How do we invest your money?
Automated Investor designs an investment portfolio for your account based on three factors: the investment goal you choose from a list of potential choices (“goal”), the date by which you want to achieve the goal (“target date”) and your comfort with taking investment risks (“risk tolerance”). Here are some key aspects of our approach:
- Automated Investor is a goals-based investment service that focuses solely on the assets in the account without regard for any of your other assets. The service does not provide holistic investment advice (i.e., it does not consider or take into account assets, investments or strategies that you hold outside of the account). Depending on your financial circumstances, objectives and needs, another advisory program may be more appropriate for you and you should discuss your financial needs with a USBI Financial Advisor by calling 866-758-8655 before enrolling in Automated Investor.
- Your chosen goal, target date and risk tolerance influence the mix between investments with lower potential for growth and loss (e.g., fixed income) and investments with higher potential for growth and loss (e.g., equity). This mix is known as your account’s “asset allocation.”
- For all goals other than “Grow my money,” your account’s asset allocation is automatically adjusted over time to reduce exposures from equities and increasing fixed income as you approach your specified target date. (Actual allocations to equities and fixed income investments is based on a number of factors and reaching your target date does not mean your account will be entirely invested in fixed income investments.)
- If you choose “Grow my money” as your goal, your account’s set asset allocation will generally remain static (subject to certain tolerances) until you change your goal, target date or risk profile.
- Automated Investor’s tax-loss harvesting strategy enables U.S. taxpayers to potentially offset capital gains with capital losses for the purpose of reducing federal and state income tax obligations of account investments. We cannot guarantee that tax-loss harvesting will reduce your income taxes and the strategy considers only the gains and losses of investments in your account. Your capital gains and losses with respect to investments held outside your Automated Investor account are not considered and holdings outside of your account may materially affect your ability to take advantage of certain tax losses. You should consult your trusted tax advisor before using this service.
Robo-advisor investment projections
Automated Investor uses a statistical modeling technique known as a Monte Carlo simulation to calculate 6,000 potential return scenarios for your proposed asset allocation, including any changes to the asset allocation that may be assigned to your glide path. Our proposed asset allocation reflects your goal and target date, and is consistent with your risk comfort level.
The simulation relies on certain expectations and capital market assumptions that, with the help of our affiliates, we quantify, such as expected returns by asset class, market and asset class volatility and how asset classes relate to each other (correlation). The simulated return scenarios are used to calculate potential future account values based on information you provide us about your planned initial and recurring deposit amounts, as well as expected fees and expenses. The simulations do not consider taxes, which will reduce the performance of taxable accounts. The simulations assume that your account will be rebalanced each year and includes all your deposits, planned monthly contributions minus any withdrawals and do not consider the impact of dividends, earnings or a significant investment loss or gain.
The simulation will show projected future account values that represent potential strong, average and weak market performance based on the percentile ranking of the portfolio’s 6,000 return scenarios:
|
Projection |
Simulated returns percentile |
|---|---|
|
Strong market |
85th |
|
Average market |
50th |
|
Weak market |
15th |
Projection
Simulated returns percentile
Strong market
85th
Average market
50th
Weak market
15th
Key assumptions and limitations of Automated Investor’s Monte Carlo simulation:
- Results assume that you make any recurring deposits at the end of each year, which is viewed as a conservative assumption that can slightly reduce projected account performance.
- The outcomes presented to you are only three of the many possible outcomes we run.
- The simulated results are not a guarantee of investment return.
- The simulated projections assume investment in asset classes, though you can’t invest directly in these asset classes. Performance of actual investments within the Automated Investor investment strategy will vary from the projected performance of the asset classes. This is due to market conditions and other factors, including:
- Timing of entry into the portfolio
- Underlying funds held in the portfolio at the time of purchase
- Deviations in the investor’s financial and tax considerations
- Account holdings and preferences
- Cash flows
- Frequency and precision of rebalancing
- Tax-management strategies
- Cash balances
- Account level advisory fees
- The timing of fee deductions
- The simulated projections don’t represent actual trading. They also don’t reflect the impact that material economic and market factors may have on the decision-making process if your funds were actually managed in the manner displayed by the simulation.
- The simulated projections assume annual rebalancing. The timing of rebalancing in actual client accounts may vary.
- The projections are shown net of the advisory fee. However, actual fees may vary if you are eligible for a fee waiver. Please see U.S. Bancorp Investment’s Automated Investor Form ADV Part 2A for a full disclosure of fees.
- The simulations are all based on certain assumptions that may prove to be incorrect. Scenarios that are not specified by our capital market assumptions may occur and these scenarios are not included as part of our simulation. These scenarios may also lead to future return scenarios with greater loss or gain potential than the scenarios produced by the simulation. All investing comes with risk and has the potential for loss as well as gain.
