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Welcome to our Friday Finance Fix Newsletter, where we bring you the latest updates on key financial developments shaping the economy and markets.
Fed Speakers Continue Inflation Talks
As December begins, the financial world is abuzz with updates from key figures within the Federal Reserve. On Thursday (November), Fed speakers Williams, Daly, and US Treasury Secretary Yellen collectively conveyed a message: Inflation may be cooling, but the path ahead is not entirely clear. The consensus suggests progress towards the 2% inflation target while maintaining a robust labor market. Notably, Goolsbee reinforced this stance, highlighting the strides made in combating inflation.
Federal Chair Jerome Powell's December statement further added to the narrative. Powell affirmed the Fed's readiness to tighten policies if deemed appropriate while emphasizing the continued strength of the labor market. Despite this unsurprising analysis, the market responded positively, with all three major indexes moving into the green. Investors are buoyed by the progress made in taming inflation, but caution remains as uncertainties persist.
UAW Plans to Expand
In the realm of labor relations, the United Auto Workers (UAW) is embarking on an ambitious campaign to expand its reach. Building on the success of a recent strike against the Detroit Three manufacturers, UAW President Shawn Fain aims to organize 13 non-unionized automakers. The goal is to extend negotiations beyond the Big Three, targeting nearly 150,000 workers across companies like BMW, Honda, Tesla, and Toyota.
The union faces challenges, especially in traditionally non-unionized Southern plants. However, recent historic contracts and increased support provide momentum. Organizers are collecting union authorization cards online, emphasizing issues like corporate profits and executive compensation. As the UAW ventures into uncharted territory, tough battles lie ahead.
OPEC+ Meeting Agrees to Cut Voluntary Oil Output
A pivotal OPEC+ meeting unfolded with an agreement to cut oil production by 2.2 million barrels per day from the next year. Concerns about a potential oil surplus in 2024 and lower prices prompted the move aimed at supporting prices and stabilizing the market. However, the market responded negatively to the news, as the cuts were not as deep as anticipated.
Despite the disappointment, the meeting marked a notable decision, and OPEC+ extended an invitation to Brazil to join its ranks. The market will closely watch how these production cuts impact prices and manufacturing in the coming months.
Musk Cybertruck Release Slightly Disappointing
Tesla's much-anticipated Cybertruck has finally hit the roads, but the launch was not without its challenges. Production delays and unexpected costs have made the Cybertruck more expensive than initially promised. Elon Musk insists that these difficulties are par for the course with new technology, but concerns about profitability linger.
On launch day, only 10 Cybertrucks were delivered, and it's projected to take 18 months before it significantly contributes to Tesla's cash flow. Success hinges on attracting traditional pickup truck buyers, but profitability remains a significant hurdle. Despite the setbacks, if Tesla can overcome these challenges, it could pave the way for the company to reclaim a $1 trillion valuation.
Big Execs Backing Nikki Haley
In the political arena, several prominent business leaders, including JPMorgan CEO Jamie Dimon, are throwing their support behind former South Carolina Governor Nikki Haley in the Republican presidential primary. Despite endorsements from figures like Charles Koch, Haley faces an uphill battle against the dominance of Donald Trump, who leads in fundraising.
GOP megadonors are drawn to Haley for her perceived rational policies, but she trails significantly in head-to-head matchups against Trump. While polling shows her as the second-most-popular GOP candidate in New Hampshire, closing the gap against Trump's popularity remains uncertain. The shifting landscape of endorsements and support could significantly impact the economic outlook as the elections unfold.
What about alphaAI?
In any investment endeavor, the key to success lies in making informed decisions. Whether you're building a recession-resistant portfolio, diversifying your assets, or simply exploring new opportunities, your journey should be guided by data and time-tested methodologies. At alphaAI, we are dedicated to helping you invest intelligently with AI-powered strategies. Our roboadvisor automatically adapts to market shifts, offering dynamic wealth management tailored to your risk level and portfolio preferences. We're your trusted partner in the complex world of finance, working with you to make smarter investments and pursue your financial goals with confidence. Your journey to financial success begins here, with alphaAI by your side.
ETFs have become the buzz of the investment world, offering everyday investors unique opportunities. While many embrace them for secure, long-term investing, the mechanics behind ETF creation and redemption, critical processes shaping fund performance and pricing, often remain obscured. In this blog, we unveil the intricacies of these processes that drive the ETF landscape.
The Basics of ETF Creation and Redemption
ETF creation and redemption are foundational processes allowing the introduction of new shares (creation) or withdrawal of existing shares (redemption) from the market. Authorized Participants (APs), typically large institutions, play a key role in these processes.
The Creation Process
Baskets of Securities: Mirroring the ETF's Portfolio:
Authorized Participants (APs) meticulously construct an "in-kind" basket of securities that mirrors the composition of the ETF's index or portfolio. This precise alignment is crucial in minimizing tracking error, contributing significantly to the efficiency of fund management.
