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Robo Advisor Risk v Reward, International Diversification + Returns

Robo Advisor Returns, Risk v Reward + International Diversification Analysis

Finally, there’s data to get the scoop on various robo advisors. You can compare the risk vs returns of robo-advisors and view international diversification information. Then integrate this data with robo advisor performance results. If you’re considering investing with  a digital investment advisor, here’s some useful data to guide you.

Robo-Advisor One Year Returns

Condor Capital invested funds  in a number of robo-advisors. To keep things consistent, they allocated their investment money in a 60% stock v 40% bond allocation. The robo-advisor returns offered up Betterment as the #1 performer for one year ending September 2017 with a 11.97% return. Schwab eked out a close second with a 12 month 11.93% return. TD Ameritrade claimed third place in the one year performance race with a respectable 11.81% annual return.

Other robo-advisors with an annual return above 11% were E*Trade Hybrid with 11.61%, Fidelity Go with 11.46%, Vanguard robo investors earned 11.41%, Wise Banyan at 11.32%, E*Trade ETF with 11.29%,  and SigFig gained 11.05%.

Returns are only one facet of the robo investing evaluation task.

Diversification impacts future returns. Specifically, robo-advisors with greater investments in better performing asset classes, will perform better. But this isn’t a guide for future performance. Unfortunately, it’s easier to review which asset classes performed well in the past than those that will excel in the future.

Robo adviser risk v reward, international diversification + performance. Get the latest scoop.

Robo-Advisor Risk v Reward

You invest in the stock market and assume a higher risk, in expectation of higher returns. Over time, stock market investing risk paid off with an 88 year average annual return for the S&P 500 of 9.53%. The risk for that return, is typically measured by standard deviation. During that same time period the S&P 500 standard deviation was approximately 19.7%.

The Schwab Intelligent Advisor portfolios enjoyed the least volatility or lowest standard deviation. With the number two slot in one year returns, Schwab achieved the greatest returns for the amount of risk taken. Graphically you can see this metric in the Sharpe ratio which measures returns against risk.

The robo-advisors with the highest Sharpe ratio were:

  • Schwab – 3.29 Sharpe ratio – 11.93% one year return
  • E*Trade ETF -3.11 Sharpe ratio – 11.29%
  • E*Trade Hybrid – 3.06 Sharpe ratio – 11.62% one year return
  • Fidelity Go – 3.05 Sharpe ratio – 11.45% one year return
  • Betterment – 3.03 Sharpe ratio – 11.96% one year return

Robo-Advisor International Diversification

The U.S. and international stock markets don’t move in lockstep. That’s why it’s helpful to check out the international diversification of your robo-advisor.

The robo-advisors with the greatest equity allocation to international assets are:

  • FutureAdvisor
  • Betterment
  • Schwab
  • Ally (Formerly TradeKing)
  • TD Ameritrade
  • SigFig
  • Betterment

There’s some overlap of the digital advisors with greater global allocation and those with higher returns. This can be explained by the strong 2017 performance of international markets. Notice that Betterment, Schwab, TD Ameritrade, SigFig and Betterment meet the dual criteria of higher one year performance and greater robo-advisor international diversification.

We like a strong allocation to international assets, as the U.S. is only one portion of the worlds investment markets. And, smaller less developed nations will tend to grow faster than older more stable economies.

Robo-Advisor Risk v Reward Takeaway

In hindsight, it’s easy to see the interrelationship between investment asset classes and performance. If a sector performs well, and a robo-advisor holds a greater number of assets in that sector, they’ll probably have higher returns.

Yet, the future remains unknown. That’s why you evaluate more than one years performance when choosing a digital investment advisor

Robo-advisors haven’t been tested during a down market. Betterment, the oldest robo-advisor was founded during the 2008 bear market. Since then, investment returns have soared. It’s unknown how these digital investment advisors will respond to the next market crash. Yet, if you’re looking to protect your investments, you’ll be better off with a robo sporting a higher Sharpe ratio and a greater allocation to fixed assets and cash.

Click here for immediate access to the most comprehensive robo-advisor comparison chart >>>

All data for this report was sourced from Condor Capital’s The Robo Report.

 

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Barbara A. Friedberg, MBA, MS

Barbara A. Friedberg, MBA, MS

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