Robo-Advisory Solution

What Is a Robo-Advisory Solution?

The term “Robo-Advisor” is a new term and touted as a way to deliver financial advisory solutions through technology. We see nothing new about it and after looking at the solutions they offer, we find them inadequate and would not recommend them to our friends and family as they presently stand. We will be constantly monitoring advances in this area because it is a promising way for advisors to deliver a “no touch” solution as long as the client understands, accepts and can maintain the advisor’s philosophy.

However, we disagree with the philosophies currently espoused. We question their portfolio allocations and project that behaviorally, when the next market event transpires that injects fear in their clients, their clients will self-sabotage as others have done throughout history.

Advisory Relationship Types

There are only two types of advisory relationships; one where you can talk to your advisor, they know you and you know them. The other is where you don’t know your advisor and they don’t know you. This “you don’t know them and they don’t know you” market niche is what the Robo-Advisor tries to capture. This is nothing new and called a mutual fund. You don’t know the mutual fund manager and they don’t know you. The Robo-process is slick however and pretends to inject a level of professionalism where you complete a questionnaire and presto they provide you with a low cost asset allocation of index funds that is “right for you.” We consider this comical and would never and we repeat never recommend this to someone we care about.

We have our version of a Robo-Advisory solution but it is nothing like what you read about or journalists write about. We believe if you are not wealthy and looking to build wealth, we think your best chance of doing this is in a portfolio with a 100% allocation to stocks. If you complete some lame risk oriented questionnaire that says you should have a substantial portion of your money in low return, low volatility investments such as bonds and cash, you are doing yourself a disservice. Yet all of the Robo-Advisors we’ve reviewed recommend this type of disservice.

Our Advice

Our recommendation is that you should learn how stocks work, learn the rewards and risks associated with them and learn to accept and overcome those risks until you are wealthy. Once you are wealthy – and we realize wealth is a moving target and a function of the person – and only once you are wealthy should you introduce low volatility investments such as bonds and cash to your portfolio. At this point, what we call the wealth inflection point, you might and should consider employing the services of an expert advisor.

We recognize our advice is not mainstream, but once you read our study you will understand why we feel so strongly about this topic. The math behind it is simple and intuitive. Here’s a hint: The best way to determine if you are wealthy is to divide your assets by your income. If you can eliminate your income and still maintain a quality standard of living then you are wealthy. Guess what? A 100-percent allocation to stocks while building wealth uses stock market volatility to your advantage. If you examine the way money grows in the stock market you will recognize that it peaks during market up surges. The prudent investor knows when they have reached a wealth target and takes advantage of this volatility to reduce their allocation to stocks. Our philosophy is simple; volatility is your best friend when building wealth and your worst enemy while preserving wealth. For a copy of our study, please read How to Build Wealth In Your 401K.

Want to Speak with Us Directly?

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Call Carlos at (301) 464 – 8333 or Carl at (443) 534 – 3324

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