Delivery to the Fund: The Exchange Mechanism:
Following the assembly of the in-kind basket, APs engage in the exchange mechanism. They swap the basket for newly created ETF shares, bundled into creation units. This process stands out for its efficiency, cost minimization, and tax efficiency benefits, as it helps reduce capital gains distributions.
Impact on the Fund's Holdings: Portfolio Adjustments:
The adjustments resulting from the delivery of the in-kind basket play a pivotal role in aligning the fund with its index. Fund managers strategically navigate these adjustments, ensuring both efficiency and liquidity in the fund's operations.
The Redemption Process
Return of ETF Shares: Redemption Process Unveiled:
In the redemption process, APs take center stage by returning ETF shares in exchange for the underlying securities held in the in-kind basket. This process involves intermediaries, facilitating a seamless exchange between the ETF issuer and the open market.
Impact on Fund Size: Liquidity and Market Dynamics:
Redemptions exert influence on the fund's size, potentially impacting liquidity. Considerations encompass potential widening of bid-ask spreads and adjustments to the supply and demand dynamics in the secondary market.
Mechanics of In-Kind Transactions
Tax Efficiency: Unlocking Advantages through In-Kind Transactions:
In-kind transactions emerge as a powerful tool for reducing capital gains distributions, particularly beneficial for investors in taxable accounts. This tax-efficient structure preserves a greater portion of returns for investors.
Market Impact: Sustaining Secondary Market Efficiency:
The use of in-kind transactions extends beyond tax benefits; it plays a crucial role in minimizing disruptions in the secondary market. This results in narrower bid-ask spreads, ultimately benefiting investors with reduced transaction costs.
Impact on Fund Performance and Pricing
Arbitrage Mechanism: Price Alignment with NAV:
Authorized Participants actively engage in arbitrage to align the ETF's market price with its Net Asset Value (NAV). This dynamic process enhances price discovery efficiency in the secondary market.
Tracking Error Minimization: Precise Index Replication:
Continuous alignment through the creation and redemption processes serves as a robust mechanism for minimizing tracking error. This meticulous approach ensures the fund closely tracks the returns of its benchmark index, instilling confidence among investors.
Real-World Examples and Case Studies
Case Study 1: S&P 500 ETF Creation:
Taking Vanguard S&P 500 ETF (VOO) as an example, the in-kind creation process is highlighted, showcasing its impact on holdings. The arbitrage mechanism within this process ensures market efficiency by swiftly correcting any deviations between the market price and NAV.
Case Study 2: Bond ETF Redemption:
Illustrating nuances in bond ETF redemption, the case of iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is explored. Differences, such as the handling of actual bonds in redemptions, shed light on the intricacies and potential impacts on liquidity and market dynamics.
Considerations for Investors
Liquidity and Bid-Ask Spreads:
The efficiency inherent in creation and redemption processes significantly contributes to ETF liquidity. Investors need to consider potential impacts on bid-ask spreads, influencing the cost of trading ETF shares. Understanding these considerations is crucial for making informed investment decisions.
Takeaways:
Understanding the intricacies of ETF creation and redemption processes empowers investors to navigate these popular investment vehicles more confidently. By unraveling how these mechanisms shape fund performance and pricing, investors can make informed decisions, enhancing their overall investment experience.
alphaAI: A True Believer of ETFs
alphaAI offers a variety of different investment strategies built for every kind of investor, including those interested in ETFs of all kinds. Our leading-edge AI technology also helps you automatically adapt to changing market conditions so you’re always optimally positioned to achieve your financial goals. Learn more about us and dive into the world of ETFs on our website.
In recent years, a profound shift has occurred in the investment landscape as investors increasingly seek opportunities to align their financial goals with positive societal impact. Socially Responsible Investing (SRI) has surged to the forefront, with Exchange-Traded Funds (ETFs) emerging as potent tools for individuals to make a difference beyond mere financial returns.
Understanding Socially Responsible Investing
Socially responsible investing involves the integration of environmental, social, and governance (ESG) factors into investment decisions, aiming to generate both financial returns and positive outcomes for society and the environment. Bloomberg Intelligence forecasts a substantial increase in assets considering ESG issues, climbing from $35 trillion to $50 trillion by 2025, representing a third of global assets under management.
Between 2018 and 2020, sustainable, responsible, and impact investing experienced remarkable growth, soaring from $12 trillion to $17.1 trillion, according to the U.S. Forum for Sustainable and Responsible Investment. Notably, 38% of surveyed investors reported allocating assets to a responsible investing strategy, with 66% expressing heightened interest due to recent climate disasters, a sentiment particularly pronounced among millennials.
