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I find it kind of strange that the products many of us have our money in are so static. I use the Schwab robo-advisor. It re-balances to a target allocation.

I find it kind of strange that the products many of us have our money in are so static. I use the Schwab robo-advisor. It re-balances to a target allocation. But moving to high inflation regime with a recession on the horizon, with the fed hiking rates, and absolutely nothing changes in my portfolio. They are doing tactical over- and under-weighting of sectors and asset classes in this report. What can retail investors invest in that does the same thing as the big guys?

jonwinstanley 4y ago
Presumably they are reducing your risk to ensure your money is safe?
- cschmidt 4y ago
  No not all. They rebalance only to get you back to a target allocation. I think that’s true of virtually all robo advisors, and many human advisors too.
  - zinekeller 4y ago
    In a way, most of them do revert back your risk to what you have set, especially in a normal market (read: equities being much, much faster than bonds and money market funds), but they don't magically make your investments safer to the general risks of the market.
tdullien 4y ago
Robo advisors don't model interest rates at all. They essentially just estimate volatility of asset classes and do a round of Markowitz Portfolio optimization; they are easy to build (it takes a few days only). There is very little smarts behind them. They exist because in the past, private banks wealth management would charge customers 2% of assets per year for running the optimizer once a month (which made sense in the 1970s when only banks had computers big enough to do it).
- cschmidt 4y ago
  So what is a better alternative for a retail investor to do top level portfolio optimization?
  - HPMOR 4y ago
    Buy SPY, a few TIPS and you’re all set! Intelligent Investor is a good book here. It goes into a variety of different products and how one should allocate their resources. Highly recommend.
MuffinFlavored 4y ago
> with a recession on the horizon said who?…

jonwinstanley 4y ago

Presumably they are reducing your risk to ensure your money is safe?

cschmidt 4y ago
No not all. They rebalance only to get you back to a target allocation. I think that’s true of virtually all robo advisors, and many human advisors too.
- zinekeller 4y ago
  In a way, most of them do revert back your risk to what you have set, especially in a normal market (read: equities being much, much faster than bonds and money market funds), but they don't magically make your investments safer to the general risks of the market.

tdullien 4y ago

Robo advisors don't model interest rates at all. They essentially just estimate volatility of asset classes and do a round of Markowitz Portfolio optimization; they are easy to build (it takes a few days only). There is very little smarts behind them. They exist because in the past, private banks wealth management would charge customers 2% of assets per year for running the optimizer once a month (which made sense in the 1970s when only banks had computers big enough to do it).

cschmidt 4y ago
So what is a better alternative for a retail investor to do top level portfolio optimization?
- HPMOR 4y ago
  Buy SPY, a few TIPS and you’re all set! Intelligent Investor is a good book here. It goes into a variety of different products and how one should allocate their resources. Highly recommend.

MuffinFlavored 4y ago

> with a recession on the horizon said who?…