In a sign of the times, USA Today is reporting that some firms including websites such as SigFig, Betterment and Wealthfront are offering clients a human free portfolio management service.
These sites attempt to put your portfolio on autopilot, by using algorithms, pre-programmed market data and technical analysis to predict trading needs. Depending on your need the programs can maintain a pre-determined balance in your account, reinvest dividends and sell stock.
Here how it works, you the investor pay a fee to these companies, then the computers take over. It is a very hands-off approach to the traditional means of an actual human completing these tasks.
“Technology has been automating financial advice for decades, and retail investors have benefited greatly from the power of technology,” Michael Sha of SigFig says.
The concept of automated financial advisory isn’t that unnatural in the realm of high finance. Currently there is a completely electronic exchange called the Nasdaq which operates similarly. Nasdaq average daily volume of about 2 billion shares a day. Unlike other major stock markets such as the New York Stock Exchange and the American Stock Exchange, the NASDAQ has no physical trading floor where shares of stock are bought and sold. It is operated instead by a series of computer terminals.
This caused problems notably last year with flash crashes, and computer glitches. Back in May of 2010 the Dow fell about 1000 points for no conceivable reason, or market condition. Within minutes, the market recovered, and theories surfaced as to why this happened and how to prevent it. Although the issue was diverted anyone affected ultimately were compensated for the market failure, this draws ire towards computers manning the wheel.
Chime in, would you allow a computer program to manage your investment account?
Greg B., is a financial professional and native Ohioan who is the writer here. I am an avid reader, coffee connoisseur and dog lover. Follow me on Twitter @love2edify.