Closing the Behavior Gap - MyRoboAdviser™
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Closing the Behavior Gap

11 Dec Closing the Behavior Gap

What is the behavior gap?

The behavior gap is a term coined by Carl Richards to describe the difference between the higher returns that investors might potentially earn and the lower returns they actually do earn because of their own behavior. Many investors react to market volatility and buy or sell based upon their emotions.As a consequence of investment decisions led by their emotions, many investors earn lower returns than what they could have earned if they had simply weathered the storm and not made these emotional decisions. Market volatility is going to happen and if an investor can control their emotions, they will set themselves up for potentially earning a higher return.

There are a few different strategies to avoid the behavior gap. In a study done by Vanguard, Vanguard coined the term “advisors alpha” to describe the value-add their advisors can add to a client. A few examples of value add that an advisor provides is cost-effective implementation, re-balancing, behavioral coaching, asset location and spending strategy/withdrawal order. In total,Vanguard estimates these strategies can add a potential 3% to an investor’s net returns. With the primary value add being “behavioral coaching” which was estimated to add 150 basis points (1.5%) to an investors net return. The reason why behavioral coaching was the highest value add is due to the behavior gap which was explained above.

How MyRoboAdviser™ helps our clients avoid the behavior gap

MyRoboAdviser™ has partnered with Betterment as our technology platform and custodian to help deliver our services to you. Betterment provides the following tools:

  1. Tax-impact preview: calculates and shows the estimated gains and losses a sale is expected to realize as well as an estimate of the taxes that may result, in real-time, before a transaction is executed.
  2. Smart-deposit: an automated cash investment tool that helps optimize the amount of cash you hold in your checking account. This tool can help automate the investment process which in turn helps clients avoid the behavior gap.
  3. Goals: defining your goals at MyRoboAdviser™ helps align the risk of the portfolio with the goal as well as leverages your “mental accounting”. Having each of your goals accurately defined with proper balance targets will help you stay on course and not let your emotions take control when the market becomes volatile.
  4. Planning tools: on top of the goals for each investment account, you have the ability to identify your specific spending and savings goals for retirement. When you enter your desired spending goal, Betterment will calculate the savings amount that will help you reach your desired spending. Betterment will monitor your progress and provide you with an “on-track” or “off-track” rating.

Other Important Factors:

It is important to understand that investing is only a small part of a financial plan. Uncontrolled spending can have substantial adverse effects on reaching your financial goals. An easy trick to help you avoid excessive spending is to switch saving and spending.Instead of saving what you do not spend in a month, try spending what you don’t save. In other words, simply budget a certain amount you would like to save each month and then you are allowed to spend what is left. This simple switch can provide enormous benefits to your financial well-being. Not only will this trick help you save consistently but it will also help reduce what is known as lifestyle creep. Lifestyle creep is when your standard of living increases as your income rises. What you used to consider more of a luxury may now be thought of as a necessity. A few tips to avoid lifestyle creep:

  1. Escalate savings by small amounts over time
  2. Dedicate a certain percentage of each raise or bonus to savings
  3. Don’t “keep up with the Jones’s”- meaning avoid peer comparisons      

Have a question about your finances, spending, etc…- give us a call. We are here to help you avoid your behavior gap!

If you have any questions about holdings in your account or one of our models, or perhaps have another question about our services, you can contact us directly at 920.785.6012 or email us at support@myroboadviser.com.  MyRoboAdviser™ has partnered with Betterment for Advisors as our technology solution to provide our services to our clients.  Betterment maintains a support line you can also call for help with navigation, linking your accounts or other site functionality.  You can call the Betterment for Advisors support line at 800.400.1571.

Last updated, December 11, 2018

Disclosures:Content contained herein is presented is for informational and educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments,or investment strategies, nor shall it be construed to be the provision of individualized investment, tax or legal advice.  

My Robo Adviser is a digital investment service advised by ETF Model Solutions, LLC.   Investments recommended by My Robo Adviser™ involve risk and will fluctuate in value.  Unless otherwise stated, investments are not insured or guaranteed. May lose money. My Robo Adviser™ utilizes the platform and technology services of Betterment LLC, an SEC Registered Investment Adviser.  Betterment provides the wrap fee program that assists us in providing our services to you. Custody and trading services for the program are provided by Betterment Securities, an SEC registered broker-dealer and member FINRA/SIPC.

My Robo Adviser’s services are specific to the investment goals that you identify.  We do not provide comprehensive financial or tax planning.Our advisory services rely upon an algorithm designed and maintained by Betterment to assist us in determining our portfolio recommendations.   Unless you directly consult with My RoboAdviser™ advisory personnel, the algorithm is the sole basis of the advice.


Clients and perspective clients should be aware that certain tools and content on the Betterment, LLC website, including projected returns, functionality,tax-coordinated portfolios and links to investment philosophy, research,educational materials and FAQs apply solely to Betterment’s 2-dimensional portfolios and may not apply to MyRoboAdviser.com’s 3-dimensional investment recommendations.

Existing My Robo Adviser™clients are reminded to login and update personal information whenever their goals or personal financial circumstances change.  Clients should also confirm that their current goal allocation is aligned with the recommended target allocation provided for each goal. Clients with questions regarding their account, personal financial circumstances, goals, or an investment allocation with respect to our service should contact us via email or telephone.

Prospective clients contemplating opening an account with My Robo Adviser™ are advised to read MyRobo Adviser’s Form ADV Brochure, Part 2A for important disclosures about our services, business practices, the costs and risks of investing, and other important considerations prior to opening their account.  You can access the most recent version of our Form ADV via a link on our website.

ETF Model Solutions, LLC. is registered as an investment adviser with the SEC.  Registration does not imply a certain level of skill or training.  If you have any questions about our professional services, please call us at 920.785.6012 or email support@MyRoboAdviser.com

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