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"I'm sorry Dave, I'm afraid I can't do that."​  - Hal 9000. Thumbnail

"I'm sorry Dave, I'm afraid I can't do that."​ - Hal 9000.


It's why I (and many of the readers of this post) got into flying. First inspired by the reading of Jonathan Livingston Seagull , and then hooked by my first ride in a Cessna during a Civil Air Patrol orientation flight, flying became a calling. There is no better feeling than being at the controls of an airplane: banking, climbing, diving....just fun!

Of late, however, both military and commercial aviation have become largely automated. The role of the pilot to a great extent is a monitor of systems, for better or worse. So why have a pilot in the seat at all?: to intervene when something goes wrong. 

The same concept holds true in financial planning. Significant advances have been made in the last decade regarding "robo-advisors". These highly sophisticated platforms rely on algorithms designed to balance a client's risk tolerance, investment objectives, and funding level with an appropriate mix (usually ETFs or mutual funds) of investment alternatives. Often, there is automation in the form of rebalancing as well.

Here's the problem: garbage in, garbage out....and then sometimes garbage everywhere!

Most of the time, these programs work as advertised. But what happens when there is a catastrophic economic event that wasn't accounted for in the algorithm? Also, without consideration of other factors (a special needs sibling, expected inheritance, divorce, etc.) how does the investor know that downside risk will not tank the plan? Investors owe it to themselves, and to their families, to be proactive either personally or with the help of a competent advisor with their financial planning.

Automation is not inherently bad. In fact, when monitored and managed correctly it allows for braincells that would otherwise be task saturated, to divert attention elsewhere. In flying, as in finance, outcomes are largely dependent of effective use of all resources. During a recent training event, this was relayed regarding autopilot usage:

New First Officer: "What's it doing now?!?!"

Crusty, 20-year Captain: "Ohhhh, it's doing THAT again!".....

So, what's it gonna be? Let the plane fly itself.....or take control?

This week's money stuff (Briefing.com):

The stock market started May with a volatile week that produced losses for the major averages. The Nasdaq led the way, falling 1.5% while the S&P 500 surrendered 0.2%. Small caps also struggled, sending the Russell 2000 lower by 1.3%.

The week began with modest gains for the major averages but not before early selling sent the S&P 500 to its lowest level in nearly a year. However, the market overcame the weak start and climbed for the next two days, capping the rally with a Wednesday surge that took place even though the FOMC announced a 50-bps rate hike and a balance sheet reduction plan. However, Fed Chairman Powell acknowledged that a 75-bps hike is not being considered, which was cited as the reason for the post-FOMC rally that lifted the S&P 500 to a one-week high.

Whatever positives were gleaned from Wednesday's rally were forgotten by the end of Thursday's session, which saw the major averages cough up their gains from the previous day while crude oil remained resilient, staying above its 50-day moving average (104.96) even though the U.S. Dollar Index pushed to a fresh 20-year high.

Friday's session was also uninspiring as equities followed a weak start with a brief recovery that faltered as the day went on. Besides the weak action, the day's biggest story was the release of the April jobs report, which beat headline estimates but also showed a decrease in the labor force participation rate.

Quarterly earnings continued pouring in during the past week, but even positive results were often met with selling amid concerns about headwinds from soaring inflation.