The Evolution of Socially Responsible ETFs
Socially responsible ETFs have closely followed the SRI mindset, adapting to meet conscientious investor demands. From basic ESG criteria to sophisticated strategies, these funds have evolved significantly. Governmental and regulatory support, exemplified by the U.S. Department of Labor's October 2021 proposed regulation, has played a pivotal role in shaping the landscape for socially responsible ETFs.
ESG-Focused ETFs
Several ETFs concentrate on environmental, social, and governance factors, incorporating sustainability metrics into their investment processes. Examples include the Nuveen ESG Large-Cap Growth ETF, the Shelton Sustainable Equity Investor, and the Invesco Solar ETF.
Positive Social Impact Metrics
To achieve a more sustainable investing environment, socially responsible ETFs often report on their positive social impact, including metrics such as reduced carbon emissions, job creation, and community development. For instance, the iShares Global Clean Energy ETF (ICLN) supports the transition to renewable energy sources, aiming to reduce carbon emissions.
Challenges and Criticisms
Despite the noble intentions, socially responsible investing faces challenges, such as the lack of standardization leading to confusion among investors and concerns about greenwashing. Subjectivity in ESG ratings and potential trade-offs between values and returns are also significant issues. Critics argue that socially responsible ETFs may have limited impact compared to direct investments in specific projects and that exclusionary practices might not be the most effective way to drive positive change.
Takeaways
As socially responsible investing gains momentum, socially responsible ETFs emerge as instruments offering financial returns while contributing to positive societal change. By understanding their evolution, impact metrics, and potential challenges, investors can make informed decisions aligned with their values, fostering a future where financial success goes hand in hand with a better world.
alphaAI’s Use of Socially Responsible ETFs:
At alphaAI, we offer a variety of different investment strategies built for every kind of investor, including those interested in socially responsible ETFs. Our leading-edge AI technology also helps you automatically adapt to changing market conditions so you’re always optimally positioned to achieve your financial goals. Learn more about us and our offerings on our website.
Investing has definitely been a field of recent change. We’ve witnessed the intersection of technology and finance that has given rise to innovative solutions that empower investors to make smarter decisions while minimizing costs. alphaAI is a platform which helps individuals take advantage of the down days and minimize losses on market downturns.
However, there’s another innovation commonly found within the realm of robo-advisors: Tax-Loss Harvesting. This strategy has gained popularity for its ability to strategically sell securities, incurring losses to offset capital gains and taxable income. In this blog, we will explore tax-loss harvesting with roboadvisors, its benefits, and how it can be a game-changer for investors.
Understanding Roboadvisors:
Roboadvisors are automated investment platforms that leverage advanced algorithms to provide cost-effective and efficient portfolio management. There aren’t the typical hefty fees and low minimum investment requirements, but that isn’t all that makes robo-advisors an attractive investment option. Investment decisions are automated and remove the emotional element from trading and rely heavily on data-driven strategies to optimize portfolios.
What is Tax-Loss Harvesting?
Tax-loss harvesting is a proactive strategy designed to help investors minimize their tax liability by deliberately selling securities at a loss. Non-tax sheltered accounts make this technique valuable as it also follows IRS guidelines to ensure compliance. The goal is to turn market downturns into a tax advantage for investors. This is done by claiming a loss on an investment can lead to reduction in the overall tax bill at the end of the year.
How Tax-Loss Harvesting Works with Roboadvisors:
Some roboadvisors incorporate tax-loss harvesting as a piece of their automated investment strategy. The platforms continuously monitor the performance of the investor’s portfolio and identify opportunities to strategically sell securities that have incurred losses. The proceeds from the sales are reinvested into similar securities to maintain the market exposure of the portfolio.
Benefits of Tax-Loss Harvesting with Roboadvisors:
Tax Efficiency: Tax-loss harvesting enhances tax efficiency by offsetting capital gains and taxable income. This can result in a lower tax bill for investors, allowing them to keep more of their returns.
Automated Precision: The automated nature of robo-advisors ensures precise execution of tax-loss harvesting strategies. Algorithms identify and capitalize on opportunities swiftly, without the emotional biases that human investors may exhibit.
Continuous Monitoring: Roboadvisors consistently monitor market conditions and portfolio performance, enabling real-time identification of tax-loss harvesting opportunities. This proactive approach ensures that investors can capitalize on market fluctuations as they occur.
Cost-Effective: Roboadvisors are known for their low fees and minimum investment requirements. Incorporating tax-loss harvesting into their services adds an additional layer of value without significantly increasing costs for investors.
Improved After-Tax Returns: By strategically claiming losses and optimizing the tax implications of investments, tax-loss harvesting with robo-advisors can lead to improved after-tax returns. This means more money for investors to reinvest and compound over time.
