Misunderstanding Asset Allocation

Diversification is one of the most often used and most often misunderstood concepts in investing.  Investors are frequently advised to diversify their portfolios.  Most people are rarely told what true portfolio diversification is, how to correctly construct a diversified portfolio or what to expect from the portfolio in terms of risk and rewards.

The idea of using a diversified investment portfolio is usually attributed to an article published by Prof. Harry Markowitz in the Journal of Finance in 1952. The article gave birth to what has been called “modern portfolio theory” (MPT).  It is widely accepted but I think it fair to say most people who claim to understand MPT do not.  If they did they would not invest as they do.

Markowitz was, first and foremost, a mathematician who applied mathematics to investment portfolios. The calculus that he used is not that complex if calculus is your thing but most people who swear by MPT cannot do the math themselves nor do they understand it.

The goal of MPT is not to get the highest return but to get an efficient return for the amount of risk that the investor is willing to assume. In a nutshell, Markowitz believed that by constructing a portfolio with a number of stocks, the winners will balance out the losers. Deciding upon which stocks to buy and how many has always been the vexing problem.

There have been a number of studies over the years that suggest the correct number of stocks to buy to gain diversification of the risk of a catastrophic loss is somewhere between 15 and 20.  Some people believe that they should buy a much larger basket, such as an index fund that tracks the entire S&P 500.

The large basket, index fund approach is the result of the capital asset pricing model (CAPM) which suggests that maximum diversification comes from buying a pro rata share of all available assets. The CAPM was introduced by Prof. William Sharpe in 1970.

Both Markowitz and Sharpe are trying to solve the same problem, constructing a portfolio that efficiently deals with the risk of loss. Understanding the significant difference between the two approaches is where most people get lost.

Markowitz suggested that one way to mitigate the risk of investing was to create a portfolio that contained a mix of non-correlated assets.   Non-correlated assets perform differently during periods when market conditions change.

A classic example of non-correlated assets might be an oil company and an airline. Oil company profits tend to rise when oil prices go up because the companies can get increased prices and margins.  Airline company profits tend to fall when oil prices increase as their operating expenses increase. Oil prices and other commodity prices fluctuate up and down with supply and demand, weather, political decisions and other macro economic factors.

This economic see-saw is usually felt in the credit markets. Fixed income securities are generally safer than equities.  Investors generally seek safer investments and like steady income.  But investors will move out of fixed income securities and into equities when interest rates are low as they have been in recent years.  Low interest rates often translate into higher profits for companies that borrow money pushing the price of their shares up.

That is why it is fairly easy to predict that people will begin to take the profits that they have made in equities in recent years and put their funds into fixed income securities as interest rates begin to rise.  Remarkably, a lot of people who are in the business of asset allocation simply ignore that fact.

A great many portfolios, especially those prepared by robo-advisors, construct portfolios allocated between equities and fixed income securities based upon the investor’s age. They argue that younger people can assume the risk of investing more aggressively into equities.  Neither Markowitz nor Sharpe ever considered an investor’s age as part of their analysis. The focus should not be on how old the investor is today, but what the markets are doing today and what do you anticipate that they will do in the near term.

Markowitz believed that portfolio construction should begin with observations and beliefs about the future performance of the available securities. That means that you should buy securities whose price you think will appreciate. You may be wrong due to market or other factors but if you are buying stocks that will react differently to those market factors you should not suffer catastrophic losses.

The CAPM on the other hand looks primarily at a stock’s volatility or beta. The beta is determined by how much more or less volatile a company’s stock is than a broader index. A stock whose volatility is the same as the index has a beta of 1. That is why people are encouraged to purchase an index or other large basket of stocks to get their portfolio’s beta closer to 1.

The essential difference between these two approaches is that Markowitz was looking at the fundamental factors that contributed to each company’s performance.  This fundamental securities analysis looks at a company’s business, management, competition etc. and tries to determine if the company will be profitable in the future and if so, how profitable.

CAPM on the other hand, looks at the how the company’s shares have performed versus the index in the past.  It is grounded in technical securities analysis which specifically looks at how a stock’s price has acted in the past and projects how that stock will trend into the future.  Technical analysis looks at the market rather than the company. It suggests that everything that anyone would want to know about a company is reflected in the current price of its shares.

