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Would you use a Robo-Advisor for your investments ?

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Pros & Cons of Using a Robo-Advisor

By Barbara A. Friedberg | Updated April 11, 2017 — 11:07 AM EDT

Robo-advisors are shiny new investment platforms. But what are their advantages and disadvantages? Can all digital financial advisors be painted with a broad brush?
Robo-advisors differ from brokerage to brokerage. The catch-all term includes a class of investment managers and software that uses complicated computer algorithms to administer your investment portfolios. Some robo-advisors are completely automated while others offer access to human assistance as well. Regardless of the model, they all provide customer service to assist you through the process.
The robo-advisor's' overriding assertion is that each company’s proprietary algorithm claims to take the emotion out of investing and will grant the investor better returns for a lower cost than traditional financial advisors. Yet, each advisor can’t have the ‘best’ proprietary algorithm. Let’s look under the hood at the pros and cons of using a robo-advisor.
We’ll start with the cons first and finish up with the advantages of this new and ever-expanding class of investment management.
Cons: What's Wrong with Robo-advisors?
1. They Aren’t Personalized: You’re more than just an investment portfolio. You have many goals, both for the near and long-term. While many robo-advisors now allow you to set and edit your goals using their financial planning software you also have money related issues and concerns which may benefit from a chat with a human being.
Most (although not all) robo-advisors will not hold your hand and talk you off the ledge after a significant market drop. The human financial advisor is there to assuage your fears and explain how the investment markets work. A financial planner works to integrate your finances, taxes, and estate plans. The advisor’s office may have a diverse pool of advisors to help with many aspects of life beyond just ‘money' concerns.
If you want to sell call options on an existing portfolio or buy individual stocks, most robo-advisors won’t be able to help you. There are sound investment strategies that go beyond an investing algorithm. Sophisticated and newbie investors may want a broader investment portfolio with a wider range of asset classes than the typical robo-advisor offers.
2. They Falsely Bash Advisors’ Price Schedules: It’s true that most robo-advisors have low price schedules, but not all. It’s not true that all financial advisors are expensive. There are financial advisors who charge approximately 1.0% of assets under management (AUM) for their services. This fee compares to several robo-advisors.
There are other advisors who will charge an hourly or fee for service. This practice gives the consumer a chance to control costs while receiving more personalized information. The newer ‘web-based’ personal advisors can forgo the cost of a fancy office and serve you personally via web-chat for lower fees. Additionally, there are advisors that ‘lease’ robo-advisors’ platforms and combine them with their own advisory services, thereby cutting fees and charges.
3. Falsely Claim There’s No Place for the Little ‘Guy or Gal’: There are financial advisor alternatives for those without big bucks or those just starting out. The XY Planning Network is a fee-only financial planning collection of advisors with an affordable monthly fee structure. The XY Planning Network advisors also cater to a younger clientele.
A fee-for-service advisor will put a cap on the client’s charges. Trade infrequently with an advisor paid by commission, and your costs can remain low. With the multitude of financial advisors, there are pay models and investment approaches to fit every type of investor.
4. No Face-to-Face Meetings: If you want to sit across the desk of your advisor, then a robo-advisor isn’t for you. The robos don’t have an office where a client walks in and talks directly to an advisor. This type of personal contact is relegated to the traditional financial advisory models. If you’re someone that wants a personal and in-person relationship with your financial advisor, then most robo-advisors aren’t for you. (For more, see: Can You Really Trust a Robo-Advisor?)
Pros: What's to Like about Robo-advisors?
1. Low Fees: Prior to the introduction of the robo-advisor platforms, investors were lucky to receive professionally managed investment assistance for less than 1.0% of assets under management (AUM). The robos have significantly changed that paradigm. From a cost of zero for Charles Schwab Corp.'s Intelligent Portfolios to 0.25% for a Betterment portfolio (after the first free year), there are many low-cost robos to choose from. Wealthfront and Betterment's models favor the cost-conscious consumer.
2. Nobel Prize-Winning Algorithms: Betterment and many of the robo-advisor’s algorithms rely on Nobel Prize-winning investment theory to drive their models.
