Yesterday I posted a blog where the Dual Momentum Model (DMM) is the portfolio management tool of choice. In this post I’ll walk readers through the Strategic Asset Allocation Model (SAAM) where the portfolio is managed using a Robo Advisor. I’m using the Weisskopf portfolio for this example. The Weisskopf was launched on 7/14/2017 with a $1,000 deposit. This is a young portfolio so keep that in mind when you look at the Internal Rate of Return (IRR) records.
Portfolios managed via a Robo Advisor are nearly ideal for investors who know nothing about investing and don’t want to learn. They are excellent for a spouse who has relied on the other partner to pay attention to the family portfolio. Young folks who do not have the time to monitor a portfolio can also benefit from a Robo Advisor. In the case of the Weisskopf, the owner is not interested in investing, but wanted to test the Wealthfront method and is willing to add a bit of money each month. Therefore, it is a good model for very young investors.
Wealthfront does not charge a management fee for accounts below $10,000. Betterment, another Robo Advisor, raised their fees this year from 15 basis points to 25 basis points for accounts greater than $100,000. The fees are higher for smaller accounts. Schwab does not charge a fee, but they tend to carry higher amounts in cash and this is a drag on performance in a bull market.
Portfolios managed using a Robo Advisor are out of the control of the portfolio owner. All I did was tell Wealthfront (the Robo Advisor) what Stock/Bond ratio to use. My request for this small portfolio was to invest 100% in equities as that meets the needs of the owner of the Weisskopf portfolio.
Weisskopf Portfolio: Below is the current asset allocation for the Weisskopf. Over the next year we will have a better idea of how this portfolio is managed. Keep in mind this is to be a 100% equity portfolio. This is likely too risky for many investors.
Weisskopf Performance Data: Nearly two quarters of data are now available. The Investment Account Manager software does not permit me to measure benchmark performance from the day of launch. That is the reason for the 7/01/2017 starting point. When more data is available, I will be measuring the performance based on quarters so the benchmarks match up with the portfolio in time for better comparisons.
The Weisskopf nearly matches the VTTSX benchmark, but lags the VTSMX. The DJIA is on a major bull run. But this is unlikely to continue.
Tomorrow I’ll update the Huygens, a Tranche Momentum Model portfolio. This will give readers a good look in one week at each of the three major management models used here at ITA.