A case for robo-advisors

Investing / Portfolios
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Not advocating or selling anything, just opening a debate.

TL;DR: behavioral issues to maintain predefined allocation when managing a substantial capital.

A robo-advisor is often seen as a(n expensive) beginner investor tool, for auto-allocation after profiling, then “hands-off” investment limited to a recurring bank transfer.

While the mustachian way of investing is a single world cap-weighted stock low-cost ETF as only instrument, or let’s say sometimes two, for different reasons we are discussing about other products within the community:

  • Limiting US weight => ex-us, multiple ETFs
  • Tax optimization => real estate funds
  • Diversification / beta => managed futures, options ETF
  • Store of value / speculation => Gold, crypto
  • Income generation => dividends ETF/stocks, options ETF
  • Chickening out with equity stash getting bigger, age, fire prep, SRR => review allocation, bonds, withdrawal planning
  • Risk tolerance (volatility) may not be as high as expected
  • Boredom of word etf investing :slight_smile:
  • May I add: US fear, IBKR fear, transfer and secure assets in good old high fees Switzerland, brokers diversification, ETF issuers diversification, currency risk, etc.

These topics are discussed here recently. It makes a case for every active (advanced) investor here arguing there is no such thing as a passive investor (there isn’t). Having ETFs for quite everything opens doors to unqualified investors among us to “diversify” into a “strategy”.

Shifting from the simplest investment strategy to a more “complex” one comes with some caveats and management.

Rebalancing means selling, and this is the first new thing a mustachian “beginner” investor is not used to. You added gold, war’s on, sadly, and gold went to the moon, stocks are crashing. Your 90/10 alloc is now 70/30. It worked, portfolio is -5% in the middle of an economic chaos. Let’s say you are still in peaceful Switzerland and have no issue shopping your groceries at Migros or Coop, so you can focus on your portfolio. It’s time to sell the performing asset (gold) and buy something that’s crashing (stocks). A long time ago you were happy VT crashed so you could buy it cheap, and you knew your 100K-portfolio would go to the moon afterwards, “because it always has”. But nowadays your portfolio is worth 2M+ and rebalancing means doing hundreds-k transactions, incurring thousands chf fees (because you felt safer at a Swiss broker when it had become big), and you are asked to invest in an end-of-the-world crashing economy.

Is the mustachian “passive” investor who only knew “accumulating on a world stock ETF”, but for some very well thought reasons shifted from this strategy, ready for that ?

This is where a robo-advisor with all the automation may help you stick to the rules you defined. If these rules are “world etf, end of story” it has no utility. Diversification and beta are useful if rebalancing occurs. And it comes with a premium that could justify or even cancel the cost of a robo. And keep the “passive way” of doing things.

I think it would help even more during withdrawal phase, among other small advantages (tax reporting, small amount investing, etc.)

What do you think ?

I took an extreme example and do not wish for war, nor do I think most of us would care about our portfolio and how to rebalance if ww3 occurs. In my case the best I could do during covid was: nothing, just ignore, focus on day to day crisis, hope for the better, but not optimistic-enough to double down. Better than panic selling, worse than automation and sticking to the rules.

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I did this long time before robo-advisor were available. I call it mechanical investment strategies.

Two reason why I don’t use a paid-for robo advisor:

  1. Strategy is too easy. My dividend strategy requires just a few minutes per position every 3 months, why should I pay somebody for this… and I like to do this and it is the only work I do.
  2. Strategy is too complicate. My momentum strategy has some very original rules that I probably did just include to be unique… and it seems to work. There are some rules that cannot be implemented by a standard robo advisor. However, I could program one myself.

Now, if you cannot follow your own rules the same applies for a robo advisor. But OK, if you have to do something to do nothing probably your laziness (not yours of course, just generally speaking) will help.

Rule based investing is an absolute must. At least position and money management should always be automated. Those are difficult decisions. I did start there over a decade ago and by now have everything automated.

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Personally, I agree with your conclusion. The challenge with Robo Advisors is their cost. But to be honest, its better if someone invests at 0.6% TER, vs. if the same person didn’t invest at all because they were confused with what it takes. Or even worse, the person invests everything into VT and then sells at the worst possible timing.

