In February, I completed a Wealthfront questionnaire to see what kind of portfolio I would be assigned.
I am generally a risk-averse investor, but Wealthfront gave me a very risky portfolio. The combined share of emerging market stocks and emerging market bonds were close to 30%. It also included 12% REITs and 17% foreign stocks, in addition to 20% U.S. stocks. It had no Treasuries (the only thing that could have saved that portfolio when trouble hit in August) – all for an investor who was a 6.5 out of 10 on the risk tolerance scale. (For more details see The Main Weakness of Robo Advisors). Not surprisingly this portfolio has been down about 7.4% since February. While the loss is not large, for a risk-averse investor it is not trivial to lose that much over seven months in the absence of a major market meltdown. I have not performed the same exercise on the Betterment platform, but given the similarity in optimization techniques across robo advisors, it is reasonable to assume that the results would be similar.
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