The Online Investing AI Blog

Automated Trading systems use computers to trade stocks and other assets. It may sound like science fiction, but computers are playing a more pivotal role in trading. Huge companies utilize computers to conduct complicated trades.

I know what you’re saying… how does that help you? All these big companies with deep pockets can invest in technology that you can’t afford.

But things are changing and advanced Automated Trading Technology will rapidly reach more investors and more self-directed investors.

There are a number of ways that Automated Trading is equal to–or better than–mutual funds as a tool for the self-directed investor. This performance should only improve over time.
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Online Investing AI, US Economy Automated Trading, funds, index funds, mutual funds, trading

Many people equate investing with a buy and hold strategy. They put money into their 401K or IRA account, and then buy mutual funds. They get their investing advice from the people who sell the mutual funds. They say, “No matter how far it goes down, don’t sell. Just wait until it comes back up.” And, they forget about their investment until their quarterly statement arrives.

On the other hand, the richest and most successful investors don’t buy mutual funds at all. One of their more popular investment choices are hedge funds. Hedge funds are similar to mutual funds in that the manager chooses which assets to buy and sell. Most people think that hedge funds are riskier because they are not limited in the investment strategies that they can use.

While nearly all mutual funds buy and and sell stocks, hedge funds can profit from a wide variety of strategies. For example, they can sell stocks short. They can participate in options, futures and currency markets. These markets offer higher leverage than stocks, so the government has labeled hedge funds as “risky”. Only accredited investors are allowed to invest in hedge funds.

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Investing, Money buy-and-hold, currencies, hedge funds, leverage, mutual funds, options, performance, risk

The recent market crisis has made many people question the idea of investing in mutual funds. Many people have seen their retirement portfolios plummet by as much as 50%. To add insult to injury, Bernie Madoff’s theft of $50 billion of investor money has made people wonder whether the government is protecting them at all.

One of the problems with mutual funds is that they charge high fees. These fees are described as just a few percent of the portfolio value. A few percent sounds like a very small amount, right? They sound small but they are big. Over time, these fees eat up most of the portfolio profit. How did this happen?

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Investing, Money, Success congress, financial success, government, hidden fees, Investing, lobbying, mutual funds, washington

At this time, mutual funds are the default investment vehicle for most Americans. This is because the mutual fund industry relies on the concept that you need to be an expert to buy and sell stocks. What most people don’t realize is that virtually all mutual funds underperform the market over the long term (20+ years).

We expect that in the next few years, Automated Trading will replace mutual funds as the most common investment vehicle. Most people have never heard of Automated Trading, and would not trust a computer to manage their investments. This is because Automated Trading is largely unknown, and is a new and unproven technology.

Automated Trading has many advantages over mutual funds. In some ways, it has less risk. With a mutual fund, you turn your money over to another company to manage it. The problem is that some of these companies are nothing more than Ponzi schemes. Bernie Madoff has made this abundantly clear in the last few months.

In contrast, an Automated Trading system can trade your account, but you are still in control of it. The Automated Trading system does not have the authority to take money out of the account. So, at least in this way, users of Automated Trading systems are protected from fraud.

Mutual funds tend to move up and down with the market. Since a mutual fund holds a position for months or years, when the market goes down the mutual fund goes down as well. People who have invested in these funds see their accounts go up and down with the market.

Automated Trading systems can have much shorter holding periods. And, some of them sell stocks short as well. Therefore, the direction of the market movement does not necessarily affect the accounts of people who use Automated Trading systems. It seems a bit silly to tie my wealth to the ups and downs of the general market.

These are just a few of the differences between Automated Trading systems and mutual funds. We believe that Automated Trading systems will ultimately largely replace the well established mutual fund. It will be interesting to watch and see how this new technology works out.

Automated Trading, Investing, Money Automated Trading, financial freedom, Investing, markets, Money, mutual funds, stocks

They say that history doesn’t repeat itself; but it does rhyme.

Financial wizards like to parade out statistics from the past and make predictions based on their analysis of this rear-view mirror information.

So far, I’ve heard our current economic trouble compared to:

• The tech bubble burst of 1999-2000
• The bear market of the 1970s
• The Great Depression

… And just about every other economic downturn, from the South Sea bubble to the collapse of tulip bulb prices in Holland, in between.

By cherry-picking bits and pieces of data from those eras, they believe they can convince you that since they understand the patterns of the past, they can see the future. But, that logic is faulty.