From Betterment.com, “When the Nobel committee announced last month that Eugene Fama and Robert Shiller would share this year’s prize for economics, it was a great moment for their research in the field of investing—and validation for Betterment, which relies on many of their insights.”
In general, best practices investment theory strives to create an investment poThe Bottom Line
The robo-advisory sphere is just getting started. The new entrants into the landscape benefit the consumer by lowering fees while contributing many paths to professional asset management. As with any life choice, the investor should figure out what type of investment guidance he or she needs and select a robo-advisor or financial professional to suit their individual style.
rtfolio with the greatest return for the smallest risk. From 1990 Nobel Prize winner, Harry Markowitz to 2013 Fama and Shiller winners, the robos use cutting edge investment portfolio research informed by these luminaries to drive their products.
2. Access to Robo-Advisor Services Through a Financial Advisor: It’s becoming more common for traditional financial planning practices to ‘white label’ robo-advisors’ platforms for their clients. This takes the cumbersome task of choosing assets out of their hands so that the financial advisor may spend more time with their clients addressing individual tax, estate, and financial planning issues.
In the Dec. 23, 2014, Advisor Perspectives article, “Three Reasons Why Robo-Advisors are a Huge Benefit to the Advisory Profession,” Bob Veres cites Betterment, Motif, and Trizic as robos with ready-made portfolios available to the advisors. Jemstep also white labels its platform for advisors. This trend gives the consumer an opportunity for lower cost investment management while retaining the personal touch of an advisor.
3. Expanding the Market for Financial Advice: Some consumers, younger investors or those with lower net worth, may not have considered professional financial advice. The robo-advisors are growing the existing market of financial advisory clients. Because of the easy access and lower fee models for prThe Bottom Line
The robo-advisory sphere is just getting started. The new entrants into the landscape benefit the consumer by lowering fees while contributing many paths to professional asset management. As with any life choice, the investor should figure out what type of investment guidance he or she needs and select a robo-advisor or financial professional to suit their individual style.
ofessional financial management, more consumers may choose robo-advisors’ professional management in lieu of the DIY model. (For more, see: Are Robo-Advisors a Good Idea for Young Investors?
4. Robo-advisors Aren’t One-Size Fits All: There are low-fee robo-advisors for different types of clients. For example, if you’re interested in a certain sector or investment theme then Motif’s 151 existing portfolios offers a platform for you. Motif excels at giving their users many idea-based portfolios - there’s a ‘shale gas’ portfolio and even a ‘fight fat’ offering for investors interested in the weight loss providers. The caffeine portfolio culls coffee-related companies for you, mentioned Bob Veres. If your primary concern is rock bottom fees, there are several robo-advisors with broadly diversified low-fee ETF portfolios.
Some robo-advisors claim rebalancing and tax loss harvesting in their arsenal. There are single approach and hybrid style robo-advisors. Other’s such as Rebalance IRA and Personal Capital have higher barriers to entry with respectively, $100,000 to recently lowered $50,000 minimum entry fees. That said, even the robos with high entry requirements are more accessible than the finThe Bottom Line
The robo-advisory sphere is just getting started. The new entrants into the landscape benefit the consumer by lowering fees while contributing many paths to professional asset management. As with any life choice, the investor should figure out what type of investment guidance he or she needs and select a robo-advisor or financial professional to suit their individual style.
ancial advisors with $1 million portfolio minimums.
5. Low Minimum Balances: It’s a boon for investors with a small net worth to get professional robo-advisory management. Zero minimum balance technology enhanced robo-advisors include Folio Investing and Wise Banyan. Betterment has no minimum balance as well. Other robo-advisors are accessible with $1,000 to $5,000 to get started. And Personal Capital is free for those interested in access to portfolio monitoring, with the higher balance tiers reserved for exposure to a dedicated financial advisor.
The Bottom Line
The robo-advisory sphere is just getting started. The new entrants into the landscape benefit the consumer by lowering fees while contributing many paths to professional asset management. As with any life choice, the investor should figure out what type of investment guidance he or she needs and select a robo-advisor or financial professional to suit their individual style.

