Let’s face it – investing is difficult! Gone are the days of saving for retirement. The average savings account in the USA pays less than 1%. Fortunately for most investors the stock market has been going up and up, but it’s going to correct (it always does). But it hasn’t been a good ride for all investors. Many retirees now living off their retirements are heavy into fixed income investments like annuities that pay a fixed monthly amount based on interest rates, which are at historic lows. Interest rates are so low, when these investors bought annuities, they are getting up to 90% less than what they expected. Quantitative Easing is killing retirees’ portfolios.
So what is the solution? Along with the bad comes good – like with any technology. Modern hospital techniques prolong life and save lives, but also with new medical technology comes many dangers. This is also true in financial services. For example, it’s now possible to trade and invest in algorithmic trading products called sometimes ‘robots’ which do investing for you. Just like human managers, all robots are different. Some are extremely risky, some are extremely conservative. With the advent of algorithmic trading, investors should be prepared to do due diligence on this new asset class, and be familiar with some of what such an investment entails.
Generally, robots are offered to investors as managed accounts or a fund product, such as a hedge fund, commodity pool, or structured product. Much of the due diligence is done by the managers of the robot and explained in a document such as a prospectus, disclosure document, or other offering memorandum. Be sure to work only with licensed managers!
There’s other benefits to algorithmic investing. The US election produced huge volatility which negatively impacted stock investments and many others. Take a look at a EUR/USD hourly chart, around the time of the US election (right).
Now take a look at the results from that night from Magic FX, one of Fortress Capital’s algorithmic managed accounts for QEP/ECP:
That is not to say that, algorithms are a panacea. But, they do provide a new type of risk profile, a new type of opportunity for investors, and are guaranteed to change the landscape of investing forever.