RoboAdvisors Are The Rage – Why They’ll Never Pick Penny Stocks!

| May 7, 2015

robotsRoboAdvisors Pick Stocks… Should You Listen?

One of the hottest topics in investing today is the use of RoboAdvisors.

What are RoboAdvisors?

Good question…

A RoboAdvisor is fancy branding for a simple computer algorithm.  Somebody built a piece of software that takes some of your vital information and spits out what stocks you should buy.  (Most often the recommendations are ETFs or Funds.)

There are so many flaws with this idea I don’t know where to start…

So, let me start with the good stuff…

RoboAdvisors – the Good, the Bad, the Ugly!

So what’s good?

RoboAdvisors are good if you’re not saving for retirement.  If you’re not saving for the long haul… than maybe a RoboAdvisor is useful.

The RoboAdvisor can encourage you to save… and set up with automatic investments, automate the investment process!

Anything that gets the lazy American up off their couch and saving is a great idea.

Another area RoboAdvisors can help is investing.

Some investors are paralyzed.  They’re so afraid of doing the wrong thing, as a result, they do nothing…

They miss years and years of financial growth and profits… investing gains that could push them from eating tuna fish… to steak and lobster in retirement!

The third reason RoboAdviors are good – low fees.

I read about a RoboAdvisor company that was charging $10 a month for their services… if you have a few hundred thousand to invest… that’s a ridiculously low cost.

But despite the benefits, some things are not good…

RoboAdvisors and the Bad and Ugly

For investors who are actively investing on their own, RoboAdvisors are a tragic mistake.

Let me explain.

These computer software systems are simply using historical market data to pick investments for people.  Not a bad way to go… but every piece of investment literature has the famous saying… “Past results not indicative of future returns.”

In other words… the future will be different from the past.

That’s problem one… driving by watching the rearview mirror is never good.

Problem two… RoboAdvisors stick to the mainstream.

This is what kills me about mainstream investment strategies.  These systems are set up to use the most popular and widely traded investment vehicles… ETFs, Mutual Funds… and rarely blue chip stocks.

The problem is they miss out on growth.

Go back in history and you’ll see what I mean.

The biggest gains in the stock market have been delivered by the smallest companies.  Companies that start off tiny… and become the 800lb gorilla!

Like Apple $AAPL…

Look at this chart…

Roboadvisors Apple stock $AAPL

Apple is now one of the largest companies in the world… but 10 or even 20 years ago, it was a small upstart.

Years ago, it wasn’t tracked by the big indexes… it wasn’t followed by the biggest mutual funds… Nope.  This was a company too small for many to invest in.

Companies like this don’t get selected by RoboAdvisors until they’re huge.  That means your investment dollars miss out on massive returns.

RoboAdvisors will never pick out penny stocks to buy…

As if that’s not bad enough… there’s a third problem with RoboAdvisors.

The Third and Final Problem with RoboAdvisors

This problem is a bigger one for the untrained investor.

A RoboAdvisor can’t hold your hand or share with you his experiences.

Look, if the market starts to rocket skyward… or turn south… or one of your stocks gets some strange news… your RoboAdvisor doesn’t care.

He can’t explain what’s happening… or what action you should take.

As a matter of fact, from my understanding, RoboAdvisors set it and forget it when they invest.

Great if you’re cooking a chicken… but you’ll end up with a burnt bird in the real world!

Here’s the thing… RoboAdvisors have traction. They’re attracting investors of all types… and the money placed in their hands is growing.

They won’t go away…

But that doesn’t mean you should embrace them either.

What do you think of RoboAdvisors?  Do you use one?

Good trading…

Brian Kent

Note: Brian Kent has been trading the markets for more than 2 decades and now writes and edits for  You can sign up for the penny stock research newsletter a trusted source for the truth about penny stocks! Sign up today and get a free research report –


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Category: Investing in Penny Stocks

About the Author ()

Brian Kent is the Editor for He also pens Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market's next Blue Chips.