The Craze Sweeping the Nation – Robo Investing

Recently all we hear about is “Robo Investing”. The themes vary between companies and sites offering the service, but in essence most sites – including the big banks – ask you to fill in the standard type forms that you would at any brokerage to open an account, then put your money in the account, and then let the automated service pick the stocks which your money is going to buy.

Of course the so-called automated service ranges from some portfolio manager in the background picking stocks (just like your current advisor), or some variation of computer assisted stock picking.

If you believe that some faceless, nameless automation can do better than your current advisor, perhaps you should try this service. After all, we should trust nameless, faceless people with our money, shouldn’t we?

Why is Robo Investing Becoming Popular

There is a change sweeping the markets. Historically when you pick an advisor, he/she talks the talk, and is trained to give you confidence. After you are convinced and give your money to this individual, in many cases, this trusted advisor then simply gives your money to whichever seemingly good mutual fund he/she likes. Too often what determines which mutual fund the advisor picks, will depend on how much of a Rider the mutual fund will pay that advisor every month.

Nice job if you can get it.

Once a month the mutual fund sends the advisor a report (along with a check for the referral) and the advisor fancies up the report with in-house automated software and sends it off to you. So usually that check is between 1% and 1/2% of the current value of the investment.

What you are not told, is that the mutual fund pays out a lot of expenses from the money that you give them. They have audit fees, legal fees, mailing fees, lots of administrator fees, stock picker fees, bus boy fees, and other fees, and of course they have the expense of sending that check every month to the advisor.