U.S. Renewable Energy Won’t be Derailed on Ending of Clean Power Plan

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energy costs 04.2017

 

U.S. Renewable Energy Won’t be Derailed on Ending of Clean Power Plan

President Donald Trump’s signing last Tuesday of an Executive Order to effectively nullify the U.S. Clean Power Plan signals the new administration’s support for the coal industry and intention to turns its back on Obama-era climate change efforts. However, the move “won’t derail U.S. decarbonization” due to the plummeting cost of renewable energy and the decreasing profitability of coal power, according to BNEF.

While repealing the bill is deeply symbolic, and spells concern that the U.S. may pull out of the 2015 Paris climate agreement altogether, it will likely have little impact on the U.S. renewable energy industry. The cost of wind and solar farms has dropped significantly in recent years, to the extent that these technologies can now compete with fossil fuel plants on price. Energy generated from the sun and wind accounted for more than half of the new capacity added to U.S. grids in the past two years. In addition, the low price of natural gas is driving down the price of electricity and forcing record numbers of aging coal plants to close.

Crucially, the federal tax credits for wind and solar power, coupled with state laws requiring that utilities source a certain portion of their electricity from renewables, play an important role in fueling the growth of the industry.

“As long as you have the tax credits, you should continue to see solid growth of renewables over the next three to four years,” Ethan Zindler, a senior BNEF analyst in Washington, said in an interview with Bloomberg News.

Even without the Clean Power Plan, BNEF forecasts that wind and solar energy will grow by some 51% in the U.S. over the next three years. Among the plethora of clean energy deals struck in the past week was $59.8 million in loans arranged by GCL New Energy Holdings for an 84.5-megawatt portfolio of solar projects in North Carolina, and First Solar’s sale of a 250MW solar PV plant in Nevada to a unit of Capital Dynamics, the Swiss asset manager.

Nevertheless, President Trump’s move last week to cancel policies quantifying the damage from carbon pollution and regulating methane emissions on federal land are a setback to environmental protection measures in the U.S.

“This is not the time for any country to change course on the very serious and very real threat of climate change,” said Erik Solheim, executive director of the United Nations Environment Program, quoted in the New York Times. “The science tells us that we need bolder, more ambitious commitments.”

There are concerns that last week’s Executive Order puts the U.S. on a path to miss its commitment to cut CO2 emissions 26% from 2005 levels by 2025, agreed at the COP21 negotiations in Paris two years ago. And that this in turn could embolden resistance to climate action in other countries.

Article from Bloomberg News as of 05.04.17

A few speeches from numerous European Central Bankers about ECB monetary policy

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Mario Draghi: Hearing at the Committee on Economic and Monetary Affairs

It is easy to underestimate the strength of this commitment. But that would overlook the progress we have made. With the single currency, we have forged bonds that survived the worst economic crisis since the Second World War. This was in fact the original raison d'être of the European project: keeping us united in difficult times, when it is all too tempting to turn against our neighbours or seek national solutions.

But the objective of Economic and Monetary Union should be to strive to achieve "economic and social progress" as was the intention of the signatories to the Maastricht Treaty. And for this, we need sustained growth and job creation.

The resilient recovery we have witnessed in recent times has been a welcome step towards this objective. Over the last two years GDP per capita has increased by 3% in the euro area, which compares well with other major advanced economies. Economic sentiment is at its highest level in five years. Unemployment has fallen to 9.6%, its lowest level since May 2009. And the ratio of public debt to GDP is declining for the second consecutive year.

These are steps in the right direction. But these are just first steps. We need to continue on this path so that unemployment decreases further and more Europeans can benefit from the recovery.

Addressing financial risks in the euro area

One of those side effects concerns the impact on banks' profitability. Let us first look at the data. Following a slowdown in profit generation in the first quarter of 2016, the profitability of euro area banks stabilised in the second quarter. According to preliminary data, developments for the third quarter seem to be in line with those observed for the second quarter.

A second issue is the potential risk of credit or asset bubbles. Currently, we do not see compelling evidence at the euro area level of stretched asset valuations. Both corporate bond spreads and equity prices appear to be broadly in line with fundamentals.

Similarly, real estate price growth remains moderate in the area as a whole, although significant cross-country heterogeneity is observable. This assessment is corroborated by the fact that credit growth is still modest, which suggests that asset price developments are not accompanied by increasing leverage.

Nevertheless, the longer the accommodative measures need to be kept in place, the greater the risks of unwarranted side effects on the financial system become. For instance, asset prices may increase to levels that are not in line with fundamentals because investors might be tempted to take on more risk during times of low yields.

