Firstly, I am fan of FutureAdvisor. They are a robo broker that competes with Betterment and Wealthfront. I think that they hold an edge over these two since they are willing to look at your holistic (held away assets) portfolio – whereas the other two players don’t care to. I signed up for an account with them as they also have a better pricing system – free. Their current model is that they will give you the advice you need about your portfolio for no charge, but if you get bored of rebalancing manually you can pay them 0.5% of your brokerage account balances to automate the process.
Here’s a link to sign up, I earn an obscene amount of money if you do, and the holidays are here.
I receive periodic updates from them about my portfolio, typically it involves something along the line of: your portfolio is up 3.9% vs the target portfolio of 2.4% and the Jets won! For some reason they bring in some completely odd comment like that at the end (though they try to make it market related).
Anyway, I keep getting told that I am doing wrong, here is the big kahuna picture I receive:
The glaring message that I see – I could be performing better – a D for performance! However, my performance seems to be a lot better than anything I see from FutureAdvisor…
So what gives FutureAdvisor?
All the robo-brokers sell the same message – your performance could be better with them, they offer X alpha over some benchmark or other. The premise is that they have optimized rebalancing. However, in Bull Markets rebalancing offers no improvement to performance. Does that mean that when things turn sour I am better protected? Let’s see what the weekly updates have to say:
The only week that I unperformed the recommended portfolio was in Week 1. I had forgotten about a sizable cash position, meaning about 23% of my investments in the linked accounts was sitting idle in Cash.
For this reason alone, I think FutureAdvisor is a great product. It reminded me of this oversight, and I took action based on that. What I found interesting was that with every weekly update I received a note along the lines of:
Grade D for performance (when I never underperformed FutureAdvisor) and comments on how my portfolio would stack up in poor market conditions. Some of you might have noticed that we just had some poor market conditions. There are several instances when my portfolio lost less, or actually gained while FutureAdvisor lost, clearly these were poor market conditions.
When the market is up, I am up more, when it is down, I am down less… sounds pretty good to me. But let’s not make this a bragging session, instead, what can we learn from this?
Risk Profile isn’t always what you might expect
In this snapshot of my finances, I have zero Bond positions (I do hold some in other places) – that makes this 100% equities. And despite the stock market rolling up and down in the past 3 months, my 100% equity position has performed better. Every week. This is somewhat illogical as holding Bonds should diffuse stock market volatility, but we need to remember that Bond’s aren’t doing well. Here’s the 3 month performance of IGOV (the holding I am ‘Advised’ to take on)
Compare that with the S&P
You can certainly see that there is an inverse relationship here at the end of October, as the S&P was hammered, and some money moved to the ‘safety’ of Bonds. But Bonds aren’t really providing any answers.
What can you do with this?
The biggest key here is that the advice given by Robo Brokers can be spotty. However, they are much better at helping you identify areas to improve than trying to trade like the next Gordon Gekko, my motto is to take as much as I can from such services, but not take any promises as gospel. FutureAdvisor provides a great way to snapshot your portfolio, as does PersonalCapital (who also pay me heaps) but I would elect to use the power of their tools for free rather than giving up the reins to my investments. The reason for my caginess is that I have a very unique risk profile, and there isn’t a Robo broker who can spot that from their forms. I’ll use their data to show me where I am leaving dormant cash, and I’ll look at Personal Capital for great account snapshots for over exposure, but I will take everything that I see with a pinch of salt, and invest according to my own investment policy.
For those of you interested in exploring my investment choices, you can see my positions below. Please note that this is a snapshot, I didn’t link up all of my accounts to FutureAdvisor, and I am not recommending that you copy this.
How is your portfolio doing, and can you beat the rise of the machine?