Takeaways
Tax-loss harvesting with roboadvisors represents a powerful tool in the hands of investors seeking to maximize returns while minimizing tax liabilities. The automated and algorithmic nature of these platforms ensures a level of precision and efficiency that can be challenging to replicate with manual strategies. As the financial landscape continues to evolve, embracing innovative technologies like robo-advisors with tax-loss harvesting can be a strategic move for investors looking to stay ahead in the ever-changing world of finance.
alphaAI: An Investor’s Best Friend
In any investment endeavor, the key to success lies in making informed decisions. Whether you're building a recession-resistant portfolio, diversifying your assets, or simply exploring new opportunities, your journey should be guided by data and time-tested strategies. At alphaAI, we are dedicated to helping you invest intelligently with AI-powered strategies. Our roboadvisor automatically adapts to market shifts, offering dynamic wealth management tailored to your risk level and portfolio preferences. Your journey to financial success begins here, with alphaAI by your side.
Welcome to our Friday Finance Fix Newsletter, where we bring you the latest updates on key financial developments shaping the economy and markets.
Corporate America's Profit Surge:
The end of the earnings recession brings good news for Corporate America. In the most recent financial quarter, S&P 500 companies experienced a 5.6% increase in earnings compared to the previous year, with the consumer discretionary sector leading the way, boasting per-share profit jumps of over 40%. This turnaround follows a trend of falling profits that began in late 2022 and persisted through the first half of this year.
Sources: Axios
Sam Altman's Return to OpenAI:
OpenAI, a major player in the global AI industry, witnessed a whirlwind of events as Sam Altman returned as CEO after being fired and subsequently courted by Microsoft. The abrupt change in leadership led to a revamp of the company's board, now led by former Salesforce co-CEO Bret Taylor. Altman's return follows significant internal support, with over 700 employees signing a letter threatening to resign if he wasn't reinstated. The reasons behind Altman's initial dismissal remain unclear, leaving the industry speculating on the internal dynamics at OpenAI.
Sources: Bloomberg, LinkedIn, Twitter
US Consumers' Mixed Signals:
As Black Friday festivities commence, US consumers project a mixed outlook for the holiday season. Despite planning to spend an average of $1,652, an increase from the previous year, cautious spending is evident, especially in the toy and game sector. Consumers are on the lookout for deals amid inflation concerns, favoring off-price retailers like Ross, HomeGoods, and T.J. Maxx over traditional department stores. Economic indicators to watch in the New Year include late credit-card payments and a potential spending slowdown.
Sources: Deloitte, The Wall Street Journal, LinkedIn, The Wall Street Journal
Binance Outflows Amid CEO's Legal Woes:
Cryptocurrency exchange Binance faces turmoil as users withdraw over $1 billion in the wake of CEO Changpeng Zhao's legal troubles. Zhao and others were charged with violating the Bank Secrecy Act, leading Binance to agree to a staggering $4.3 billion settlement. The significant outflows signal a loss of confidence in the platform, emphasizing the vulnerability of the cryptocurrency market to regulatory challenges.
Source: CNBC
Warren Buffett's Generous Donation and Berkshire's Resilience:
Before Thanksgiving, Warren Buffett made headlines by donating over $870 million in Berkshire Hathaway stock to family foundations. In a reassuring letter to shareholders, the 93-year-old investor emphasized Berkshire's enduring strength, dispelling concerns about its future without his leadership. Buffett's donations, part of a long-standing commitment to philanthropy, aim to secure the legacy of Berkshire Hathaway, a conglomerate that owns a diverse range of well-established businesses.
What about alphaAI?
In any investment endeavor, the key to success lies in making informed decisions. Whether you're building a recession-resistant portfolio, diversifying your assets, or simply exploring new opportunities, your journey should be guided by data and time-tested methodologies. At alphaAI, we are dedicated to helping you invest intelligently with AI-powered strategies. Our roboadvisor automatically adapts to market shifts, offering dynamic wealth management tailored to your risk level and portfolio preferences. We're your trusted partner in the complex world of finance, working with you to make smarter investments and pursue your financial goals with confidence. Your journey to financial success begins here, with alphaAI by your side.
The firing of Sam Altman exemplifies how unpredictable the market can be, as more than 700 employees threatened to leave after signing a letter yesterday, and stocks reacted to the events. Although this definitely wasn’t part of OpenAI’s plans, the company’s failures became a phenomenal opportunity for Microsoft. With stocks shifting, AI developments dashed, and an unpredictable back and forth between two tech giants, don’t miss out on a lesson on navigating the financial landscape and capitalizing off of unfolding events.
What Happened with OpenAI?
It seems like everything hit the fan for OpenAI in a matter of days, so clearly, the internal component of the company was struggling, but let’s make sure the order of events is clear.
The timeline:
- Sam Altman Fired: OpenAI’s board pushed out (polite way to say fired) Altman on Friday due to a “breakdown of communication,” causing intense and confused reactions to the reasoning.
