Please see important disclosure following this piece.
Where should I invest if I have between $100,000-$1m?
This is a question that many people – millennials and otherwise—grapple with every day, as they feel the pressures of saving for retirement, education expenses, or any number of financial objectives. It gets increasingly complex because in addition to traditional investment institutions, the emergence of myriad digital investment platforms – or “robo-advisors” – there’s a sh#t ton of brands vying for your attention and your Benjamins. It’s all very daunting and confusing – until now.
Enter Evervestment: The Un-Robo.
We’ve got great news for anyone in this demographic (commonly referred to as the “mass affluent”): Your winding, and often-overwhelming search is over. There’s now an investment alternative to robo-advisors that’s backed by over 35 years of investing experience, navigating multiple market cycles. Evervestment is Evergreen Gavekal’s digital investment platform that invests your money based on proven methodologies and time-tested strategies—not some mathematical model. Robo-advisors use algorithms to target a handful of funds, park your money in that strategy, and rebalance according to a calendar. We don’t believe in this approach since we all know markets don’t behave according to an alarm clock—they’re dictated by human behavior. Evervestment combines the digital experience of robo-advisors with the personal aspects of traditional investment advisors. In concert with Charles Schwab (who we use as a custodian, or bank to “hold” your money while we invest), we employ a hybrid investment approach, actively monitoring and rebalancing portfolios based on prevailing market conditions — just like we do for many of our larger clients.
Wait a minute, Ro-what…?
Thanks for the tug on the reins – let’s slow our roll. You might be sitting there wondering “What the h&ll is a robo-advisor?” Yes, it’s a dumb name. But chances are you’ve probably heard of some of the big players in the digital investment space like Betterment, Personal Capital, SigFig, SoFi, etc. They hire celebrities from en vogue TV shows to tout their service. There’s actress Chloe Godard showing you how to open an account on Wealthfront. And there’s the gal from Showtime’s Billions telling you to be a “maverick” and invest with Betterment. (After all, who better understands the intricacies of the financial markets—and your unique financial situation – than some Hollywood actors?)
Ok, but what does a robo-advisor actually “do”?
The process goes something like this: 1) You visit their website / download their app; 2) Fill out a risk assessment questionnaire to gauge your appetite for downside risk; 3) You get an asset allocation (mix of stocks vs bonds); 4) Based on your risk profile, age, time to goal, and a number of variables, they place you into one of a handful of “buckets” (these buckets typically hold a number of Index or Exchange Traded Funds, designed by proprietary algorithms to closely track specific areas of the market, like the S&P 500). Voila, in a matter of minutes your money is being invested via the power of math and technology. (Disclosure: Onboarding and investment experience at various robo-advisors varies.)
Sounds pretty great, huh? It’s true, the largest and most well-known robo-advisors do offer sleek, sexy user interfaces and technology that make it quick and easy to get your money invested.
But behind the curtain, there are some things they don’t want you to know. Chief among them, guess how many robo-advisors existed during the last financial crisis? Z-E-R-O. In fact, most of them were either an idea in someone’s head or lines of code being beta tested. That begs a pretty serious question: What’s going to happen the next time an unexpected, multiple-standard deviation, “Oh, Sh*T!” event happens? The problem with code and math is you have to set bounds on what’s possible.
Let’s take a look at an example: Did you know that statistical modeling calculates the probability of a five percent decline for the stock market in a single day to be a once-in- every-110-year event. We’ve seen 17 such days in the last 30 years! (stat cred: Jeff Dicks. Evergreen Gavekal) And further, that the odds of a 20% decline to be 1.54 x 10-69. Or, for those keeping score at home, that’d be 1 in every 1,540,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 years. That’s a number so big, it’s vastly greater than even the age of the universe. Yet, we saw such an event just 32 years ago on Black Monday.