How much money can I make investing?
Target amount for your investments is the dollar amount that you would like to reach in your account by your target date. You choose your target amount when you set the goal for your account. This amount is incorporated in the tools that are provided as part of the service to help you monitor your account’s progress towards its stated goal. Tools include the goal progress tracker and the tracking notifications.
You can change your target amount at any time. Changes to your target amount may result in the need for additional contributions in order to reach your goal and/or changes to your asset allocation and could impact the investment activity in the account.
Tracking notifications
Our tracking notifications shown on the Automated Investor account dashboard are based on our Monte Carlo simulation during average market performance (50th percentile) to help you understand how likely it is that you’ll reach your target amount in a specified time frame. It factors in your current account balance, any expected recurring deposits, goal, risk tolerance and time horizon.
To account for short-term market risk as you approach your goal date, we apply weak market conditions (15th percentile) to the simulator when you are one year or less to your goal date. This means that the tracking message may sometimes prompt you to have more than your goal target amount, as a cushion against any potential losses in the final year before your target date.
The tracking notifications factor in the number of years that you have left to your target date. The more years you have to your target date, the more likely you are to stay on track. This is because you have a greater chance to make additional deposits and recover from any market declines and volatility. You’ll also have more time to make recurring deposits.
This tool is purely educational. The results of the tracking notifications are based on simulated potential outcomes that may prove to be incorrect over time, and do not project your account’s actual future performance. All investing involves risk. This is not a guarantee of future investing returns and does not project potential significant market loss.
The table below shows the results the calculator generates based on years to target date and the difference between the account’s current value and simulated account value at target date, assuming average market performance.
|
Years to target date |
Percentile |
Ahead of schedule |
On track |
Not on track |
|---|---|---|---|---|
|
5 or more |
50th |
Simulated account value or account’s current value is at least 120% of target amount |
Simulated account value or account’s current value is at least 90% of target amount |
Simulated account value or account’s current value is less than 90% of target amount |
|
Less than 5 |
50th |
Simulated account value or account’s current value is at least 130% of target amount |
Simulated account value or account’s current value is at least 100% of target amount |
Simulated account value or account’s current value is less than 100% of target amount |
|
1 or less |
15th |
Simulated account value or account’s current value is at least 130% of target amount |
Simulated account value or account’s current value is at least 100% of target amount |
Simulated account value or account’s current value is less than 100% of target amount |
Years to target date
5 or more
Percentile
50th
Ahead of schedule
Simulated account value or account’s current value is at least 120% of target amount
On track
Simulated account value or account’s current value is at least 90% of target amount
Not on track
Simulated account value or account’s current value is less than 90% of target amount
Years to target date
Less than 5
Percentile
50th
Ahead of schedule
Simulated account value or account’s current value is at least 130% of target amount
On track
Simulated account value or account’s current value is at least 100% of target amount
Not on track
Simulated account value or account’s current value is less than 100% of target amount
Years to target date
1 or less
Percentile
15th
Ahead of schedule
Simulated account value or account’s current value is at least 130% of target amount
On track
Simulated account value or account’s current value is at least 100% of target amount
Not on track
Simulated account value or account’s current value is less than 100% of target amount
Goal progress tracker
The goal progress tracker on the Automated Investor account dashboard shows your current investment amount as a percentage of your target amount. For example, if your target amount is $10,000 and your current account value is $6,000, we’ll show that you’ve reached 60% of your goal amount. The indicator will recalculate and change each business day (i.e., days that the stock markets are open) based on the account value as of the last market close valuations, including changes for deposits, withdrawals, dividends, interest, earnings and losses posted to the account for that day. Intra-day market fluctuations are not reflected.
Streak tracker
- A transfer streak occurs when you make manual, prescheduled or automated deposits two or more months in a row. You must log in to view your streak tracker.
- Your streak count is updated based on the day your transfer is scheduled, not the day it’s credited to your account. The transfer can be scheduled in advance, set up as an automatic transfer or done manually through your Automated Investor dashboard.
- Breaking your streak may keep you from reaching your goal, so we’ll also remind you to set up automatic deposits to help you stay on track.
Recurring deposits
Setting up recurring deposits to your account can increase the likelihood that you will reach your target amount. Making consistent regular deposits can also help you moderate the price at which your account purchases the securities comprising the asset allocation because your additional cash will be invested over time at different points in market performance (“dollar cost averaging”), instead of taking the risk that all (or a majority of) purchases are made during a market high. Recurring deposits may also help taxable accounts with rebalances as additional deposits can be used to offset securities sales, which could result in the recognition of taxable gains.
The Automated Investor dashboard will display a checkmark for every month that you make an additional cash deposit to the account so that you track progress to your plan.
