Automating investment managment

Just a quick follow-up to yesterday’s post on the emergence of online money management services. Since we originally pushed publish on that piece Farhad Majoo at Slate looked at three of the companies in this space: MarketRiders, Betterment and Personal Capital.  He writes:

For people who have extra money but not a lot of time or facility with investing, there has never been a simple way to invest in the rigorous, disciplined way that experts advise. How should you know which asset classes match your level of risk? Where are you supposed to find the time—and learn the math—to constantly rebalance your portfolio? […]

Recently, there’s been a wave of tech startups that promise to help you stop making those kinds of elementary mistakes. I’ve been testing some of them over the last few months. I can report that none is perfect; I think there’s still room in the market for a cheap, easy, killer investment app. But these sites offer some hope that the tech industry is making the financial world more hospitable to regular people.

This trend of “automating everything” is manifest in a number of businesses, many of which we think of as offline. Dwight Crow writing at The Atlantic lists three lessons about the “new online economy”:

  1. Everything can be automated.
  2. Middlemen are out.
  3. Meritocracy is in.

It does not take a particularly fertile imagination to see how automation and the application of “big data” to the problems of individual investors could fundamentally upend the current offline investment management. It might take a while longer for this process to work out in money management more so than in other industries, but it is hard to ignore the trend.

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  • Tadas ViskantaAbnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »

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