I learned basic technical analysis in the commodities markets years ago where most traders charted the markets which were governed more or less by supply and demand for the underlying commodity.  I know many short term traders who swear by technical analysis but not so many who would use it to predict long term trends for investment. Past performance, after all, is never an indication of future performance.

I also take issue with the idea that everything that anyone would want to know about a company is reflected in its share price.  I buy a stock it is because I believe that the price will appreciate. The person who is selling that stock to me generally believes that it will appreciate no further or else logic suggests that they would not sell it.

Neither approach is right or wrong. Both are trying to predict the future which will always be an imperfect science. Both Markowitz and Sharpe are Nobel Prize winners.

Over the years I would carefully research the companies in which I invested. I would read multiple research reports on each company, some positive, some negative, published by analysts whose opinions I came to trust.  Research is a time consuming project. I now have an advisor who does this for me.

My advisor suggests that I only invest in companies thathave a history of paying regular dividends. That fact alone usually reduces volatility.

Robo investment advisors are firmly rooted in CAPM. They ignore fundamental facts about companies and markets.  If you buy an index fund, then the results you will get will mirror whatever the market does. This is fine when the market is going up. I have continually advised anyone who would listen that robos are a bad idea and when the market turns down, which it eventually will, people who are in robos and who stay invested in robos will take losses that they should not have to take.


Any Investor Can Beat an Index

People invest money to make money. That may not seem like a profound statement but a lot of investors think that it is a lot harder than it is and there is an ongoing debate that suggests that most professional investment advisors are not worth what they charge. Personally, I do not buy it.  I would not think of investing any significant sum without a competent advisor.

I know that most large institutional investors still use fundamental analysis and good old fashioned research to select investments.  CALPers, the nation’s largest public employee pension plan has several hundred research analysts on its staff.

The best research analysts are specialists who cover a single industry and have much more than a cursory understanding of the companies that they cover.  It is not unusual to find research analysts with degrees in electrical engineering covering tech companies or doctors who went from medical research to covering drug companies.

When I started on Wall Street the firms would release research reports to their institutional clients first and retail clients a day or two later.  With the advent of discount brokerage firms and DIY investors, a lot of the research available to individual investors has been watered down and is not very insightful.

I am not suggesting that every research analyst is great and there are a great many conflicts that color the reports that some analysts publish. What I am suggesting is that if you cannot read a research report and you do not read several before you make any investment decision, you are shortchanging yourself.

No one has to invest. Leaving your money in the bank where it will currently get you about 1% in interest is better than investing it in the market and losing 10% or more. This is especially true if you have only a minimal amount saved up.  Protect what you have before you start taking market risks.

A lot of people believe that they can just buy an index mutual fund or index ETF, hold it for the long term and everything will be fine.  The “common knowledge” is that the markets will likely be higher years down the road and that an index fund captures a large diversified basket of companies. Neither is necessarily true.

The markets today are higher than they have ever been. No one can tell where they will be next week, next year and certainly not a decade or two from now when you may need your money.  Whether your portfolio will be worth more or less than it is today when you retire is something that is best worked out with a financial planner.

Most financial planners will caution you about effects of inflation. Even if your portfolio is worth 20 years from now, its buying power may be less.

The idea that an index is diversified is also flawed. An index like the S&P 500 has stocks of the 500 largest companies.  The Dow Jones Industrial Average specifically excludes transportation companies and utilities.

To be diversified a portfolio needs to hold stocks that have a negative correlation to each other.  If you buy a large cap index, a mid cap index, a small cap index and a foreign index with the idea that they are diversified from each other, you are incorrect. Each is likely to hold airlines, telecommunications companies and financial institutions. That is not diversification.

Assuming that you could analyze all 500 stocks in the S&P 500, rank them to identify those which have the best value and create a portfolio of the top 150, you would probably beat the overall S&P 500 index every year.  If you identify the best and eliminate the clunkers, beating the entire index should not be difficult.

By best value, I would suggest that you include those companies whose shares are trading at the low end of their traditional P/E range.  Many market professionals look at the price/earnings ratio of individual stocks that they own and the market in general.  Price/earnings ratios move within a fairly standard range and when they get to the high end of the range they usually pull back and revert to the norm.  Both the current price and the outlook for near and medium term earnings for publically traded companies are readily available.

If you are a DIY investor and it is too much work for you to analyze 500 stocks or you do not need a portfolio with 150 stocks in it, there are easier ways to beat an index. One of the simplest is a strategy called “Dogs of the Dow.”

