Low fees drive rise of robo financial advisers

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Security concept. Isolated on white
Security concept. Isolated on white
Security concept. Isolated on white

By Jeff Reeves

There’s a lot of buzz on Wall Street these days about investing technology and so-called “robo-advisers” — automated investment services that use algorithms and Internet tools to manage your portfolio.

With good reason. Countless studies have shown that active portfolio management, with human beings trying to pick the best stocks, consistently underperforms the market in general. Consider S&P Dow Jones Indices data through 2014 that show almost 89% of actively managed funds posted worse five-year returns than a plain vanilla index like the S&P 500, and about 82% posted worse returns across the prior 10 years.

In addition to better returns, passively “indexing” your portfolio also can save you a bundle on management fees, because it requires much less expense to manage the fixed list of stocks that make up the S&P 500 than to actively research and trade stocks based on complex strategies.

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