5. Top Mistakes
1. Bad behavior (e.g., performance chasing)
○ DALBAR: Cost of market timing ~ 5% / yr
2. Bad investments (e.g., high fees)
○ White House: Cost of conflicted advice ~ 1% / yr
6. $100k growing at 6% for 30 years → $600k
$100k growing at 0% for 30 years → $100k
________
$500k
Diversified portfolio grows at about 6% / yr
Tragic Consequences
9. Duncan Gilchrist
AB Applied Math, PhD Business Economics @ Harvard
Half a dozen journal publications
● Why do people go to bad movies?
● How can we improve organ donation?
● How should we pay people?
Present:
Data Scientist & Research Lead, Experience @ Wealthfront
10. Two Questions
1. How to optimize? Figuring out which option to pursue.
2. How to execute? Actually pursuing that (or any) option.
11. Need a model & data. Difficult to optimize when:
1. Little information is available
2. Activity is done infrequently, so limited feedback
3. Activity takes a long time to complete and/or feedback
that is received is lagged
4. Significant uncertainty or high volatility in outcomes
Optimization = Cognitive + Behavioral Challenge
12. Execution = Optimization at Micro-scale.
Need to prioritize & be motivated. Difficult to execute when:
1. Activity is optional
2. Activity must be repeated frequently
3. Activity results are difficult to measure
4. Activity doesn’t yield immediate gratification
13. Optimization is Straightforward
Execution is
Straightforward
Yes No
Yes
No
Seeking medical attention Career decisions
Financial planningEating well;
Getting in shape
18. Every $1 invested with Wealthfront is invested well.
But…
1. What about behavior at Wealthfront?
2. What about money invested elsewhere?
3. What about other financial decisions?
Good Decisions On AND Off Our Platform
19. Tension Between Automation & Education
Clients come to us because we do the right thing
But automation alone is insufficient:
Have to understand why something is right
24. Link an external investment account. We provide personalized,
actionable recommendations on:
1. Fees
2. Diversification
3. Cash drag
4. Tax efficiency
Investments Elsewhere: Portfolio Review
25. Q + A
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