- Greg Brockman Follows Altman: Outraged by the board’s decision, Brockman resigned from his position to protest, further destabilizing the company.
- Tech Community Reacts: The tech community quickly compared the move to when Steve Jobs was fired from Apple in 1985, calling it a “reckless and irresponsible” move on behalf of the company.
- Microsoft Reacts: After investing $13 billion into OpenAI, Microsoft was understandably “blindsided” but then seized the opportunity to invite Altman and Brockman onto the team at Nadella. The announcement was made before the Monday market opened, boosting MSFT after a downturn over the weekend.
- OpenAI’s Actions: Despite investors’ and the tech communities' wishes to have Altman reinstated, OpenAI quickly hired Emmett Shear, the former CEO of Twitch, who promised to slow things down at the AI company.
- OpenAI Employees React: On Monday, over 740 of the 770 employees at OpenAI signed the letter demanding Sam and Greg back and a reconstituted board with Sam's allies. Noting that several employees depend on their jobs for visas but are waving the risk to support Altman.
- Potential Future: Altman is still pushing to return to OpenAI, but maintains options at Microsoft, all with OpenAI being pressured on every front to dissemble the board.
- [UPDATE] Sam Altman Set to Return: Along with the return of Altman, OpenAI revamped its board with Bret Taylor becoming the new chair. Brockman also returned along with other staff members. However, many people still have questions regarding the ouster and why it occurred in the first place.
The disorder essentially left OpenAI debilitated, with Microsoft acquiring strong talent, promising jobs to former employees, and positioning itself as the company that might acquire OpenAI, ChatGPT, and leading AI talent.
Why Do OpenAI’s Actions Matter?
The events at OpenAI highlight how quickly internal disagreements can lead to a company's disintegration and potential acquisition. This descent is significant for several reasons:
- Employee Discontent: The mass exodus of employees underscores their dissatisfaction with the board's decision and loyalty to Altman and Brockman while providing an opening for significant talent to shift toward Microsoft.
- Company Instability: The departure of key leadership figures creates uncertainty about OpenAI's future direction and stability but solidifies the environment for Microsoft to be an unwavering leader in AI.
- Microsoft's Strategic Acquisition: Microsoft's timely move to recruit Altman and Brockman demonstrates its ability to capitalize on unfolding events. At the same time, who knows what’s happening in OpenAI, with former board members articulating deep regret for their decision.
How Do You Navigate Unpredictable Events?
The tech market's unpredictable nature can topple even the most promising companies, as evidenced by OpenAI's recent turmoil. No one could have foreseen the weekend's events or Microsoft's swift response. That kind of uncertainty can lead to investor anxiety and portfolio mismanagement.
Here’s the potential thought process of investing throughout the turmoil: Do you invest in Microsoft? Do you invest in a different tech company that might benefit? Will it be resolved quickly or over time? Will it work out in the long term? Do you follow Sam Altman’s success and invest there? Do you count on OpenAI to salvage the company? How quickly do you need to act? Are you trying to maintain gains or minimize losses? The questions could be endless, and you might not have the time to fully flush them out, which is why it’s crucial to put the data to the test.
Why You Should Trust alphaAI!
In the ever-evolving AI landscape, alphaAI is a trusted partner for investors seeking to navigate the unpredictable while capitalizing on emerging opportunities. With alphaAI, you gain access to our leading-edge AI investment technology. Powered by the latest in machine learning, we help investors automatically adapt to changing market conditions so you can always be optimally positioned to achieve your financial goals.
Sources:
- https://stratechery.com/2023/openais-misalignment-and-microsofts-gain/
- https://www.forbes.com/sites/alexkonrad/2023/11/20/90-of-openai-employees-threatened-to-resign-visa-holders-face-a-higher-risk/?sh=7a8ad9ce50f2
Updated 12:15 PM EST on November 22, 2023
Welcome to our Friday Finance Fix Newsletter, where we bring you the latest updates on key financial developments shaping the economy and markets.
Is the Market Finally On the Upswing?
As investors cautiously dip their toes into the market waters, they're encountering encouraging ripples. Last week's significant market movements are attributed to signs of cooling inflation, positive earnings reports, a postponed government shutdown, and a favorable Q4 outlook. However, the winning streak hit a snag due to a drop in oil prices amid global conflicts. Signs of inflation easing include a positive report from the Federal Reserve and predictions of lower food prices in 2024. Surprisingly, retailers like Target and Gap exceeded expectations, raising hopes for a broader economic rebound.
Sources:
- Inflation going down equals stocks going up
- Target's Bull's-eye Earnings
- Stubborn Food Inflation To Starve in 2024
The Economy Is Recovering, But Are the Workers?
