Tadas Viskanta ran a great series this week on blogger wisdom (which might be an oxymoron). You should check out all the answers as he put together a great group, but here’s my collection of answers:
As I showed in my recent review of this segment, the so-called Robo Advisors don’t do much (if anything) that an automated buy and hold portfolio doesn’t already do (a well informed Vanguard client, for instance, gets just about everything these firms offer without the extra fees). In fact, due to failures in risk profiling and a lack of true financial planning, I have a hard time seeing why anyone would pay to have a buy and hold portfolio managed on their behalf through such an oversimplified process. I think the Robo Advisor phenomenon is a positive industry disruption that will ultimately push down fees, push out weak advisors and create a necessary convergence between human advisors and automation, but will not replace the human element.
Like the Robo Advisor phenomenon, “smart beta” looks like a lot like an attempt to take a so-called “passive” approach and sell it as something superior than buying the aggregates (all in the process of charging higher fees for a supposedly passive portfolio). I have a hard time seeing the real value add here. There’s value in some active management approaches, but I am not convinced that minor alterations in broad indices is the way this is best achieved.
Understanding demographics is largely a function of geography in today’s world. The new macro world requires an understanding of how the developed world is changing relative to the emerging world. And while it’s true that there is population stagnation in much of the developed world, there remains a population boom in much of the emerging world. A new middle class is developing and these consumers want the lifestyle they see in the developed world. There is a powerful convergence between the accessibility of technologies made in the developed world and the demand from the emerging markets that is transforming the world into a new macro environment. Investors and businesses need to position themselves accordingly.
The private markets are where I always like to say “real investment” occurs. That said, real investment is incredibly risky and studies show that 50% of start-ups fail in their first 5 years. It’s probably a good thing that most people are not able to access the primary markets.
My advice to novice investors is to know what it means to invest in yourself. That means taking the time to accumulate knowledge, staying open-minded, learning from mistakes and remembering not to confuse building wealth with building a life.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.