Technology is shaking up the investing landscape

There’s been couple of recent announcements in the portfolio management industry which show the extent of technology’s penetration into the industry. The announcements further continue the rise of such automatic investing companies like Betterment and Wealthfront which are using modern technology to automate and drive down investment costs for individuals.

First, Covestor announced a series of Core ETF Portfolios with zero management fees. Basically, this means you can get professionally managed buy and hold ETF portfolios for no management fees. The only fees are the underlying ETF fees and ETF transaction costs of approximately $20 per year. This is probably less than what it wold cost you to do it yourself but without having to make any decisions during the year. You just pick a certain allocation model, say the Balanced Core Portfolio (60% stocks, 40% bonds) and the rest is taken care of for you. See details here.

Second, with Motif Investing you can build your own portfolios of individual stocks or ETFs for a single one-way commission of $9.95. You can then change any individual position within your portfolio for $4.95 per transaction. Overall, this is lower than you can do on your own in any of the discount brokers that I am aware of. See details here. For example, think about implementing any of the quant models or IVY portfolios I’ve discussed on the blog with this transaction structure. You can pretty much beat the costs any broker or individual stock ETF with this model.

All of these technological developments could have huge implications for professional management, either passive or active. I believe there is a role for professional financial advice, as I discussed here, the question is how much are you going to pay for it? You think Vanguard is not aware of this trend? And why would you pay any more than 0.3% to Vanguard for any buy and hold advice? These developments also lower the bar to any active management of your portfolio and that active management of your portfolio should be leading to well documented investment outperformance and/or significant risk reduction (drawdowns, down years, etc…). If it’s not call Vanguard or do it yourself.


Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

This entry was posted in Portfolio and tagged , , . Bookmark the permalink.

6 Responses to Technology is shaking up the investing landscape

  1. Great post, Paul. In addition to the “highway robbery” so prevalent in the fee structure at the financial firms, I’ve also seen new and innovative schemes offered (such as “target date funds”) which often serve the same greedy purpose, albeit in a somewhat less discernible way.

    Constructing a viable portfolio through low-cost ETF’s, appropriate for the investor’s age, risk tolerance, etc, need not be a mysterious exercise left to the “professionals.” The answer is education, a need you clearly see, and one to which you’ve obviously dedicated yourself. Thanks for your efforts!!

    Keith B.

  2. Great post, just went to Motif and signed up . Do you know if they
    Have a pre made Motif portfolio based on the What works on Wall
    St. Value 2 screen ? Great work here .

    • libertatemamo says:

      John, I looked briefly but did not see any of the quant portfolios I’ve discussed on Motif.


  3. Jim says:

    I think the thing about Motif is if you need to add another asset to a motif, it is the equivalent of creating another motif.

    As such, if you were implementing the Ivy Portfolio, if you were to add an asset, you would have to sell your current Motif at $9.95 and then purchase the new Motif at $9.95.

    If you create a Motif with an ETF and allocate 0% to it, it does not include it when the Motif is actually created.

    Still trying to find the best strategy to implement the GTAA 13 while also keeping transaction costs low. At this rate, it seems one could possibly be good for 1 round trip Motif trade per month, which could get costly.

    Let me know if I am wrong, but I think this is the way it works after experimenting with it for a bit.

    • libertatemamo says:

      Jim, I think you’re right. Motif is better suited for the quant portfolios I’ve discussed. The best way to implement any of the IVY portfolios is through one of the big discount brokers. For example, I use TD Ameritrade. At TD 10 of the 13 GTAA ETFs are on the commission free list. 11 if you use DBC instead of GSG. That goes a long way to driving costs down.


Comments are closed.