Such developments are best addressed by enacting appropriate macro and microprudential policies.

The euro area's resilience in 2016 despite a range of negative shocks shows that we are on the right track. It also suggests that reforms at national and European level are paying off in terms of economic growth.

Introductory statement by Mr Mario Draghi, President of the European Central Bank, before the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 6 February 2017.

 

Andreas Dombret interview with Handelsblatt on Feb. 23rd, 2017

Banks need to set capital aside to prepare for a rise in interest rates in the Eurozone, chair of German Bundesbank’s (Buba) regulatory body, Andreas Dombret (pictured), told Handelsblatt on Thursday.Dombret noted that increases in inflation in both Germany and the euro area are pointing towards a potential rate hike from the European Central Bank. He added banks need to prepare capital buffers to address the potential rate rise and pointed out: “The longer the low interest rate phase goes on, the greater the risks in the event that interest rates increase.”However, the Buba executive stated that, in the long term, higher interest rates are good for banks and they will help the sector stabilize.

Bundesbank Chief Jens Weidmann on Feb. 23rd, 2017

  • Eurozone's policymakers need to see whether they should keep communicating they are ready to increase asset purchases, Bundesbank chief Jens 

  • Weidmann said on Thursday as Germany's central monetary authority presented its annual results. The appropriate scope for easing is seen differently in the European Central Bank, according to the prominent member of its rate-setting panel, who revealed he didn't agree with the decision to extend the duration of the program at the meeting in December. Weidmann explained he believes expansive policy fuels risk. The monetary union faces no danger of price swings in either direction and the economic recovery is stabilizing, according to the central banker's remarks, but he did point to what he considers relatively strong uncertainty. He warned protectionist moves by the administration of United States President Donald Trump could create a domino effect, possibly shaking the "pillars of prosperity" that are upheld by international trade. Bundesbank revealed it booked €1.8 billion in provisions related to interest-rate risks for the first time, which drove down profits for the government. Net income came in at €399 million or 87% lower. The indication of caution also points to the need to shield the system before easing measures are scaled back and bigger interest rates start to impact earnings.

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  • Peter Praet, the European Central Bank's chief economist
  • The departure of the United Kingdom from the European Union shows integration can change its course, said Peter Praet, the European Central Bank's chief economist. "A more widespread reversal of European economic integration would durably jeopardize economic prosperity," he said on Thursday at a conference about Brexit's impact on financial services in London, and claimed there will be widespread damage from the current process. Britain faces difficulties in trade with the rest of the bloc as barriers are seen building up, the central banker stressed, adding consequences will need to be mitigated on the other side as well. Praet attributed the developments to the "culmination of a broader anti-establishment and anti-globalization narrative" in advanced economies as, how he put it, uncertainty strengthened after the financial crisis. He also played down the role of monetary policy, reiterating the need for structural reforms "to build resilience to country-specific shocks and ensure the full diffusion of innovation" for balanced benefits across population groups. Asked about the measures in the pipeline of the administration of United States President Donald Trump, the member of the ECB's Executive Board said there are some "worrisome" indications, but that particular actions remain to be seen. "Despite the resilient recovery in the euro area, and strong indicators of confidence across all sectors, measures of political and policy uncertainty have been rising recently, although asset markets are not significantly pricing in tail risks. The recent bouts of uncertainty are a source of concern, and represent a downside risk to the economic outlook," Praet stated in prepared remarks.TeleTrader Newsroom / IT

     

     

    Methods to measure the S&P's performance versus gold

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    Methods to measure the SP 3.2017

    How to understand these figures :

    - The US investor had a 55 % profit from 2000 to 2017, in USD

    - The Swiss investor lost 4 % of his capital during this same period

    - If in 2000 the investor had to give 5 ounces of gold to buy the stocks included in the US index, in 2017, he has to give less than 2 ounces only.

     

    Does it prove the "safe heaven" status of gold ?

    Please feel free to contact This email address is being protected from spambots. You need JavaScript enabled to view it. 