The Dow Jones Industrial Average is made up of 30 mature, blue chip companies. The earnings of the companies will vary depending on where in their particular business cycle the companies are and their stock price will fluctuate with the earnings. Most, however, have a fairly stable dividend payout policy.

The theory suggests that when a company is at the low end of its cycle and its stock price is low; its dividend yield will be high.  As the company bounces back, its stock price will rise and its dividend yield will return to its mid–range.

To execute the strategy you would purchase equal amounts of the 8 or 10 highest yielding Dow stocks, hold them for one year, sell them and repeat.  The strategy hopes to allow investors to capture both a high dividend and good price appreciation every year.

Understand that this is not asset allocation. Asset allocation is a method of balancing a portfolio with multiple market sectors hoping that the good ones will outweigh the bad.

Dogs of the Dow is a specific stock selection strategy.  You are attempting to select stocks that will appreciate in price faster than the other stocks in the Dow Jones Index.  A fair number of people use this strategy because it is very easy and because it works most of the time.

If you research Dogs of the Dow, you are likely to come across the Hennessey Funds.  The Hennessy Total Return Fund (HDOGX) invests 75% of its assets in the ten highest dividend-yielding Dow Jones Industrial Average stocks (known as the “Dogs of the Dow”) and 25% in U.S. Treasury securities.

Neil Hennessey was the person who first introduced me to this strategy somewhere around 1985.  He was working with it successfully back then and still does.

This strategy is not hard to master.  It shows that you do not have to be a rocket scientist to be a successful investor and in most years you will beat the index.



Investing for Millennials

There is an ongoing discussion in the investment advisor industry regarding how to attract millennial investors. I have read several articles that suggest that a great many millennials have minimal savings.  And for those who do, investing for retirement may not be a high priority.

Many millennials are drawn to robo-advisor platforms. I find robo investment advisors to be a sick joke foisted on millennials and others by an industry that makes its money gathering assets.  If for no other reason than robo platforms will never advise investors to sell, the portfolios of many robo investors will suffer losses when the market comes down.

There is nothing wrong with the idea of asset allocation if you have a portfolio of size, are investing for the long term and allocate and re-balance your portfolio correctly.  But most robo platforms do not allocate portfolios correctly. There is a wide variance of portfolio allocations from platform to platform so investors really cannot know with any certainty how the platform they select will perform.

I have seen more than one study that suggested that millennials are attracted to robo investment platforms not just for their convenience and affinity for technology but because a great many millennials distrust the human financial advisors who their parents used.  Trust is important when you select any professional to work for you.

But the wholesale lack of trust in financial advisors is misplaced. I say that as a representative of the generation that coined the phrase: “don’t trust anyone over 30.” The truth is that the best investment advisors are older, having been seasoned by a market cycle or two. There was a lot to be learned when the market crashed in 1987, 2001 and 2008.  Advisors who were around and learned those lessons should be less likely to let their clients take losses in the next crash when it comes.

There is an annoying debate based upon studies that suggest that the average financial advisor cannot get even average returns, meaning equal to a broad index, year in and year out. The debate tips toward the idea that passive investing, just buying the index or sectors within the index, is superior.  Passive index and sector investing is what you get with a robo platform.

For the most part, the large institutions, insurance companies, pension plans and endowments, still invest the old fashioned way; using fundamental securities analysis to purchase investments that will either provide a good continual rate of income or which are likely to appreciate in price. Most stocks and bonds are bought and sold on the basis of research. Robo and passive investing is still a small portion of the overall trading volume.

Most asset allocation models counsel that younger investors can accept more risk and allocate a higher percentage of the portfolio to stocks.  The theory is that younger investors can take more risk because they have more time to make up losses if they occur.  Stocks are usually riskier than bonds.  If you invest a significant portion of your portfolio in stocks or a stock index you are guaranteed to experience losses when the stock market comes down.

Investing in an index, riding it up and then down is foolish. A smart investor gets out of the market before the market turns down. A smart investor takes their profits when their stocks move up and then invests in something else.

There is also an idea that millennials can begin investing with a very small amount of money. In some cases, I have seen firms advertising that you can start with as little as $500 or $1000.  I would certainly encourage any young person to begin saving, but a diversified portfolio of securities on a robo platform is not where you should begin.