While this data may “rhyme” with current conditions, it does not repeat exactly. Take the current conditions: Americans have far more options of saving money, investing money, and creating money than the people in the Depression did. A person today could create a business in seconds for pennies, just by connecting to the internet.

How will this play out?

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Online Investing AI economy, financial industry, mutual funds, prediction, predictive

Have you ever watched a financial expert on TV? They seem to be speaking a foreign language. It looks like they know what they’re talking about, but I’ve noticed some interesting things. Here are some reasons why they might not be as expert as they appear.

To me, all that financial mumbo-jumbo doesn’t really mean anything. And I think it doesn’t mean anything to anyone. It’s true that the individual terms have a technical meaning, but when they put them all together there is no useful information. Perhaps the point of all this financial doubletalk is to make people who don’t know what the terms mean feel like they are not smart enough. I think everyone is smart enough to succeed financially. Read more…

Investing, Money, Success, US Economy doubletalk, financial expert, Investing, MBA, mumbo-jumbo, mutual funds

For many people, investing means choosing what to do with their 401(k) or IRA accounts. When it’s time to make a choice, a would-be adviser chooses some mutual funds to invest in. This is the most common method of investing in America. And it’s also one of the worst.

One of the main reasons that mutual funds do not serve us as investors is because they are designed to make money for the advisor and the company that provides them. For most advisors, it’s their job to sell mutual funds. And that’s what they do. That’s how they make a living. But these mutual funds are quite poor for the people who buy them.

Although the investor takes 100% of the risk in mutual funds, on average, they only receive 20% of the profits. This means that 80% of the profits goes to the financial advisor and the company who sells the mutual fund. This money is taken away from the investor in the form of fees. The fees are described in terms of a few percent. Since a few percent sounds like a small amount of money, most people don’t even realize just how much is being taken away.

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Internet, Investing, Money advisors, control, financial success, fraud, Investing, Madoff, mutual funds, risk

Since we are not taught anything about financial success in school, it’s a natural inclination to try to find someone else to help us achieve it. Trying to take advice from the talking heads on TV or the millions of Internet blogs is also a challenge. There’s so much information, that it’s difficult to know where to look.

The answer that many people come up with is to trust a financial advisor. They think that he advisor will help guide them with their investments, and they would not be able to achieve financial success otherwise. After speaking with the financial advisor for a few hours and making their decisions, they go back to work and spend as little time and energy thinking about investing as possible. Dreams of financial success are thrown on the back burner. This system is known as the Ron Popeil approach to financial success. Read more…

Investing, Money, Success financial advisors, financial success, Investing, Money, mutual funds, Ron Popeil, set it and forget it

One of the major challenges with investing in stocks, mutual funds, and index funds is that we have absolutely no control over the asset. Our buying or selling does not move the price of the asset. And calling the CEO of a public company to give advice probably won’t work either.

It reminds me of a recent trip on a commercial jet. You’re sitting in the passenger cabin of a 747. Right at the moment that it takes off, the plane begins to shudder and shake. Do you know that moment? I get that feeling that I am powerless over what happens with the plane. At that moment, we have absolutely no control over our lives. We could live or die in an instant.

Many investment vehicles are just like sitting in the passenger seat of a 747. We have no control over what’s going on, and are at the mercy of other people. It’s a bit scary because sometimes those other people are not completely honest.

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Investing, Money Enron, finance, index funds, Investing, investing skill, mud off, mutual funds, stocks

It’s no secret that we are in a serious financial crisis. Some of the largest companies in the country are facing bankruptcy. Foreclosures are at an all-time high. Layoffs are creating hardship for millions. Many people’s retirement accounts are down 50%. People are wondering how they’re going to survive.

Part of the reason that this financial crisis has been so damaging to millions of people is that they took bad financial advice. Most people who have a 401(k) or IRA account had no idea how to invest their life savings. So, they met with a financial advisor. This advisor may have been provided to them by their 401(k) company, or perhaps they found the advisor on their own.

Most financial advisors recommend putting your money in a combination of stock funds and bonds funds. The traditional idea is to put more money into stock funds when the client is younger. Unfortunately for the client, stock and bond mutual funds are the worst possible investment they can make. There are a few good reasons that these mutual funds are widely recommended and are the de facto investment vehicle for most Americans: Read more…

Investing, Money, US Economy 401k, financial advisors, financial crisis, Investing, ira, mutual funds, real estate, stocks