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Okay, so you may want, and indeed it's quite

a strong trend nowadays to go for robo-advisors.

So I did [LAUGH] the experiment.

And I went to one leading firm in terms of robo advising,

and for the strategic asset allocation.

And basically, I was given roughly ten questions, and I answer them.

And the output was a recommended asset allocation.

So I'm going to show you here four set of answers, because I had,

obviously, an idea when I went on the website and answered the questions.

And I will show you a couple of simulations, and

you will see what the impact of age and wealth is for the robot.

So, called simulation 1, go for high returns, go for high octane.

So, on the website I was asked how old I was.

I cheated a little bit, and I said I'm 49.

What do you mean I cheated?

I didn't cheat, 49 okay.

I was asked my revenue, so I said $1000, okay.

Wealth half a million, becomes interesting, right?

Objective, what is your objective?

As an investor, I said I shoot for maximum gains, okay.

And just to double check whether I really am that kind of

aggressive type of investor, the site, the robot asks me,

what would you do if the market fell by 10%?

Then poof, right back I hit and I say, I'd buy more, okay.

So once I give all this answers to the robot, he comes back and

gives me this asset allocation.

You see bonds, 13%, TIPS, we mentioned that, those are treasury inflation

protected securities, or also bonds, but that hedge against the inflation risk.

And we also have so-called high yielding bonds, so less quality,

therefore, more yield, more income.

And you see a total allocation to fixed income of 21%,

ie, a total allocation to risky assets of the rest to 100, ie, 79%.

So I did a second set of answers, and I called this simulation 2, ain't it risky?

Isn't it risky?

Okay, so I'm still 49, okay?

Yes, I'm 49.

I still have $100,000 as a revenue.

I still have a half a million dollars as wealth.

But I'm not that kind of risk lover person,

I'm actually quite risk averse, okay?

So here in the objective I say, I want to minimize losses.

And just to make sure, what do you do if market tumbles 10%?

I sell all, I get rid of all my risky investment.

The robot understands what kind of investor I am.

And you see here it gives me an allocation of 35, 6,

8 of these various categories of bonds for

a total of 49% in bonds, ie, just 51% in equities.

So far so good, simulation one, I want high returns.

I have to accept more risk, a greater allocation to risky assets.

Simulation two, I don't like risk.

So I will have more riskless, or less risky assets like fixed income, okay.

And now comes the influence of age and wealth, okay, wealth first, all right.

So simulation 3 is actually, you know what?

I'm Swiss.

Swiss can be, not the only ones, but can be quite wealthy, right?

So I'm still 49.

I still make $100,000, that's just pocket money.

For I have a wealth of 50 million, [SOUND], now you're talking, right?

50 million, woah.

Okay, what is your objective?

Well maximum gains, I still want to make more money.

I'm rich, but I want to make more money.

Hence if the market tumbles 10%, I buy more.

All right, now if we know if we believe in market efficiency and

if we are all homo economicus, I should be getting

the same allocation as when I said I only had half a million wealth, right?

The wealth should not impact my asset allocation.

Now let's see what the robot has to say to this.

And you see here the various allocations, 6% to bonds,

10% to high yield bonds, 16% only to fixed income assets.

And plus the composition of this fixed income assets has

changed dramatically from simulation one.

Because here you see, you have very few of the risk free, shall we say,

or very low risky bonds and a higher proportion of high yield bonds.

So with simulation three here we have a very high allocation

to risky assets of 84%.

Okay, and last but not least, let's have a look at the impact of

age on the asset allocation according to the robo advisors.

So basically I went on the site and I gave my true age, t's not 49, alas.

But if you combine my wealth with simulation 3,

some people might actually be more interested to

have the age, my age of 88, right?

$100,000 is still my income, but, and I also have,

well actually I only have half a million, sorry, wealth.

And I want to minimize losses.

So simulation 4 has to be compared with simulation 2.

And normally if age does not impact our asset allocation because

again market efficiency and homo economicus and all that.

Well you see here it does changes and quite dramatically so for

the fixed income allocation.

It jumps from 49 to 75%.

So here it's quite funny because this robo advisor

actually is a firm which believes in market efficiency.

So they don't come with active funds.

They actually only promote passive investments.

But they have these influences of age and

wealth, which would make you think that it's actually more

in the active asset allocation camp, or

the camp of those who do not adhere strictly to market efficiency and

homo economicus.

So in conclusions, we saw with this two sets of videos that both our age and

our wealth do matter when we have to take decisions for

our strategic asset allocation.

The wealthier we are, the less risk averse we tend to be.

And, the older we get, the more risk averse we become, okay.

And last but not the least,

we saw that robo-advisors actually also do take into account age and

wealth when shaping the strategic asset allocation decision.

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How our age and wealth affect our investment profile - Robo-advisors

Portfolio and Risk Management

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