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Robo Advisors Struggled to Tackle Uncertainties; Returns for 2018 are Negative

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Robo Advisors have had turbulent fiscal 2018 amid the enormous amount of volatility during the final quarter. The behavioral component of investors is the big concerns for robo advisors. This is evident from the client’s behavior during the downtime last year, which took away almost 500 points in two months alone from the S&P 500 index.

Investors were looking towards their assets and trying to approach their robo advisors to make changes to save their investments.

CIO of hybrid robo advisor Personal Capital says, “We do worry that without access to an advisor, robo clients will have emotional reactions to a bear market or succumb to pressure to adjust to what they believe will best retain assets.”

The robo advisors fail to manage positive returns for fiscal 2018. The bearish trend in the fourth-quarter rapidly turned investor’s gains into losses. Almost more than half of the robo’s reported losses in 2018 according to The Robo Report.

Even the best robo advisors had also experienced losses. Ellevest and Merrill Edge generated an average loss of 6% last year.

Fidelity Go reported a negative return of 4.6% last year while Zacks Advantage returns were standing around -4.7%.

The negative returns from robo advisors during the bearish trend raised investors concerns over their ability to tackle multiple economic trends. Robo’s normally using technology and algorithms to make an asset portfolio.

Allan Katz of New York-based Comprehensive Wealth Management says, “While investors may be comfortable with using technology for investing, the algorithms at the heart of digital platforms may be too predictive to ultimately be useful and could benefit from more active approaches to investing.”

Algorithms generally have the potential to make backward-looking analysis with very little ability to be predictive. Therefore, it is not necessary that an asset class could perform well next year after generating big returns in previous periods. Past performance has never been considered as a guarantee of the successful future.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.