If you were to take a reputable course in financial planning one of the first lessons that you will learn is about something called the investment pyramid. If you Google “investment pyramid,” you will find that there are many versions of it but that all are variations on the same basic theme; save first, invest later.

An investment pyramid starts with the idea that before you invest your first dollar you should have some cash in savings.  The standard has always been enough to cover 6 months of living expenses in case you find yourself unemployed because the company downsized or you cannot work due to an accident or illness.

The idea behind any investment pyramid is that you build a sound base for your portfolio of safer, income producing investments, usually bonds, before you buy anything else. The interest from the bonds, together with your annual contributions, will help the portfolio grow.  After you have built a sound foundation you can move up to the next layer of the pyramid.

The second tier of the pyramid also contains income producing investments, usually dividend paying stocks and REITs. At this point the idea is to have a steady income stream from everything in which you invest.  In many cases, the companies in which you invest will have dividend re-investment programs that will allow you to accumulate additional shares without paying commissions.

As you move into stocks you should diversify your portfolio into different sectors, some energy stocks; some pharmaceutical companies; some transportation companies.  It matters less if all the companies pay dividends. In years when one company’s share price is down, the dividend re-investment program will purchase more shares at the lower price. Over time, this will have the effect of lowering the average price per share that you paid and increase the overall dividend yield of the portfolio.

Once you have a solid base and a second tier both of which produce income that will continue to add value to your portfolio, you can add a third tier of growth stocks and a smaller top tier of more speculative investments.  Do not take risks with your money unless and until you have taken care of the business of building a portfolio that will take care of you after you retire.

Let us say that you are fortunate enough to put away $50 -$75 thousand by the time that you are 35 years old. Using an investment pyramid you will likely hold only cash and bonds.  If you use a robo investor platform you are likely to hold mostly stocks which may be worth more or less than the money that you actually put into the account.  This is a lot like the story of the tortoise and the hare; the tortoise usually wins over the long term.

The counter argument, and you will find it everywhere, is that stocks will potentially give you more bang for your buck. Smart people will tell you that you will be sorry if you fail to invest in the next Amazon when it comes along. If you can spot the next Amazon and the one after that and so on, you do not need advice from me.

The importance is that you realize that if you use a robo platform they are more likely than not going to steer you into stocks. If you use the investment pyramid model, you are going to start out with bonds and stay with bonds for a while. Its apples and oranges.


The Purely Passive Permanent Portfolio

My nephew recently asked me to recommend a good book on investing for someone who was just starting to make contributions to his retirement plan.  Somewhat reflexively, I recommended Prof. Malkiel’s “A Random Walk Down Wall Street” as a good place to start.

I first read “Random Walk” in the 1980s and it was an eye-opener for me at the time. I was and continue to be a dyed in the wool Graham and Dodd fundamentalist. I had met and followed quite a few research analysts when I worked on Wall Street. Their opinions were coveted by institutional investors. The brokerage firms were justifiably proud if one of their analysts was named to the annual “All-American” institutional research team.

The random walk theory was not original to Prof. Malkiel. He popularized it in layman’s terms. He used a coin flip to create a trading pattern for a fictional stock and then attempted to have an analyst apply technical analysis to the resulting chart.  When the technician told him to buy the fictional stock he concluded that analysts could not accurately predict the future price of a stock, so why bother?

In Malkiel’s view, simple asset allocation with periodic rebalancing will outperform the overall stock market. The standard allocation, 60% stocks and 40% bonds will never increase as much in a bull market as stocks alone, but the bonds will buffer loses in a bad market.  Many people believe that this type of allocation is fine for investors over the long term.

Asset allocation requires the construction of a portfolio with non-correlated assets. The stock portion of the portfolio must be selected carefully or the entire purpose of the allocation will be defeated.  Prof. Malkiel currently shills for one of the large robo-advisors that does not perform asset allocation very well.

Correlation is a tricky concept. The idea is to purchase investments that are affected differently by shifts in macro-economic conditions.  A truly diverse stock portfolio should have stocks from at least 15 non-correlated sectors.  You cannot create a truly diverse portfolio by investing in large cap, small cap and emerging market funds or ETFs. The stocks in these funds are correlated to each other in too many ways.  Capitalization does not define a sector for allocation purposes.

