I admit it. I was enamored with ROBO brokers too. First off anything with robo in the name had to be smarter than I am. (plus it is cool to say, try it). They all boast of quantitative models, and PHd’s working hard to select the perfect portfolio.
For example on Betterment’s website, their team of experts boasts no less than 4 Phd’s. Very impressive no doubt. Let’s take a look at what those PHd’s do.
Betterment has an “extensive” research process which you can read here . I can summarize it for you. They select ETF’s that have high volume, low fees, while excluding things such as inverse ETF’s and leverage. They coin the term TACO, (wall street loves coining terms) which is basically saying they find ETF’s that are high volume, low fee.
This is done by their team of PHd’s and quants, reviewed by investment committees, using stastical tools like r (https://www.r-project.org/).
Here is where I don’t get it. You need a team of phd’s, quants and investment committees, to find low cost ETF’s that have decent daily volume? I am going to do my own analysis, and see how long it takes me, ready, set, go…
I’m back, in little over a minute. I used Reuters, but there are plenty of ETF screeners out there. You can search for ETF’s using any of these as well.
My point is this. Wall Street has profited by the notion that, for the average person, investing is too complicated, you need to pay an advisor to do it for you. They have knowledge, phd’s, Nobel Prize winning research (taken directly from betterment’s website). They use terms like statistical arbitrage, quantitative analysis, use cool sounding applications like matlabs, and R (which is open source, go ahead, give it a try). Does that make it any better than what you can do on your own, with the right tools? Let’s not forget Long Term Capital.
At least some ROBO brokers have reduced fees, so as a whole we are making progress, but is it worth paying a fee to anyone, when they are just selecting ETF’s for you. Save the fees for things you cannot do yourself. Get me in on some High Frequency action, and we’ll talk.