Find Out How Robo-Advisors Diversify Your Investments

It all started several years ago when I met Invesco's early-stage robo-advisor, Jemstep. As a former portfolio manager who morphed from a value-oriented contrarian stock picker to a lazy passive index fund investor, I was intrigued. Could a digital investment platform carry out the careful index fund asset allocation that I work tirelessly to perfect? In order to find out, I took a spin on the Jemstep platform and found that after a quick risk tolerance questionnaire, the robo-advisor-suggested asset allocation was remarkably similar to the one that I had so carefully crafted.

Jemstep, now marketing directly to the financial advisory community, previously allowed investors to maintain their investments with their existing custodians. This legacy robo-advisor provided asset allocation recommendations for the investor to carry out on her own. Thus, my interest was piqued: Could a robo-advisor really provide all that a sophisticated investor needed?

The Robo-Advisor Diversification Conundrum

I continued to study the robo-advisors, their similarities and differences. Simultaneously, I wrote many articles about the industry for Investopedia. I was curious to discover if there was a robo-advisor that offered a platform diverse enough, with various asset classes, to meet the needs of the investor seeking a level of diversification that went beyond the traditional, U.S. and international stock ETFs and broad total bond market and government bond ETFs. What I found was a tremendous amount of distinction within the investment asset classes offered by the various ETFs.

Tony Ash, Seeking Alpha contributor, wrote about the divergence in asset allocation recommendations among the robo-advisors in "Are All Robos the Same?" He also touched upon the various number of asset classes offered by Betterment and Wealthfront. Ultimately, there's tremendous heterogeneity within the robo-advisory industry, as each digital investment advisor offers distinct asset classes and ETF selections.

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Disclaimer: I am a portfolio manager, former ...

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Barbara A. Friedberg 4 years ago Author's comment

Thanks Danielle, I'll check it out. I've thought about that topic myself.

Danielle Rogers 4 years ago Member's comment

Interesting piece, thanks. You'd probably like the recent post by Cullen Roche, "Have We Reached Peak Robo Advisor?"