If you buy an index fund or ETF such as the Standard and Poor’s 500 you get the average market return in good years and in bad years. If the market happens decline for the 3 years just before you need your money, such as the 3 years before you retire, your portfolio may be worth the same as it was worth ten years earlier. You may have earned nothing during the last 10 years that you were working.  That is ten years in which you could have easily doubled your portfolio’s value if you were 100% invested in income producing investments.

Many people want a portfolio that will give them “higher than average market returns with lower than average market risks.”  It clearly is something that can be accomplished but it takes work to get there.

You can beat any index or sector fund by identifying the “dogs” that are in it. Some of the stocks in an S&P 500 fund are not expected to do all that well in the next 12-24 months. Certainly if you constructed a portfolio of the 250 stocks most likely to do well and leave out the dogs, you should beat that index every year.

Eliminating the dogs requires analysis. Fundamental analysis works and is still the primary way in which most professional investors make their investment decisions.

The “problem” is that a lot of people do not think that anyone can actually analyze individual stocks and pick the winners over the losers. That, of course, is not true.

There are a great many securities analysts and portfolio managers out there who are more than competent. The problem is that the best investment advisors are mixed in with a lot of advisors who are more adept at sales than analysis.

Rather than take the time and put in the effort to understand investing well enough to choose a good advisor, people have fallen back on the idea that they can buy a few index ETFs, rebalance periodically and all will be well. That is the investment philosophy behind robo-advisors. It is an investment philosophy I call “cheap and stupid.”

This brings us to Harry Browne.  Browne developed what he called the “permanent portfolio” back in the early 1970s.  He introduced it to the world in a well received 1987 book called “Why the Best-Laid Investment Plans Usually Go Wrong”.

I came across this book when I started teaching Law and Economics in the early 1990s.  Much of the literature around Law and Economics at the time came out of the University of Chicago and had a very libertarian bias.  Browne was a Libertarian and later became the Libertarian Party candidate for President.

Browne’s book described the virtues of a diversified portfolio whose composition would stay constant year in and year out — permanent, in other words, except for annual rebalancing. Browne’s idea of diversification into non-correlated assets was different from what you might think and very different from the diversified portfolio that you will get with any robo-advisor.

Browne’s portfolio divided your funds into only four asset classes. The portfolio was equally divided between aggressive growth stocks, which do well in times of prosperity; gold which does well in times of inflation; long-term Treasury bonds which increase in price during times of deflation and Treasury bills which do well in times of tight money/recession.

Browne was a “gold bug”. He recommended that you hold the gold portion of the portfolio in bullion or gold coins. This was fairly common advice at the time.

At the time the book came out, Browne reported that the portfolio had produced an annual return equal to 12% over the preceding 17 years. Much of that return was due to the doubling and re-doubling of the price of gold. Gold was still pegged at $35 per ounce when the portfolio began.  The latter half of the 1970s was a period of high inflation which helped the price of gold to move up.

Browne’s permanent portfolio continued to do quite well in its original form until his death in 2006. A number of books and articles have been written about it and several people have modified it with funds and ETFs.

There is a mutual fund called the Permanent Portfolio fund (NYSE: PRPFX) which uses a modified permanent portfolio including real estate and Swiss Francs. The fund holds about $3 billion in assets. If you are really determined to be a passive investor and appreciate that those robo-advisors are a scam you might take a look at this fund.  You will discover that it has done quite well since 2006, when Browne died, until the present.

As always, I do not know anyone at this fund and no one has offered to compensate me in any way for recommending it.

Browne’s permanent portfolio has apparently produced positive results continually since 1970 through the present. It can do so because growth and recession, inflation and deflation are opposites and assets that perform well in each cycle are non-correlated by definition.

Will Browne’s permanent portfolio continue to do well, year in and year out?  It should. It represents asset allocation and diversification in its purest form.










7 Reasons Why Robo-Investing Will Not Work. Millennials – Wake Up

Robo-investing is the next really big, really dumb thing. Millennials are expected to pour enormous amounts of money into these programs in the next few years. That would be an enormous mistake.

Robo-investment programs promise to help users to set up investment portfolios now and then to help manage those portfolios for the next 25 or 30 years. The portfolio with which you will end up, all those years down the road, is likely to be a disappointment.

I looked at a number of the websites and advertisements for these programs as I was writing this article. One proposes that a”moderate risk” portfolio would have 90% held in stocks. Another has a member of their investment team who takes a “holistic” approach to financial planning. That may be fine for some people but is not a serious approach to managing your money as far as I am concerned.