There is just one caveat, there are robos and there are robos. Some cause quite som pain down the road (tax statements et all). I think that the “evolution” of an investor shall go from:

  • Pension Fund if it was stable and one had a good prospect
  • Avadis as a complete hands-off Solution
  • Viac Invest as a Robo without any Tax Complexities attached
  • Recurring Investment Plans at a bank (Yuh, Swissquote, Postfinance) for people that can deal with more complexity (thereby investing in UBS Vitainvest or a LifeStrategy ETF)
  • Self-Managed, Balanced ETF Portfolio for people that invest for 10+ years and know that they won’t panic in downturns

I do not see any need for products like Truewealth, Finpension, Findependent (Robo but still complex) or VT Only Funds… If you invest 100% equities, you do not YET know your risk tollerance.

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I could have rephrased (hesitated to) : isn’t a robo-advisor our @cubanpete_the_swiss we need when we are not as smart / skilled / bulletproof as him, even if we consider we’re beyond that (because we (used to?) know the truth relies in low cost ETF at low cost broker forever-ever) ?

(Of course we would not be able to set up your kind of strategy, but for the sake of a “follow the rules” mindset that I think we are overrating ourselves, as well as risk tolerance).

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I wouldn’t call that smart, just old enough to have committed every possible error. :laughing:

But then again, the rules are not that important. I can help with details. Nobody will define a rule that says buy expensive and sell cheap. The important thing is to follow the rules.

Now, pay that much for a simple rebalancing seems a bit… expensive. It probably takes just a few minutes to do this once or twice a year and that adds up to a big big hourly salary. Unless you start counting the money you lose because of your errors of course…

BTW: I think IB had a kind of one-click rebalancing feature. Never used it…

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This is where the discussion around robo and hands-off solution targeting “uneducated” or “unwilling” individuals starts. Better expensive than nothing.

Not to replicate that very topic, where I think the idea was to advise financially illiterate people.

The idea here was more around the average mustachian, FIRE-oriented investor, that started with a single ETF, convinced themself about the strategy in the long run but then face the reality I have enumerated beforehand. And this is what we could see right here, especially when markets started to tumble, usd crashing, trump threat, US-not-our-friend-anymore, world can change, etc. Suddenly being this very “educated” “advanced” investor that just accumulated VT on IBKR is testing themself and tries to find alternatives, sometimes deploying them… and certainly won’t go to the noob-expensive-robo, but… maybe they should ?

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It is a very interesting subject for me. I think there are two big steps:

  1. Define strategy.
  2. Execute strategy.

A Robo Advisor may help with 2. but the more difficult part I suppose is 1.

If all you have is a hammer, every problem looks like a nail. That may be the problem of robo advisors, at least the cheaper ones. And again, defining the strategy may be more difficult, but you have to do this only once, probably for decades. Now executing may or may not be automated, I prefer not to, but this is my gusto.

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What do you mean ? Because robo are not reliable executing (or defining) the strategy, or because WE are not reliable NOT tweaking the robo/strategy when things go south ?

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Well, if you’re 100% equities then yes, they only overcomplicate what you can do with 1 world ETF, but they also offer to add bonds, gold, real estate, commodities, crypto etc. If your strategy includes those asset classes, these products make sense, no?

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This is the very question: is every investor here who adds these asset-classes in their portfolio for whatever reasons (some listed above) ready for what’s next in the long run, managing them, rebalancing hundreds-k of assets, when they come from an “accumulating VT” strategy ?

Again, it’s easy to buy. Easy to rebalance when buying, when still possible. I am not sure everyone is anticipating where it goes when it (hopefully) grows big.

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Isn’t that a fallacy? That’s possibly the least educated and advanced investor there is! May be wise, following Socrates’s “The only true wisdom is in knowing you know nothing” :wink:

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Thus the “”.

But that is actually what you may read on FIRE-blogs and forums and I am sure a lot of people feel. Because one may have excluded such things as buying expensive funds on a 3a insurance contract, using expensive Swiss broker, robo advisors, and on the other hand has set up their IBKR account, knows how a US ETF is tax efficient and has mastery in tax declarations, DA-1 and what-not, is self served, watched a lot of Ben Felix, read a lot of forum, “knows” that going passive on full equity is the path to success -until they think it’s not anymore, see above-, and feel strong among people not knowing how to buy a stock or what an ETF is.

