Stock Circles

How does Smart Auto-Trading Compare to Other Robo-Advisors?

How does Smart Auto-Trading Compare to Other Robo-Advisors?

Robo-Advisors are beginning to get traction in the market. Investors are starting to demand superior user experiences, increased transparency and performance.

Robo-Advisors take advantage of data availability and automation to provide state of the art portfolio monitoring and rebalancing. Most banks are now offering or are about to offer robo-services to their customers and there are many good startups in that space as well, including Stock Circles. Using a robo-advisor is easy. Once setup, it just works.

According to Orcam Financial Group, if you compare Robo-Advisors to active mutual funds, robos definitely provide a clear financial advantage because 'robos charge less for their services for a similar performance'.

Q2 2017 Robo Report

On the market, there are 2 types of investing practices. You either are active or passive at investing. Most robos on the market trade actively one or many index funds to conduct their business. Investopedia, defines an index fund as 'a type of mutual fund with a portfolio constructed to match or track stocks of a market index, such as the Standard & Poor's 500 Index (S&P 500)'. An index fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.

Robo-Advisors Performance Compared

Robo-Advisors tend to produce a similar performance to the underlying index they are tracking. According to Orcam Financial Group, 'the average yearly return for robos was 10.6% or close to par with the S&P performance for the same period'.

How do they compare with one another?

Based on the Q2 Robo report Smart Auto-Trading compares advantageously from a performance perspective. The comparison is not exactly apples to apples however.

To get more accurate results we would need to know how much money was initially invested and if the robos were re-investing the profits accumulated in the account. Doing so could produce better results overtime because of the compounding effect.

Last but not least, they would have needed to trade the same securities. Using different securities would muddy the results. This is probably the case here.

In conclusion the results above might not be perfect, but rather are meant to illustrate a ballpark performance. They should therefore be taken with a grain of salt.

Smart Auto-Trading

In the above context, Smart Auto-Trading faired pretty well. To calculate the results we used the Model Strategy we have been relying on since February 2016. The account had $25K in it at start and the full budget was used day-in an day-out to trade but did not change overtime. The profits were not reinvested.

As for the expenses, they were calculated as $4.95/per trade which is what the broker/dealer charges for each trade and a robo-subscription fee of $29/m was added for each month referenced in the time period surveyed.

Historical performance does not guarantee future results, but historical data shows that Smart Auto-Trading compares advantageously to robos for the same period.

According to KPMG, 2017, robos' assets under management have grown in the billions in the last 5 years and are 'projected to grow 68% CAGR by 2020'.

As Robo-Advisors add more assets, they are likely to experience a performance slowdown. The execution of thousands of trades on the same stocks creates increased volatility. Technology is helping robos to manage trade execution but as they mature, it will be interesting to see how far they can scale and how much risk they will add to the common investor.

Some experts are worried about the pace at which robos are growing and how it will affect the market while others are saying that the market has plenty of room to grow before it becomes problematic. They argue that robos will diversify their offerings over time to manage market risk.

Whether we want it or not, robo investing is coming of age. Some robos are especially good at providing value. Just make sure that you have a clear investment strategy in mind and that you understand your tax situation before you start using a robo to manage your investments. Depending on where you are in life, and what your financial needs are, some robos may be more appropriate than others in your journey toward financial independence.

If you are interested in Smart Auto-Trading we recommend to use it in a tax-deferred account. Tax-deferred accounts such as Keogh, IRA, Rollover IRA, SIMPLE IRA, 529 College Plan and UGMA's provide tax advantages that other accounts don’t have. Using a robo-advisor in a tax-deferred account can make a big difference over time because of the active nature of the trading, the compounding effect and the tax advantages it provides.

Just make sure to talk to your CPA or Investment Advisor before you start robo-investing.

Disclaimer: Orcam Financial Group's data has not been audited. Robo-Companies operating large funds have different trading operations and fee structures than Stock Circles who is not operating a fund. Stock Circles model strategy is actively trading the S&P in simulation mode. This data is solely intended as an illustration to provide a performance comparison of US Robo-Companies trading equities with Stock Circles' model strategy. Stock Circles' Smart Auto-Trading is not available to the public for real-trading at this time. We are hoping to launch the service in the fall.