Why no tech in investing?

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Would you pay to use such a program?

Poll ended at Tue Feb 07, 2012 11:24 pm

YES, that would help me a whole not.
NO, I'd rather trust myself/ humans to do my stuff
Such a software already exists
Total votes: 14

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Why no tech in investing?

Post by femtoace » Mon Jan 23, 2012 11:24 pm

Looking at a software like say quicken/ibank/mint, accessing financial information from various firms is a certain possibility. Today's technology does allow for automation of things such as asset allocation, redistribution, tax efficient placement of funds etc.., With all the software boom, I guess we have adequate sophistication to combine both in order to create a product which can retrieve information across multiple financial institutions and automatically do the investing. How is it that such a software doesn't exist? or is there something like that? If there is, would you use one?

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Re: Why no tech in investing?

Post by GregLee » Mon Jan 23, 2012 11:47 pm

I would be surprised if such software wasn't in use by mutual fund managers.

I didn't know how to vote in the poll. I think such software could be useful, so somebody else might buy it, but personally, I am not a buyer of software.
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Re: Why no tech in investing?

Post by mhc » Mon Jan 23, 2012 11:49 pm

I think it would take quite a bit of convincing for me to allow software to do my investing. Also, I have not seen anything that follows my investing philosophy.

Also, I enjoy managing my investments. I am not willing to pay someone or something to do what I enjoy. On the other hand, I am willing to pay someone to repair my car because I do not enjoy that.

Now if you had software that could do my taxes with no effort on my part, I would like that.

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Re: Why no tech in investing?

Post by cheese_breath » Tue Jan 24, 2012 12:18 am

If the software told me to invest in index funds I would have no use for it because I already do that. If it told me anything else I wouldn't trust it.
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Re: Why no tech in investing?

Post by TheEternalVortex » Tue Jan 24, 2012 2:13 am

I haven't seen anything that is able to do all of the following:
- Invest across multiple accounts, following tax-efficient fund placement
- Rebalance when new contributions are made
- Tax-loss harvest appropriately

Of course perhaps something like this exists. Even if I still had to manually enter the transactions, just telling me what to do would already be pretty good.

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Re: Why no tech in investing?

Post by tadamsmar » Tue Jan 24, 2012 2:18 am

One issue would be the potential for third party involvement in fraud. If there is a security breach at your aggregator that leads to fraud, then your broker or mutual fund company is not responsible for making you whole.

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Re: Why no tech in investing?

Post by nisiprius » Tue Jan 24, 2012 6:22 am

I think you've identified a real need, but I don't think failure to understand the need is the reason why the need hasn't been filled.

If it is going to be a standalone service, available at a fee, from an independent entity, I personally would not touch it with a ten-foot pole due to security concerns. Aeons ago I used a version of Financial Engines--in the dotcom era it was available to anyone at no cost, back in the days with lots of internet things were available at no cost--that required me to enter the passwords to all my online brokerage accounts so that it could acquire holdings and totals. I would never do that again, am sorry I ever did it with Financial Engines, and hope they are telling the truth when they said all data is deleted when they close the account.

As to why individual financial companies, Vanguard for example, don't routinely offer automatic rebalancing and automatic implementation of systematic withdrawal systems, I don't know. I think they should, I hope they will someday, and I don't believe it would cost so much that they'd need to charge a fee for it.
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Re: Why no tech in investing?

Post by The Wizard » Tue Jan 24, 2012 6:34 am

Requirements for such a tool are way too complex.
What exactly would it do?
I have a certain mix of funds I'm limited to within TIAA-CREF.
I have ALL of the Vanguard family of funds available to me in Roth IRA and after-tax, subject to minimums.
Is this clever s/w tool going to analyze the VG offerings and tell me where I should put my $$$?
How would we know it's not analyzing past performance to predict future results, which we all know simply CANNOT be done?
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Re: Why no tech in investing?

Post by livesoft » Tue Jan 24, 2012 6:41 am

There is no one solution to the problem of investing, so how would a software program present all the solutions or the range of solutoins, or would it simply show one solution? And for "solution", I am not thinking of a simple least-squares fit to a set of points to make a line, but more a maximum likelihood result.