Now they’re millionnaire and they’re facing questions about how to manage the stash, risks, volatility, cash-flow, withdrawal, uncertainty, new world order, … maybe they should not diversify but when they do, I am not sure we’re discussing the road ahead, and how it is a HUGE difference with accumulating on a single ETF during a bull market…

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I try to be more comprehensive :

Average mustachian who has started and succeeded the mustachian way and feel the need to go to multi-asset investing but may not be capable of dealing with it (may discover that later, when it comes to selling hundred kCHF of one asset class to rebalance), so used to a single ETF one-rule mechanic investing with “buy limit order” as the only known action, that shifting to a robo may be useful while contrarian to their original belief.

Also, they may be in their withdrawal phase and withdrawing from multi-asset portfolio is also another story.

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Could you explain, why selling 100k of something should be more complex than selling 10k?

All I see is adding a “0” to the order.

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I’m asking, not stating :wink:

First, selling, when you’re not used to. Because you are a super optimized accumulative buyer.

Then, selling what’s high and getting higher, to buy something that’s crashing. You were used to converting cash into cheap VT, during a crash, happy to buy low. Not used to selling your up-140% YTD gold ETF to buy some down-50% YTD stocks ETF - and going (made-up figures).

Finally, if you are as cool-headed as you say and just think “that’s just an added 0”, and absolute amounts do not make a difference, you are very well prepared indeed. We may not be as strong as you are.

Even @cubanpete_the_swiss hates to follow his own rules, as he likes to say.

You have to be ready to play the game, and going multi-assets may not be as easy as what’s been done before, when accumulating on a single or even multiple ETFs.

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Going multi-asset in the first place, when the stash is already considerable. But they are “just” a super optimized VT buyer in the first place, and may overrate themself in managing a more complex portfolio, while inspired with what’s been said here and there and accessibility through ETF. Easy to buy, harder to maintain.

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Managed Futures

Any experience with JEPI and JEPQ

Monkey-brain ETFs: Dividend ETFs

Lowering exposure to US tech by shifting from VWRL to VHYL

Direct Residential Real Estate Funds in Switzerland

Buying gold Vs staying with CHF

Present and Future of Bitcoin [2025]

CHF 2.1M Portfolio – Looking to Reduce US Tilt, What Would You Do?

Just a few but the main ones on a “mustachian” forum where multi asset allocation is discussed.

Buying is easy.

Just asking if one really knows where it goes long term when starting to diversify, it’s not only managing their risk tolerance, it’s moving away from the passive one click investment strategy.

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A robo may at least implement a simple strategy on stock regions (diversify from us/tech topic…), gold, crypto, real estate, may as well have dividend/value-oriented ETF or exposure to small/big caps at your convenience.

No options strategy or managed futures ETF there afaik.

Does a VT-only investor who reassesses their asset allocation and starts buying XYZ to shift from /whatever risk detected/ really anticipate where it’s going and what it implies in terms of portfolio management ?

Or will their “passive” strategy be “ok so btc is now 1M, I “decide” that my new asset allocation is 99% crypto” ? (long gone the 1% “fun money” invested 10 years ago)

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Share your net worth progression
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Are you implying a huge nest does not need a strategy or rebalancing ? That’s quite the topic’s subject, so you’ve got a simple solution there :slight_smile:

A huge nest, and/or a really fast and growing asset in crisis time, while others are failing, might put you in a situation where contributions are not enough. And if you “wait” for it to come back to “normal”, you may have missed an opportunity to sell high / buy low. Gold and/or crypto holders may be experiencing it right now.

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For people that stay in Switzerland, the hedging of bonds to EUR (or GBP or USD) make LifeStrategy funds completely unsuitable, in my opinion. If I didn’t manage my portfolio myself, I’d rather pay a bit more for Vitainvest or one of the cheaper robo advisors than get EUR-hedged bonds.

I agree, at least as long as I can still trust my brain to function well enough. When getting old, I might feel more comfortable handing management over to someone else, and in that case a robo advisor with a withdrawal plan or Avadis may be sensible options. AUM-based fees should also be less of an issue then due to the shorter time horizon, as long as the fees are not excessive.