“Open the Trading Floor, HAL.”
In the aftermath of last month’s Brexit vote, global markets took a beating, the price of the British pound reached its lowest level in over three decades, and savvy investors were able to pounce at the opportunity to buy stocks at bargain prices. If you had invested your money in Betterment, one of the most popular robo-advisors, you were unable to capitalize on a great moneymaking opportunity due to a trading halt the firm placed on June 24th during the market selloff.
What are robo-advisors?
For those unfamiliar with the term, robo-advisors are “an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners,” according to Investopedia. They usually offer low-fee, low-minimum services, and market themselves as an easy way for you to invest without thinking or learning too much about what you’re doing. You tweak their settings based on your risk aversion and goals, and a robot does the trading for you (usually by buying and selling ETF’s).
Sounds great! Why wouldn’t I do that and make money the easy way?
We like low fee services here at American Dream Investing, but more importantly, we like having control over our money! Last week, The Wall Street Journal published an article about the Betterment halt (subscription may be required). Not only did the firm suspend trading due to the market volatility, the humans in charge didn’t even bother communicating this halt to their customers, and only alerted financial advisers using their service.
Betterment clients with a “set it and forget it” mindset were most likely oblivious, but all Betterment investors missed out on a potential windfall from the market overreaction to the Brexit news, and questions about the liquidity of their investments were raised. Also troubling: Betterment’s algorithm’s are halted from trading during the first and last 30 minutes of each trading day to avoid volatility. These are usually the best times of the day to buy and sell! By investing passively with robo-advisors, you are holding yourself back from maximum returns in your portfolio.
So, what’s an alternative?
Take matters into your own hands! Private Class Members know that No One Loves Your Money More Than You Do™, which is why we share the trades we make in our own portfolio with our Members, and they decide for themselves if they want to follow a similar path to wealth creation.
We can’t stress enough how important it is for you to maintain control over your money and financial well-being. You never know when the ghost in the machine will close the door and not let you decide how your money should be invested.