And then there is the liability issue as well.

BTW, I believe the Financial Engines software was one such attempt.
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Re: Why no tech in investing?

Post by Don Christy » Tue Jan 24, 2012 7:18 am

I would be interested in a much smaller (albeit still difficult) scope offering. I would like a solution where I could set up the initial portfolio, including information about account location and tax treatment, and have the s/w automatically rebalance when new money hits a designated (money market) account, make periodic rebalancing recommendations, taking into account tax consequences, and make TLH recommendations, taking into account designated loss harvesting funds.

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Re: Why no tech in investing?

Post by Sidney » Tue Jan 24, 2012 7:58 am

In addition to the practical considerations identified by some posters, one of the risks you run with software-based solutions is that the user stops thinking and blindly responds to the output of the software. Look at what has happened to taxes. While I would loathe to return to the days of paper returns, the prevalence of cheap tax software has helped dumb down the whole process of preparing a tax return.
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Re: Why no tech in investing?

Post by rkhusky » Tue Jan 24, 2012 8:30 am

Frankly, I would like a desktop tool like Morningstar's XRay that would, on the press of a button, download the current prices for the funds that I own, compute the various weightings for market sector, company size, bond duration and rating, growth vs. value, country, etc, and then provide a comparison to my asset allocation. I do a lot of this by hand now in a spreadsheet and it is a bit tedious. I would not want the software to automatically buy/sell shares, but perhaps others would.

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Re: Why no tech in investing?

Post by ejvyas » Tue Jan 24, 2012 8:40 am

Such software exists in simple form to rebalance and adjust AA in my 401k. I dont use it. I believe the fund managers and hedge funds run even complex versions of this software. I prefer manual control.

Have you heard about High Frequency Trading?

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Re: Why no tech in investing?

Post by brianH » Tue Jan 24, 2012 9:47 am

Voted: already exists. I co-wrote a rebalancing/portfolio tracking engine that is currently used by some of the advisor arms of Vanguard, but which I will decline to name due to not working with it anymore. It was geared towards the advisors themselves, not at the direct customers.

I think the biggest roadblock to providing this type of interface to direct consumers is the (perceived) lack of knowledge. The vast majority of investors don't know, or care to know, anything about the technical aspects of portfolio management. Start adding in tax lot selection algorithms, wash-sale rules, basis accounting, etc. and you've lost most of the audience.

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Re: Why no tech in investing?

Post by femtoace » Tue Jan 24, 2012 10:04 am

Yeah, I did hear about high frequency trading. And I've heard there are algorithms made to trade in a matter of mere (milli-micro) seconds which are hard to beat if "time to buy" meant anything! But as long as atleast two rich traders compete for the best price (and spend $$$ trying to figure out the best price), an index fund should perform better than either of the traders (which is why bogleheads believe in index funds).
Security, I agree, is a huge concern but then again we trust everything from $$ (all my bank accounts are online) to our health records. Breach of security is a possibility regardless of whether they are physical records or electronic records. But if a company had enough $$$, may be one could use a "state of the art" protection mechanism?
While it's hard to get every person to learn about investing, enough people actually look up how to invest. I mean the expected returns should actually justify the risks in such a scenario.
As far as the difficulty of creating such a program, I guess its a lot harder to develop a game like say world of warcraft or software which helps with our security. Talking about security, a newer game named diablo 3 has a real money auction house which may work across countries- and the company doing this isnt really a financial giant.
While there is no one solution to investing, most of us here do use historical data and compute our asset allocation. The stock/ bond mix we talk about often would likely not exist if either of them returned say -10% a year for the last 60 years (which is more than any investors horizon!). When we can judicially use back tested data, what prevents a computer from doing so?

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Re: Why no tech in investing?

Post by Valuethinker » Tue Jan 24, 2012 10:26 am

GregLee wrote:I would be surprised if such software wasn't in use by mutual fund managers.

I didn't know how to vote in the poll. I think such software could be useful, so somebody else might buy it, but personally, I am not a buyer of software.
Index mutual funds are all quant driven-- a PC and a fund manager, that's all you need.

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