Despite signs of economic recovery, the echoes of summer strikes continue into the next season. Pharmacies like Walgreens and CVS are grappling with mass strikes, Starbucks faces strategic strikes during peak seasons, and the specter of defiance looms over various industries. Air traffic workers and airlines, overstretched and understaffed, add to the growing discontent. The sentiment among workers, inspired by successful battles for better pay, suggests that the struggle for fair treatment in the workplace is far from over.
Source:
Did the Two World Leaders Collide or Collaborate?
All eyes were on President Biden and China's President Xi Jinping as they met at the APEC summit in San Francisco. The goal was to ease tensions, re-establish military communications, and emphasize cooperation. While the leaders traded pleasantries, critics questioned the authenticity of their diplomatic encounter. Optimistic predictions around semiconductors and potential shifts in the green energy industry hinge on tangible actions following the scripted dialogue.
Source:
Apple Shifts Market Approach Amongst Lawsuits
Apple responds to pressure from Google, Samsung, and legal challenges by adopting the RCS messaging standard for iPhones. This move, slated for a software update next year, aims to improve communication with Android users. Amid lawsuits related to intentional slowdowns and monopolistic practices, Apple seeks to enhance its public image, address legal concerns, and potentially boost its stock market performance.
Source:
Microsoft Has Got Its Own Back
Microsoft, already a powerhouse in AI, makes strides by creating its own chips, the Maia 100 (AI-based) and Cobalt 100 (cloud chip). Positioned to compete with industry giants, Microsoft forecasts doubling its revenue by 2027 to $119 billion. As the company diversifies its offerings, questions arise about market control and the impact on the tech sector.
Source:
What about alphaAI?
In any investment endeavor, the key to success lies in making informed decisions. Whether you're building a recession-resistant portfolio, diversifying your assets, or simply exploring new opportunities, your journey should be guided by data and time-tested methodologies. At alphaAI, we are dedicated to helping you invest intelligently with AI-powered strategies. Our roboadvisor automatically adapts to market shifts, offering dynamic wealth management tailored to your risk level and portfolio preferences. We're your trusted partner in the complex world of finance, working with you to make smarter investments and pursue your financial goals with confidence. Your journey to financial success begins here, with alphaAI by your side.
When it comes to strategies, most investors are focused on chasing the market’s best days. After all, it seems logical, especially when the market has been ripping for the past 20 years. However, what’s counterintuitive is that avoiding the market’s worst days yields better results than trying to chase its best ones. In other words, the key to building long-term wealth is by minimizing losses, not maximizing gains. Don’t spend your time as an investor chasing the hype, drive on the avenue of profitability.
The best days are in the worst times.
Although intuition takes over for both casual and career investors, the numbers are often contradictory to perception. Investors get hyper-focused on the best days during a bull market, but the actual best-performing days (shocking for all who don’t know) statistically occur in a bear market (according to JP Morgan).
The US stock market has been on an upward trajectory for over 20 years; when it dips, it has to go up. So if it dips significantly, then it goes back up in huge numbers, giving investors their best recorded days. It seems backward, but it’s true.
The following graph depicts the market’s 10 best days and the % of their return.
If you look at the dates, you’ll notice several are from difficult economic periods (2008, 2020), which is why when investors panic sell all their assets after a dip, it’s a bad decision. The market will go back up. This means that the investors who panic sell their assets won’t experience the best days, thus hurting themselves in the long run because of the emotions behind the investment.
Avoiding the worst days beats chasing the best.
Instead of panic selling, should investors use the “buy-and-hold” strategy? Although it’s the complete opposite, it still isn’t looking at the whole picture. A majority of the best days happen in a bear market, so it makes it essential to try and hit all the best days! Staying invested during the most profitable days will obviously have a greater return, and since the best days happen during the worst times, timing is essential. When investors pull out of panic, they miss the best days, further hurting their portfolio, while the buy-and-hold method proves to be effective in bear markets because investors stay in the market. The following graphs demonstrate the significance of staying invested throughout volatile times.
According to this JP Morgan report, staying invested in the downturn, the buy-and-hold method is the better way to get a greater return. In fact, missing just 10 of the best days decreases the potential growth by over 50%. Why doesn’t everyone keep their money in the market all the time? Because the landscape of the financial market is more complex than just hitting the best days. Instead of only hitting the best days, reframe investing for profitability because the significant picture yields long-term wealth.
Instead of hyper-focusing on hitting the best days, how can an investor find room for profitability in a strategy? The alternative is to start exploring opportunities in the worst days. The opposite is true of the buy-and-hold method regarding the worst days, with the following graph visualizing how missing just 10 of the worst days shapes a portfolio.
