Visitors Now:
Total Visits:
Total Stories:
Profile image
By Humble Student of the Markets (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Peak robo?

Tuesday, October 11, 2016 14:24
% of readers think this story is Fact. Add your two cents.

(Before It's News)

We all know about how the business model of robo-advisor works. First, determine the appropriate asset mix based on the risk, return, tax regime and other specific needs of the client. Then, build the portfolio and rebalance it on a periodic basis. The typical investment process can be summarized by the following steps:

  1. Determine the target asset mix, which could change depending on market conditions.
  2. Re-balance if:
    • The asset mix weights moves more than a certain percentage, e.g. 10%, from the target weight; or
    • Periodically, such on an annual basis These are all sensible rules that have long been practiced in the investment industry. In essence, the strategy involves taking profits on winning asset classes and averaging down on losers as a form of risk-control discipline

By following these simple rules, a portfolio will get investing decisions similar to what is depicted in the chart below. The top panel shows the price chart of the Dow Jones Global Index and the bottom panel shows the relative price performance of DJ Global against US Treasuries. Depending on the exact rebalancing rules, a fixed-weight portfolio that re-balances periodically will buy stocks near the bottom of the market and sell them near the top.

B4INREMOTE-aHR0cHM6Ly8yLmJwLmJsb2dzcG90LmNvbS8taTd4Sl95VkdXbFEvVl9SdHY3bWF1UUkvQUFBQUFBQUFTX3cvXzZhMGVoV01scG9EVE8tVEdFN3ZRdDR2VW5pa3dxQm13Q0xjQi9zNDAwL1JlYmFsYW5jZS5KUEc=

While the basic business model of the robo-advisor remains unchanged, I can see a couple of competitive threats to the standalone robo model. In fact, these threats may spell a peak of the standalone robo-advisor.

The full post can be found at our new site here.

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.