Capital market assumptions
Capital market assumptions are our assumptions about investment returns and volatility, as well as how asset classes relate to each other (correlation). These assumptions are based on historic asset class returns, proprietary models, our subjective assessments of the current market environment and forecasts of the likelihood of future events. These assumptions are used in creating account asset allocations and testing them through the Monte Carlo simulation.
We use indices to model the expected risks and returns of each asset class used in our asset allocations as shown in the table below. Note that your account is not invested in these indices directly as they are used only for modeling hypothetical risks and returns. Instead, your account will be invested in exchange traded funds1 that are intended to match the asset classes represented in your account’s asset allocation.
|
Asset class |
Index |
Predicted risk |
Predicted return |
|---|---|---|---|
|
Large Cap U.S. Equity |
S&P 500 Index |
15.14% |
8.01% |
|
Developed Markets Equity |
S&P® Developed Ex-U.S. BMI |
17.14% |
11.29% |
|
Emerging Markets Equity |
MSCI EM GR USD |
22.76% |
13.50% |
|
Investment Grade |
Barclays US Aggregate Bond Index |
4.03% |
5.25% |
|
Municipal Bonds |
S&P National AMT-Free Municipal Bond Index |
4.82% |
4.22% |
|
High yield |
BofA ML US HY Master II TR USD |
8.15% |
8.39% |
|
U.S. Listed Real Estate |
Dow Jones US Select RE TR USD |
18.12% |
9.15% |
Asset class
Large Cap U.S. Equity
Index
S&P 500 Index
Predicted risk
15.14%
Predicted return
8.01%
Asset class
Developed Markets Equity
Index
S&P® Developed Ex-U.S. BMI
Predicted risk
17.14%
Predicted return
11.29%
Asset class
Emerging Markets Equity
Index
MSCI EM GR USD
Predicted risk
22.76%
Predicted return
13.50%
Asset class
Investment Grade
Index
Barclays US Aggregate Bond Index
Predicted risk
4.03%
Predicted return
5.25%
Asset class
Municipal Bonds
Index
S&P National AMT-Free Municipal Bond Index
Predicted risk
4.82%
Predicted return
4.22%
Asset class
High yield
Index
BofA ML US HY Master II TR USD
Predicted risk
8.15%
Predicted return
8.39%
Asset class
U.S. Listed Real Estate
Index
Dow Jones US Select RE TR USD
Predicted risk
18.12%
Predicted return
9.15%
With the help of our affiliates, we typically review and update our capital market assumptions annually.
- Long-term assumptions are highly uncertain because future economic and market events and conditions are unpredictable and may significantly affect the actual future performance of asset classes. Moreover, periodic changes and updates to our assumptions will skew results overtime.
- There is no guarantee that our capital market assumptions will be correct and actual performance could be significantly higher or lower than predicted.
- You should not rely on the capital market assumptions as a forecast or prediction of future events and they are not guarantees of future returns from any investment or asset class Automated Investor uses. Our assumptions are subject to change over time.
Description of indices
The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.
The S&P Developed Ex-U.S. BMI is a comprehensive benchmark including stocks from developed markets excluding the United States. The S&P Global BMI is a rules-based index that measures global stock market performance. A country will be eligible for inclusion in the S&P Global BMI if it is classified as either a developed or emerging market by the S&P Global Equity Index Committee. The Index is “float-adjusted,” meaning that only those shares publicly available to investors are included in the Index calculation.
The MSCI EM Index is designed to measure equity market performance in global emerging markets.
The Bloomberg Barclays Bond U.S. Aggregate Index measures taxable investment-grade U.S. domiciled fixed-rate debt, including government, corporate, asset-backed, and mortgage backed securities, with maturities of one year or more.
The S&P National AMT-Free Municipal Bond Index is a broad, comprehensive, market value-weighted index designed to measure the performance of the investment-grade tax-exempt U.S. municipal bond market. Bonds issued by U.S. territories, including Puerto Rico, are excluded from this index.
The BofA ML US HY Master II Index measures all high-yield domestic bonds and bonds issued in the U.S. by a foreign entity that are dollar denominated with maturities of one year or more and a credit rating lower than BBB-/Baa3, but are not in default.
The Dow Jones U.S. Select REIT Index measures the performance of publicly traded REITs (Real Estate Investment Trusts) in the U.S. and is a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.
Past performance and market conditions do not guarantee future results. There is no assurance that a particular investment mix or hypothetical performance shown will lead to actual investment results or performance. Diversification and asset allocation strategies do not guarantee low volatility, profit or protection against loss. There is no guarantee that you will achieve your goal within your time horizon, or over a longer time period by using Automated Investor. You are responsible for providing accurate and up to date information about your goal, time horizon, and risk tolerance.
If you have any questions or concerns, contact us to consult with an investment professional at 866-758-8655 before enrolling in Automated Investor.