What becomes dauntingly evident is that by missing the worst days, you’ll achieve greater profitability than by chasing the best days! That is entirely counterintuitive to the “buy-and-hold” strategy concluded from the first graph. Staying invested in all the best days means a growth of up to $68,844, but avoiding all the worst days could yield up to $504,491 (and more). The goal should always be to emphasize profitability, not gains, which is a balancing act of risk management.
There's a reason why great investors don't use “buy-and-hold” strategies.
Looking back on prevalent investors and economists, not one of them endorses the strategy of buy-and-hold. In fact, the market provides such a multitude of nuances and complexities that the buy-and-hold strategy ignores a fault. Although it does reinforce staying invested during the best days, it misses the opportunity surrounding loss minimization.
Why shouldn’t investors focus only on the best days? The best days will give you a return rate, but you only get a return on what you don’t lose. Let’s say you invested $1,000 and the market declined by 10%. You would lose $100 and have $900 left. Now let’s say the market regains 10%. Your $900 would turn into $990, not $1,000. To break even, you would have to make back 11.11%, not 10%. So every dollar lost leads to a bigger hole that you have to dig yourself out of before you can see a positive return. In this fashion, avoiding losses is actually better than chasing gains.
Another reason buy-and-hold isn’t encouraged is that 7 out of the 10 best market days occur in bear markets/economic downturns, so focusing on missing the downswings and getting in on the upswing will yield greater returns, which occur during those bear markets.
To capitalize on both the best and worst days, investors need to learn the balancing act of active risk management and not just simply trying to chase all the best days.
How do you make it all happen?
Essentially, you must time it right; how do you consistently make that happen? alphaAI! Our AI technology automates essential portfolio management functions like risk management and downside protection to help protect your investments during downturns and times of high volatility.
The predictive capabilities of alphaAI, based on billions of data points, will automatically adjust to the market and help you achieve lower drawdowns than similar passive investment approaches.
At alphaAI, we don’t promise to beat the market or oversized returns, but rather, we focus on providing a systemic and rules-based investment approach. By staying consistent, avoiding emotion, and focusing on active risk management, we are able to generate reproducible, risk-adjusted returns that help our clients achieve their financial goals year after year.
Learn more about our technology and how we’ve been able to outperform buy-and-hold strategies on our website.
Warren Buffet famously stated that most investors would be better off putting their money in an S&P 500 index fund, so did most investors interpret that as SPY? For experienced and noob investors alike, SPY is the most recognized ETF across the board. Maybe it’s the age, maybe it’s the success, maybe AI investing supports the numbers, or maybe there’s something mathematically magical about it. Either way, it’s time to explore what makes SPY the most popular ETF.
What is SPY?
The SPDR S&P 500 ETF Trust, better known by its ticker name SPY, has a goal to track the Standard & Poor’s 500 Index, which is made up of 500 large-cap stocks in the U.S. SPY is traded, on average, 14 million times a day, which makes it the largest and most traded ETF that tracks the S&P 500. Just by the fact that it tracks the S&P 500 and has the numbers that it does, obviously, it’s going to attract investors, especially those that want to invest in large-cap companies, but what else contributed to SPY’s popularity?
Why is SPY so popular?
A significant factor that launched SPY into popularity is that it was the first ETF on the U.S. market. The first ETF makes it the most recognized age, with its debut on January 22nd, 1993. As both the first ETF and the nature of the index it replicates, SPY is often thought of as the ETF that initiated tracking the S&P 500. Once again, giving it credit for groundbreaking initiatives on the market.
Just because it was the first doesn’t automatically mean it’s successful; however, SPY has an average annual return of 10%. It’s more impressive to consider how, at the original introduction, it was valued at $6.53 million, and now, in November of 2023, it has over $400 billion worth of assets. Clearly, the 10% is worth it.
SPY's return rate and overall success are due to the large-cap stocks that the ETF holds, which are part of the S&P 500. If you want typical “market returns,” then SPY is the place to be. With the semi-active management focused on profitable stocks, SPY is attractive to new investors, buy-and-hold investors, occasionally day traders, long-term investors, Warren Buffet fans, and more.
What are the benefits of investing in SPY?
Obviously, prestige and success excite people in trading, and luckily, SPY comes with several benefits that are typical for an ETF. These benefits are mainly what Buffet was trying to hint at for investors that are often overlooked in average portfolios.
- Instant Diversification
- Low-Effort Investment
- Positive Long-Term Strategy
Long-term investing that diversifies your portfolio with low-effort management is the dream combination. Does that mean SPY is the best ETF? Unfortunately, just like everything else in the market, it’s never that simple. Only investing in SPY will limit the potential to build substantial amounts of wealth, and although SPY provides those benefits, if you stop at those experiences with a 10% return rate, you could be missing out on bigger better opportunities. For example, investing in AI can amplify your portfolio even more than one ETF like SPY.
alphaAI’s approach!
