Canadians with guaranteed pensions could casually observe the markets from the sidelines, most of us today must participate directly in the markets to secure a comfortable retirement.

In other words, you, and only you, have the burden of responsibility to get investing right. But the structure and practices of the investment industry continue to conspire against the ability of the average investor to succeed, to maximize that retirement nest egg. This compromises not only the financial well-being of individual Canadians, but also the health of our retirement system and of our society as a whole.

But there is good news. There are a growing number of very efficient, low-cost investment products such as index ETFs and services such as online discount brokers and “robo-advisors” that enable Canadians to keep a much larger share of their investment returns where they belong … in their retirement accounts. And these lower-cost products and services are offered by the big banks as well as several independent institutions. But you need to know the basics in order to take advantage of these opportunities and build bigger nest eggs. Continue Reading…

Another week. Another (Kiddie) stock roller coaster ride

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By Dale Roberts

Special to the Financial Independence Hub

The Canadian markets have been offering investors a little taste of volatility. Here’s a one week chart going back to last Friday.

And here’s the performance of the Canadian Markets (TSX Composite), 2018 year to date:

While that might look like a wild ride it’s all more of a kiddie coaster compared to the real thing such as the Leviathan at Canada’s Wonderland in Vaughn, Ontario. That coaster makes the 12 Scariest Rides according to tripsavvy.com.

Canadian markets are down by about 5% for the year. Once again: Kiddie Coaster. Serious stock market roller coaster rides will take you down by about 30%, 40%, even 50% or more. Yup, in a major correction you might have to watch your monies get cut in half if you’re in an all-stock portfolio. That 50% haircut has happened twice in the last 20 years. Many of us have been ‘lucky enough’ to invest through the two biggest market corrections since the Depression of the 1920s/1930s.

Those real roller coaster rides taught us some valuable lessons. Some investors did lose a lot of money through those corrections. Why? Because they invested outside of their risk tolerance level. They took on too much risk. They were not emotionally prepared to watch their investment portfolio drop by 40%, 50% or more. They perhaps needed some of those shock absorbers known as bonds.

Those of us who were heavily invested in the tech-heavy indices such as the Nasdaq 100 (QQQ) or science and technology funds had to watch those investments drop by some 80%. Imagine watching every $100,000 fall to $20,000. Of course, many would jump off that roller coaster before hitting the bottom. Here’s a roller coaster ride that would make the list of Scariest Investment Rides. This is the QQQ ticker Nasdaq, chart courtesy of portfoliovisualizer.com. Full disclosure: I was ‘on’ that ride, and I don’t want to talk about it.  Once again the stock market can teach us some expensive lessons.

Friday Nasdaq

We can see that investors who did hang on were eventually rewarded with positive returns, even more than a doubling of their initial investment. In fact, if an investor had been consistent and had kept investing on a regular schedule through those ups and downs they could have seen returns approaching 9% annual.

Buy. Hold. Add. 

We might say that the risk assessment is deciding what roller coaster ride you can handle. Continue Reading…

Artificial Intelligence: Can a machine invest better than a human?

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By Chris Nicola

(Sponsor Content)

Wouldn’t it be nice if we could just ask a computer, “what should I invest in?” In theory, sure. But given the current state of artificial intelligence, I wouldn’t bet your money on it just yet. Simpler, tried-and-true analysis tools help us to do this job without putting our client’s money on the line.

Now, you might think AI for investing is inevitable. After all, intelligent people are coming up with new uses for AI all the time. Diagnosing eye problems. Helping corporate boards hire with diversity in mind. We can make art with it, or use it to spot fake art. With self-driving cars, we’re literally putting AI in the driver’s seat. So, why not AI for investing? In fact, it’s already happening — through the “AI Powered Equity ETF (AEIQ), which invests in a variety of U.S.-based companies and seeks to beat the returns of the S&P 500.” The numbers in this report from July show the ETF was up 8 per cent this year, while the S&P 500 has gained about 1.5 per cent YTD.

Who knows what the future could hold for AI’s capabilities? Let’s take a deeper look.

Why I’ve got AI for investing on the brain right now

I recently spoke about AI at The Summit for Asset Management and I realized that the subject of investing using AI would probably also interest many of WealthBar’s own clients. So here’s what I spoke about and some of my thoughts on the role of AI in the future of automated investing.

Who am I? I’m WealthBar’s Co-Founder and Chief Technology Officer. At WealthBar, my team and I design and build our mobile and online experiences for clients. We also decide what technology solutions to use and how to use them.

AI is really cool right now. It gets a lot of attention and I’d be lying if I said I wasn’t excited by the potential. However, I also need to ensure we’re using the right tool for each job. So far, we have not been convinced that AI is the best solution for the kinds of the problems we currently solve for our clients. More importantly, the current understanding of AI today leads to far more questions and concerns than answers. The biggest of these questions is our inability to explain exactly how an AI algorithm learns and why it makes the decisions it does.

AI-powered? Don’t believe the hype

What is AI?

Artificial intelligence can learn without being explicitly programmed. 

That seems like a good definition that I would use, though what we think of when we say AI and what it really means can be two different things.

Some people will think of AI as a general intelligence: basically, a piece of software, machine or robot that thinks like a human, like in so many science fiction movies that have come out in the past few years (I, Robot, Ex Machina, Her, etc). We’re pretty far from that in real life. But for now, we’re using a definition of AI that’s more limited, precise utility — and one that could have some real applications in the investing world.

AI for investing. How does it work? And how could it work?

Right now, we use it to take on specific tasks. In theory, we could ask an AI “what should I invest in?”

Some financial firms are experimenting with this, or they say they are. But scratch the surface. You find that their process is just based around linear regression. They do some math, which has been around since long before computers. Linear regression is a quick and practical tool that the financial industry has been using for as long as there has been a financial industry. Continue Reading…