    Market sentiment or social mood

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    As said many times before, markets are not driven by the substance of news or exogenous events. Many social experiments have been conducted over the last 30 years which prove this to be true, despite the public's belief to the contrary. And, as these experiments have proven, what does control market direction is something we term "market sentiment" or "social mood."
    The prevailing social mood or market sentiment interprets the exogenous events we hear about, and then "spins" that news based upon the prevailing social mood. This is what moves the market. If sentiment is positive, then the market will react positively, even if the news is negative, and vice versa. This is why we often see markets go up on bad news and down on good news, and it makes so many scratch their head, especially if they are looking to "logic" in the markets or if they are looking for directional cues from the substance of the news or fundamentals.
    Avi Gilburt          from Elliott Wave Trader.net

    US GDP share and the dollar's global role

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    GDP USD graph 03.2017

    Sources : The conference Board Total Economy Database, IMF International Financial Statistics, Reinhart and Rogogg, and author's calculations

    Comment:

    - since 1950, the size of US GDP compared to worldwide GDP has declined strongly

    - during the same period, the dollar's role has risen substantially.

    Which of the two would correct ?

    Please feel free to contact : This email address is being protected from spambots. You need JavaScript enabled to view it. 

     

     

     

    2017 could be the year of the active investor

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    “The outcomes of Brexit and the U.S. election have brought fundamental change, which equates to investor opportunity,” said Candace Browning, head of BofA Merrill Lynch Global Research. “If investors choose asset classes, sectors and stocks carefully, they can meaningfully outperform the market. 2017 could be the year of the active investor.”

    Key Themes:

    • S&P year-end target 2300

    • Fundamental investors to outperform the market

    • Focus on higher dividend growth companies

    • Return of value investing

    "We still think dividends are a very important part of the investment decision. But where you get your dividends will matter, and we prefer companies that are growing their dividends to those are simply paying out the maximum level of their earnings as a dividend."

    Michael Hartnett

    Chief Investment Strategist, BofA Merrill Lynch Global Research

    Brexit countdown

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    Britain would be "naive" to expect generous trade deals when it quits the European Union, the German minister responsible for its financial center said on Monday, adding that Frankfurt would grab business from London.

     While France has long made no secret about its ambition to take business from London, German politicians have largely avoided such statements and Tarek Al-Wazir's show a desire in Germany to profit from Brexit, potentially complicating Britain's attempt to strike a trade deal with the EU.

    Al-Wazir, a minister in the state of Hesse, in Germany's industrial heartland, told Reuters that British politicians were unrealistic in hoping for generous terms for future trade deals.

    "It is naive to believe that countries are simply waiting to strike trade deals with Great Britain after Brexit," he said. "Whoever wants to attract companies with tax cuts cannot expect to be rewarded with generous trade deals. It won't happen."

    Earlier this year, British Prime Minister Theresa May, when announcing that Britain would quit the European Union's single market, hinted that it could use tax breaks to fight to attract businesses if the EU imposed punitive tariffs.

    Al-Wazir said he expected the clearing of trades in euros, a multi-trillion-euro business, to move from London to centers including Frankfurt, which he is responsible for promoting.

    "It is hard to imagine that most business in euros will be booked in London after Brexit. Europe needs access if anything goes wrong. From the ECB's point of view, London is offshore after Brexit," he said, referring to the need for the European Central Bank to have oversight of the business.

    "You can expect parts of the clearing business to be spread across many continental locations. I'm confident that Frankfurt can attract part of London's euro clearing business."

    The collapse of merger talks between Deutsche Boerse (DB1Gn.DE) and the London Stock Exchange (LSE.L), however, could complicate this, with some observers predicting that the LSE is now more likely to move clearing to its Paris-based business.

    Although Britain is not one of the 19 countries in the euro currency bloc, London dominates trading in the currency.

    The trading of euro-based securities spans trillions of euros of derivatives deals as well as the 'repo' market providing short-term funding for banks – roughly 2 trillion euros of which experts say is based in London. On top of this, there is foreign exchange trading in the currency itself.

    The Frankfurt-based ECB wants oversight of this business for a practical reason: if any disaster were to hit these markets like the 2008 collapse of Lehman Brothers bank in the United States, it would be responsible for dealing with it.

    Reuters - By John O'Donnell and Andreas Kröner | FRANKFURT 

    Where does the CAPE stand ?

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    On February 2017 the indice stands at 28.44x.

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