Remember how Buffet said average investors should consider ETFs that track the S&P 500? That bit of advice came out because oftentimes, the nuances of the market are too complex for individual investors to navigate. However, in 2023, with AI investing, that’s no longer the case.
Although SPY provides benefits in multiple areas while being low maintenance, it’s possible to have even more significant returns with active management while remaining hands-off as an investor. The goal should always be to improve, and the technology behind alphaAI allows investors to invest in ETFs like SPY and expand their portfolios to include other top ETFs, such as IVV, VUG, and VTV. Our AI investment technology automatically adapts to market conditions so that you're always optimally positioned to achieve your financial goals.
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Frequently Asked Questions
Find answers to common questions about alphaAI.
How does alphaAI use AI?
We use AI to automate the entire investment process, from beginning to end.
At the heart of our proprietary, industry-leading AI system is a set of predictive machine learning models. Our models have been trained on multiple decades of data encompassing more than 10,000 global stocks. On average, each model is trained on more than 10 billion data points. Each model is trained to perform a unique predictive capability, and multiple models work together to make trading decisions.
Our portfolio management system uses a rules-based approach to decide what to do with the predictions that our models generate. This includes making trades and managing risk according to your unique investor profile. This system also includes numerous failsafe protocols to ensure that all actions taken are within strictly defined parameters.
Read more about our technology.
Is it safe to let AI handle my money?
Yes, absolutely! There is a 0% chance that our AI technology will take unexpected actions – let us explain why.
At its core, AI is simply machine learning (ML). ML is a branch of mathematics focused on the development of models that can learn patterns from data.
We use a variety of predictive machine learning models combined with a rules-based approach to make trades and manage risk according to your unique investor profile. Our systems include numerous failsafe protocols to ensure that all actions taken are within strictly defined parameters.
Hopefully, you now have a better understanding of what AI is and how we use it. So don't worry – AI doesn’t have sentience, and there is no chance of it going off and making its own decisions. AI is another word for machine learning, and machine learning simply consists of a collection of predictive methods and models that can learn patterns from data.
Are there any hidden fees? What’s the actual price?
At alphaAI, we don’t believe in the traditional management fee model. Why should your costs go up as your assets increase?
We charge a single, flat subscription fee. This is the only way we make money. We do not charge account opening fees, minimum account fees, withdrawal fees, or account closing fees.
At alphaAI, our mission is to make sophisticated investment strategies accessible to everyone! We pride ourselves in our affordable and transparent pricing.
What is the minimum account size?
Get started with as little as $100!
How is alphaAI different from other roboadvisors?
alphaAI is the only roboadvisor that adjusts your portfolio to the markets in real-time. Other roboadvisors use a purely passive investment approach, which leaves you unable to take advantage of market trends.
At alphaAI, we use responsive investment strategies to manage your risk. This means that when the markets are volatile or uncertain, we automatically reduce your risk to help minimize portfolio volatility.
Read more about the alphaAI difference.
What is alphaAI’s investment philosophy? How do you control risk and drawdowns?
Our goal is simple: deliver better risk-adjusted returns than the market. We do this by focusing on automated, high-upside strategies that primarily invest in leveraged ETFs, such as TQQQ and UPRO.
Our AI system adjusts your strategy to your unique investor profile and risk tolerance. We adapt your portfolio’s risk level to the markets in real-time, helping keep your portfolio’s volatility and drawdowns within your defined acceptable range. We control risk in two key ways: market exposure management and tactical asset allocation. The result: better returns for the amount of risk taken on.
Read more about our investment philosophy here.
Why does alphaAI focus on leveraged ETFs? Aren’t they highly risky?
We focus on leveraged ETFs because of their potential for significant returns. For example, TQQQ has returned an average of 41% per year since its inception. Those are the kinds of numbers that excite us, and you are the ideal client if that also excites you.
However, higher potential returns also mean higher potential losses. That is why our primary focus is on risk management. We use automated market exposure management and tactical asset allocation to ensure your portfolio’s risk matches your investor profile and risk tolerance.
For reference, the S&P 500 has an annual average volatility of 20% — think of volatility as a measure of risk. With our tech, you can specify the level of risk you’re comfortable with — whether it’s less, more, or the same as the S&P 500 — and our AI system will handle the rest.
How hands-on or off is alphaAI?
alphaAI is completely hands-off – set it and forget it!
All you have to do is set your investor profile and customize your strategies. After that, we take care of everything for you. We automatically make trades and manage your portfolio’s risk in response to market conditions. Our leading-edge AI system stays on top of the market so you don’t have to. Rest easy knowing that regardless of what the market does, we are responding in the best way for you and your financial goals.
Read more about how the alphaAI process works.
What assets can I invest in through alphaAI?
Our strategies are optimized for ETFs, including leveraged and inverse ETFs. We will be adding additional asset classes in the future.
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