Source
r/UKPersonalFinance•
jan

[Investments] I want a robot to manage my money - what are my options?

Investments

Telegraph Article on ISAs and Robo Advice compares Nutmeg, Wealthify, MoneyFarm, and Scalable Capital.

At some point, even if it is in the construction of the algorithms, an active decision has been made about how “asset allocation” – the weighting of each component in a portfolio – will be handled.

“Not all robo-advisers use an active strategy to decide on the asset breakdown, but we encourage those concerned to look at the investment strategy, who is making decisions, and what their track record is.”

But, then past performance is no indicator for future returns.

Unless you go the DIY route, how do you pick your (robo) product? How do you know when 'active', algorithm or human driven, will just burn money in fees, and when it provides valuable risk management?

Posted Oct 25, 2016, 6:27 PM UTC

65
cbzoiav•

At some point, even if it is in the construction of the algorithms, an active decision has been made about how “asset allocation” – the weighting of each component in a portfolio – will be handled.

No it doesn't. You could use machine learning combined with historical market data. The market data would then be what decides the allocations.

Anyways. This comes down to the same thing. If you just want to track indexes with a highly diversified portfolio and let computers do the majority of the work go for the cheapest possible broker and choose a product like Vanguard LifeStrategy (which is admittedly listed at the bottom of the article). The fees will be substantially lower than any of those listed products.

4
pflurklurk•

No it doesn't. You could use machine learning combined with historical market data. The market data would then be what decides the allocations.

Agreed - the article's author is extending the definition of "active" to be so broad as to be meaningless in the context.

In his own framework, the very act of compiling an index is a substantive active choice, but they are the bedrock of all passive strategies, so is it useful for him to call all passive strategies active ones? Not very, I think!

1
GordonCopestakeflowchart extraordinaire•

I want a robot to manage my money

Is this because you are lazy and don't want to do it yourself or because you want to maximise your returns?

If the latter then invest in global index trackers by the likes of Vanguard via a S&S ISA. They are proven to be better than any active management.

If the former then you should consider if a small amount of your time is worth a large chunk of your life savings.

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janOP•

Is this because you are lazy and don't want to do it yourself or because you want to maximise your returns?

I want to maximise risk-adjusted returns. If an active strategy cannot compete with a passive index tracker, why bother? The Vanguard ETF you suggest doesn't cost more of my time than any other investment vehicle.

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GordonCopestakeflowchart extraordinaire•

If an active strategy cannot compete with a passive index tracker, why bother?

Because humans always think they can time the market and get better results. Sometimes they can, but only over short time scales (luck) over the long haul, index trackers always win.

The Vanguard ETF you suggest doesn't cost more of my time than any other investment vehicle

Thats a double edged sword. Some people think that they have to put in more effort to get a higher return. But in reality, the more you mess, the more chance you have of making a mess of it. For 99% of the population the best bet is to setup a direct debit to auto-invest in Vanguard Life Strategy 100 Acc fund, and ignore it until they retire.

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