Is long-term investing dead? You would think so reading even my favored Wall Street Journal as it beats the drum for the future robo-advisors—a model that makes decisions based on an algorithm and human input (a phone rep fresh out of college) to determine your financial future. Sounds good on paper. We’ll see how well they do when markets crater and the phone lines light up like a Christmas tree. It’s happened twice already this century, and that’s when it matters most.
Everyone knows that long-term investment success is hard. Maybe not everyone. I’m being too generous. But listen, if money buys a ticket to Stanford, imagine the money parents are spending on themselves for “special access.”
That’s the world we live in. and let me be clear, it’s the world we’ve always lived in. The only thing that’s changed is rather than Gordon Gekko telling us “Greed is good” in the movie Wall Street, today it’s Bobby Axelrod, or Axe, acting like his own nation state in Showtime’s Billions. Greed is alive and well.
And so, if greed is still right in front of our very eyes, how is the investor playing by the rules expected to win? Easy. Don’t play the game. Easier said than done.
Long-term investing success is hard. Why? Because it takes sacrifice and doing without in a world that feeds the pigs. A world where the pigs actually have no clue that the game doesn’t end well for them.
Back to the Wall Street Journal and the robo advisers “changing” the world of finance—inventing a better mouse trap if you will. Remember that, at the core of the argument for robo-advisors, is the notion that investors can do better with low fees and a more passive approach. To simplify: allocation and ETFs.
But what if everyone is piling into the same boat? Isn’t that the new “market?” Of course it is. What cannot be measured with beta and alpha, for example, is number one: understanding yourself and number two: having your advisor know you too. Sounds simple. It isn’t.
If the markets crash, again, like they’ve done twice already this century, who’s to blame? Someone is doing the selling and someone’s doing the buying, at a better price and more often than not the Bobby Axelrods of the world are benefiting from the chaos.
Will robo advisors be there when you-know-what hits the fan? Good luck getting a live voice on the phone. Make sure you have someone you can call when it matters most.
Because long-term investing never dies.
Read the entire Dead or Alive? The Future of Long-Term Investing series.
E.J. Smith - Your Survival Guy
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