The rise in global equity prices in recent years has led to continued concerns over valuation levels. One indicator that appears to cause endless nervousness is the so-called “Shiller” PE ratio, which considers US stock prices relative to the rolling 10-year average level of earnings. As this note demonstrates, however, the Shiller PE ratio has proven to be a poor short-run market timing tool. And while it has proven to be a reasonable guide for likely longer-run returns in the past, allowance today needs to be made for the large structural decline in interest rates.
Someone asked the question “Which jobs in wealth management can’t be automated/ replaced by robots?”. Below is my answer:
1. Portfolio construction: In future, artificial intelligence will be used to make better sense of the vast data available to us, and help us in determining good investment opportunities. However, portfolio construction is a subjective activity, and it is based on an investment methodology that is designed by human perspectives.
This is a common question asked by many young people who have just started their journey to save for their future. If you have this question, then I am glad that you intend to invest for the long term. I am also glad that you are open to seeking the help of an expert to help you make your investments.
However, if you are considering to take the help of a high-quality financial adviser providing you the service face-to-face, then, unfortunately, the amount of investible assets that you have is not sufficient.
Someone asked the question: “Do any robo-advisors focus on downside risk?”. Below is my answer to that person —
Factoring-in the downside risk is an essential part of portfolio construction and investment management, and I am sure that credible robo-advisors deal with this.
As a client, if you are worried about the downside risk of your portfolio, then may be that portfolio is too risky for you. May be, your risk tolerance level is much lower, and you would need to opt for a less risky portfolio.
Someone asked the question: “What’s going to happen to the robo-advisors the next time the market crashes?”
The next time the market crashes, people who would have previously burnt their hands while investing in individual stocks or in not-so-highly-diversified portfolios, will migrate to a highly-diversified portfolio managed by a low-cost automated investment service.
Typically, people assume that they know more about the markets than others. People assume that they can time the market.
Someone asked the question: “Will robo advisors survive as independents or just as tools on bank websites?”
In the coming years, the automated investment management industry will become very advanced technologically. For example, artificial intelligence will be applied to investment management service. Only those independent firms that can understand technology better (like our firm QuietGrowth) will be better placed to provide a superior service in the coming years.
Someone asked the question: “What is the ultimate goal of a Robo Advisor?”
The ultimate goal of an automated investing service should be what is also the actual expectation of a typical customer.
The ultimate goal of an automated investment management service is to provide the best long-term, risk-optimized returns to the client net-of-fees. This is what a typical client wants — What is the return that I am going to enjoy in the long term for a specific portfolio risk that I am willing to take?