Three Reasons to Ignore Robo-Advisors... and The Best Strategy to Beat Them

Keith Fitz-Gerald

I've seen Wall Street use darn near every little conceivable technological trick in the book to gain a statistical edge over every day investors over the past 35 years.

One of the craziest was a high-frequency trading shop that actually wanted to drill through mountains so they could shave off milliseconds transporting information along a fiber-optic cable between exchanges in Chicago and New Jersey.

So, when BlackRock, a global investment management company with $5.1 trillion under management announced earlier this week that it was replacing human managers with stock-picking machines, only one thought raced through my brain...

...here we go again!

Here's what Wall Street won't tell you.

What Wall Street Hopes You'll Never Know

If you've never heard the term "robo-advisor" you're not alone.

The term denotes some sort of automated system - a "robot" for lack of better terminology - that is programmed to make investment decisions for you.

The notion of a super-fast, super-smart computer sounds great at first glance because they're being billed as a smarter way to make decisions with minimal human intervention based on mathematical rules of algorithms.

Not only will you "save time" says the slick advertising, but the implication is that you'll "get better results, too."

Don't bet on it - there's always a catch.

Or, in this case, three powerful reasons to steer clear.

First, Wall Street's interests always come first.

Wall Street is like a casino in that it makes its money using your money.

The more you trade, the more profitable they become. Diversification, the efficient frontier, target date portfolios, online trading screeners...and now robo-advisors...these are all tools cooked up to separate you from your money.

Years ago - in 1940 - a Wall Street insider and professional trader named Fred Schwed, Jr. touched on this subject when he wrote a book called "Where are the Customers' Yachts?" Ostensibly written as an educational and humorous look at Wall Street hypocrisy in an age gone by, the book neatly captures the lunacy of modern investing 77 years later.

I can only imagine what Schwed would say today about legions of investors who are going broke following the advice of Wall Street's bankers and brokers - many of whom trade directly against their clients. And about robo-advisors that will only accelerate that process under the guise of helping every day investors.

You may think Wall Street is acting in your best interests but that's because they want you to believe that's the case. Wall Street firms have spent billions over the years understanding their customers and they know exactly which buttons to push when it comes to the slick advertising luring you in.

Want to buy the latest unicorn when it IPOs?

Good luck with that...you're last in line, and your "buy" is their exit. Early investors make a killing and it's not uncommon for big bankers, lawyers, and underwriters to force your hand even as they conduct "dog and pony" sh…

Keith Fitz-Gerald

About the Author

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Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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