Ever heard of the company Wealthfront, or the term Robo Advisor?
The promise is a disruptive technology which typically offers Mean Variance Optimized portfolios (Portfolios that optimize a level of expected return for an expected unit of risk) which are customized to an investor’s own risk tolerance, but most importantly, at a super affordable price. There are other bells and whistles typically built in like an optimized tax loss harvesting algorithm, utilization of low cost index funds (typically via ETFs, Exchange Traded Funds) and some basic personal financial planning tools.
Wealthfront in particular has gained significant traction over the past few years, garning over a Billion $ in AUM (Assets Under Management). As a competitor, I am actually quite fond of these technology companies. I see far too many advisors charging a fee which is 6 to 8 times higher for effectively the same thing (often even worse given no systematic process for investing or financial planning).
I say, “Bring on the hybridization of technology and human insight, and see how it fuels the world of capital markets…” It should ultimately keep more money in investors own pockets, make markets more efficient and place capital where it’s needed most, right?
As Newton’s Third Law States, “For every action, there is an equal and opposite reaction…” I personally have found this to be an insightful statement which can be applied to numerous aspects of life, particularly when looking at markets, strategy, etc.; in that if a technology presents something which is fraught with potential hazards, then it likely can also produces potential nuggets of pure “amazingness,” & yes, the opposite holds true as well (I tend to be more of an optimist, thus the prioritization of outcomes).
So, in the world of applying Algorithms and Artificial Learning Sciences to the world of investing where newer forms of the technology can be extremely expensive, it should come as no surprise that firms with vast amounts of capital will be experimenting. And who is arguably the most successful Hedge Funds firms out there today:
So the question is, will machine learning only help those with Wealth or could it be as many technologies before it which eventually finds it’s way to the masses as costs are driven down? What will the Wealthfront of the future look like?