Asked by Anonymous

As the algorithm is rather new and has been running for about 2 years, what if AutoWealth underperforms the benchmark or suffers a loss. How would the algorithm adjust to it?

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  • Tai Zhi
    Tai Zhi
    Level 3. Wonderkid
    Answered on 07 Jul 2018

    Unlike other robo-advisors with complex strategies and algorithms, AutoWealth adopts a simple, easy-to-understand market-tracking investment strategy.

    An investor can expect his/her investment returns to approximate the general market returns of world stocks and govt bonds through a market-tracking strategy. The risk of underperformance is strongly mitigated.

    However, a market-tracking strategy does not necessarily means that investors will certainly not make a loss all the time. At times when general markets are declining, an investor would expect his/her portfolio to decline about the same extent. However, do note that at some point portfolio rebalancing may be triggered to sell govt bonds (take profit on safe haven asset in a downturn) and buy stocks (buy risk assets when its cheap). Eventually when general markets rebound, the rebalanced AutoWealth portfolio will now generate higher returns as compared to general markets.

    Standard & Poors Dow Jones maintain an extensive research on active vs passive (ie market-tracking) for more than a decade now. The results have been consistent over the years. Due to its comprehensiveness, its extensive coverage and consistency, this research has now became the authoritative conclusion between active vs passive.

    You may read the research here: https://us.spindices.com/documents/spiva/spiva-us-year-end-2017.pdf

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