These computer programs do not have what it takes to intelligently construct a portfolio for you now or to manage it over a period of many years. Years from now, you will wish that you had a portfolio put together and monitored by a well trained and intelligent flesh and blood investment adviser. By then it will be too late.

Robo-investment advisers tout the fact that they cost less than a human investment adviser would cost. It does not really matter. Robo-investment advisers are inexpensive because they provide investors with little or no value.

If you have any doubt that these robo-investment adviser programs are less than worthless, here are seven obvious reasons why the actual portfolio that you will get from a robo-investment adviser program is likely to perform poorly.

Number One: It is not about your age.
One of the few personal questions that a robo-investment adviser program will ask is your age. If you are thirty the program will assume that you can afford to take on more risk than a person who is sixty. If it is suitable for you to take on more risk then your recommended portfolio will get more stock funds or ETFs and fewer bond funds and bond ETFs.

Investing based upon your age assumes that your age and the markets are somehow related. What you should or should not buy today is dependent upon the market, not upon your age. If you start down this path, what you will have bought or sold over the years that you stay with the program will have had nothing to do with what might have been a good investment at any time.

Number Two: Today might not be a good day to invest in either stocks or bonds.
Let us say that the program suggests that you create a portfolio that is 35% bond funds or bond ETFs and 60% stock funds or stock ETFs with 5% held in cash. In truth, it does not seem that most of these programs ever hold a lot of your funds in cash which always increases the portfolio risk.

If you begin investing this year when the stock market averages are making new highs it is reasonable to expect that next year or the year after the market might correct. It is very possible that five years down the road 60% of your portfolio will be worth less than it is today.

After seven years of forced low interest rates is this a good time to put 35% of your money into bond funds or ETFs? Savvy investors know that bond funds do not do well when interest rates rise. The computer will not adjust for the hike in interest rates that everyone knows is coming until after it happens and the portfolio has taken the loss.

Number Three: It is about the right math, the right data and more.
Robo-investment advisers claim to have sophisticated algorithms that will crunch the numbers and produce good results. The algorithms may be good but these programs look at the wrong numbers. A robo-investment adviser never gets past a limited set of gross market data. A robo-investment adviser never actually looks at any company’s balance sheet. They are an example of the GIGO principle of statistical analysis; garbage in, garbage out.

It is not only about the numbers. Before I would invest in any company I would want to know about products that the company might have in the pipeline, what its competitors were up to and what the CEO is thinking about. I am not alone. A robo-investment adviser is never interested in these things that most other investors would want to know.

Number Four: Investing cannot be done in a vacuum.
The computer program does not get a live news feed and would not know if Germany had invaded Poland so events leading up to any crisis that might affect the markets and the portfolio would necessarily be ignored. The program does not concern itself with current commodity prices, currency rates or international politics. Intelligent investors do.

To my mind, using a robo-investment adviser to construct and manage your long-term portfolio is the same as making all of your investment decisions from inside a small closet with the lights off and the door closed.

Number Five: The markets will not be static for the next 25 years.
The noted theorists upon whose works Modern Portfolio Theory and asset allocation are based were examining data from the markets prior to 1990. The financial markets have evolved significantly in the last 25 years. It is not just the speed or the technology. The markets are now global, there are a lot more participants and there is a lot more money in play. How the markets will continue to evolve and operate in the next 25 years is anyone’s guess and is certainly not built into any robo-investment program.

Number Six: The data that the program uses to select portfolios is based upon the past performance of the markets and past performance only. I should not have to tell you that past performance is an unreliable indicator of future results. If you invest with any one of these programs future results are exactly what you are trying to achieve. Why use data that is unlikely to get you there?

Number Seven: Human beings are actually necessary.
The sales pitch for these robo-investment advisers suggests that can do better than any human financial adviser. One company even touts that its program alleviates the risk of human error.

Using a robo-investment adviser will inevitably lead to portfolio losses every time the stock market goes down or interest rates go up. It will never tell you to avoid downturns or to get out of the markets all together before a crash. Likewise, the program never looks for new companies that might do very well or for any other investment opportunities that might make you money.

Severe market downturns can be scary. Investors are prone to panic. When your account value is dropping you are going to want someone to call. The robo-investment adviser will offer neither solace nor advice. That will only come from a knowledgeable human being. For that you have to pay a little more.