Summary of The Promises and Pitfalls of Robo-Advising

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Debate in the equities market focuses on the value of active versus passive investment management. Yet even when fund managers and individual investors control their portfolios, the question remains whether a smarter approach exists. Professors Francesco D’Acunto, Nagpurnanand Prabhala and Alberto G. Rossi explore robo-advising as a replacement for human guidance in this thorough examination of this potentially transformational fintech. While never giving investment advice, getAbstract recommends their robust report to investors and financial managers. 

In this summary, you will learn

  • What robo-advising contributes to the investment landscape,
  • Why an investor might benefit from the technology and
  • How investors alter their portfolio choices by using robo-advising.
 

About the Authors

Nagpurnanand Prabhala is a professor at the University of Maryland, where Francesco D’Acunto and Alberto G. Rossi are assistant professors.

 

Summary

Although diversification is critical to the success of a stock market portfolio, many investors fail to vary their holdings. Financial advisers can steer their clients to a broader range of stocks, but advisers are vulnerable to cognitive biases. The advent of robo-advising offers the potential of helping investors diversify while avoiding the flawed thinking that can lead human counselors astray. The introduction of an “automated portfolio optimizer” gives investors a simple interface with which to design and position an equity mix based on quantitative analysis, historical metrics and trending trading strategies.

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