And this is where the potential for a mathematical Chernobyl seems to exist for robo-advisors. In this space where humans are using equations to try and model and predict human behavior—especially when the sh#t hits the fan. For the most part, algorithms have performed relatively well since inception (albeit that’s only about 9 years). But if the plant ever starts to truly meltdown, will the humans or numbers dictate the next move? There’s a chance robos never have any major issue and are able to skirt financial calamity regardless of market conditions, but we don’t KNOW. We did get a glimpse, though, when the U.K voted to exit the European Union in 2016, and sent a shockwave through global markets. Betterment decided to suspend trading without telling clients, claiming they expected markets to continue to be extremely volatile and wanted to protect clients from “a poor environment for long-term investors”. Not only was this move controversial because Betterment didn’t relay to clients that they were locking them out from investing, it raised the question of why they really suspended trading. It seems unlikely that they were really so concerned about “long-term investors”. And, if that was the case, does that mean they weren’t concerned for clients with shorter-term goals? What was more likely the case in our view is that Betterment was nervous how their algorithm would respond to a market free-fall without real-world context. This is exactly why we think technology needs to be combined with human oversight. And, the research bears this out:
The million dollar question. Another questionable aspect of robo-advisors is around what happens when a client graduates to a new wealth stratosphere? Sure, you could invest with Betterment or SigFig but would you really? Chances are you’d probably seek out a highly respected Registered Investment Advisor (RIA) or large Wealth Management firm with a track record of serving other high-net worth individuals. After all, Betterment’s barely nine years old. True, they have the tech, marketing spend, etc to lure clients to their platform, yet they’re still very much trying to figure out the wealth management space. And Betterment isn’t alone. If you look at robo-advisors’ fee structure across the board, it’s hard to find any two alike.
The disparate nature of the models really illustrates that robos haven’t yet figured out the magic formula for serving different types of clients, if there even is one. Should they have an account minimum? If so, how much? What fee should they charge? Is it too high or too low? Is it cost-effective to offer private wealth management services for larger clients? Could they even do it effectively since that’s not their core business? How much support should / can they offer? They are trying to answer these questions (and many more) every day as they search for the right mix. One thing is clear: they’re still very much trying to find their way and discover how to serve both wealthy clients and the mass affluent.
So, back to our original question: If you’re someone with anywhere from $100k-$1m you’re trying to invest, chances are your options are (more or less) the following:
- A large investment institution where you’ll get kicked down the hall to a person low on the totem pole
- A run-of-the-mill investment advisor where you’ll likely get adequate-ish service from someone with sub-par credentials and experience
- A robo-advisor where your money is invested via an algorithm and rebalanced according to a calendar – not the current market environment
The Evervestment difference.
We’re excited because we think our new digital investing platform offers the best of both worlds: a digital user experience and human portfolio management. Here are some of the elements we believe make Evervestment the ideal alternative to typical robo-advisors:
Tax loss harvesting – For those non-finance dorks out there, this simply means we take a loss on an investment that has gone down to help offset capital gains tax for stocks that have gone up. In the end, this helps improve your overall returns and is another aspect that illustrates our commitment to helping you succeed.
Assets managed – Evergreen Gavekal has roughly $2.3 billion in assets under management (as of 05/31/2019). It’s true that there are bigger robo-advisors out there, but the majority manage less than $100 million.
Graduation to Private Wealth Management – This is the area of our business that caters to high net worth individuals and is our bread and butter. Once Evervestment clients reach the necessary threshold, we can seamlessly graduate them to PWM where they’ll get the white-glove service Evergreen Gavekal is known for.
Track record > algorithms – As we talked about previously, unlike robo-advisors, we have a track record (over 35 years of investment experience) weathering multiple market cycles and some of the worst financial storms in history. We’ve been doing this well before Betterment, SoFi, SigFig, Wealthfront, Personal Capital, etc. were even coded into existence.
Hybrid active / passive strategies – We believe passive investing alone is too, well, passive. We augment passive investing with active portfolio rebalancing.
A human touch - Evervestment portfolios are constantly monitored by seasoned investment analysts and you’ll get an annual review with one of our CFPs.
We feel our comprehensive approach using a hybrid active / passive strategy – backed by an all-star team of investment pros and proven methodologies– truly puts us in a class of one. And while it’s true we do charge more than most robos, we caution against that comparison since we offer more dynamic and personalized financial guidance.
One big thing. If you take away anything from this musing, let it be this: Markets and humans are volatile and unpredictable, and while algorithms may typically perform just fine, we can’t possibly know how they’ll respond in times of crisis. Financial markets require real-world context, time-tested strategies, and a team of highly experienced financial experts—all augmented by digital capabilities. We’re now proud to say that’s what we bring to the table.
If you or anyone you know would like to sign up to be an Evervestment client (or learn more), please visit our website: www.evervestment.com.
Our digital onboarding process works very much like other prominent robo-advisors and you can get invested in as little as 10 minutes. Just select either Evercare Portfolio (socially responsible investments) or Evergrow Portfolio (globally diversified investments) to get started.
Even if you’re not a millionaire, now you can invest like one anyway.
DISCLOSURE: Evervestment is a service offered by Evergreen Gavekal. This material has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation reflect our judgment as of the date of this presentation, and are subject to change. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness. Companies highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for or against the use or investment of these companies. Past performance is no guarantee of future results. All investments involve risk including the loss of principal.