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Behavioral Intelligence

Do We Have Proof Roboadvisors Aren’t Advisors?

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Do We Have Proof Roboadvisors Aren't Advisors?

Roboadvisors often claim to solve poor investor behavior through their automated way of investing. I have always disagreed, and suggested that investors would not be able to hold on at the next correction – regardless of a Roboadvior platform. In other words, I claim that investor behavior and our biases influence us regardless of the platform we use to invest. We may have some received some evidence of that on Monday.

As you can see from the headline, Roboadvisor websites crashed. Why? Because people were logging in en masse. Why? Well, probably because they wanted to sell. Or in Robo speak, they would change their risk preference to something more conservative…causing the automated program to sell stocks and buy bonds. In other words, these investors were looking to sell.

Perhaps the magic elixir of the Robo platforms is that they crash easy, thus ensuring no investors can make knee-jerk financial decisions. Their technology (breakdown) may have saved many of their investors from making poor decisions. But what if the market keeps going down, wouldn’t they have done a disservice. No!

Related: 10 Simple Ways to Improve Your Messaging

Contrary to opinion, success in investing is not calculated based on short-term outcomes. We can only measure success in the short-term whether the investors followed their investment process/plan. Example: selling stocks in October 2008 appeared to be the right thing to do for several months, but if that investor never got back in, or got in much later, it ended up being a bad decision.

The bottom line is that there is no easy cure to combat our biases and emotional impulses. Optimism, overconfidence on the way up; anxiety and fear on the way down. Investors expecting a simple platform to change their behavior may be up for a rude (and very expensive) awakening.

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