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The San Francisco Bay Area is a hot house for the so-called "robo-advisor" industry. These are the firms that offer to manage money at a fraction of what investors would pay if they hire individual financial advisers, mutual fund companies or brokerage firms that offer similar services. The holy grail of the industry is the reality of having an Internet-based algorithm succeed at allocating a mix of investments productively so that the outcome is clearly better than average over a sustained period of time that includes several economic cycles.

To date, the jury is still out, but the robo-advisor space has been filled with a plethora of new entrants just within the past few years.

The concept is not new. The first entrant over 20 years ago was 401(k) Forum, which was later renamed MPower and eventually sold to Morningstar.

Shortly after came Financial Engines in Palo Alto, which I used for awhile until I could see that in those days, their robo advice tended to chase the previous year's best-performing funds -- a "no no" that flies in the face of modern portfolio theory where today's winners tend to be tomorrow's losers and vice versa. There was no added value for me, necessarily, but for some people who might otherwise have languished in a money market fund, the service was arguably a confidence-inspiring improvement.

In the past few years, two more firms, Betterment and Wealthfront have entered the fray, followed by similar online services offered by the major firms like Fidelity, Vanguard Schwab and, generally speaking, just about everyone else.

The question to ask of the online robot providing/implementing financial advice is, "How is this suggested allocation of existing assets taking into consideration any other resources that make up my total financial picture?" For example, our whole enchilada only starts with stocks and bonds. The rest of it includes home equity, pension wealth, which includes Social Security, and human capital, which is the ability to continue working through what might be the remaining, most remunerative years of a career.

Then, there's the prospect of some inherited assets, sooner or later, from retired parents whose allocation currently may be invested very conservatively in an income-producing investment allocation. With some reasonable probability that some portion of these assets may be coming our way, does it make sense to have the usual conservative share of our own assets tied up in bonds, or can we accomplish more in dividend-producing and growth-oriented stocks?

A residence owned or inherited with little or no debt later in life is essentially more comparable to a bond fund than a portfolio of stocks. Taking this into consideration would prompt a greater complement of stocks assuming that the robo-advisor can figure out how to factor in these important assumptions.

To their credit, robo-advisors are cost-effective as they charge just 0.15 to 0.35 percent per year and they use exchange-traded index funds which charge under 0.2 percent per year. All in, the combination is very cost effective. For someone who may have already factored in some of the external considerations mentioned above, and who just wants an automated rebalancing mechanism for a mix of investments they have already determined to be optimal given their circumstances, the robotic approach is probably worth a try -- as a noble experiment. A claim that robotic results will outperform the average do-it-yourself (DIY) investor by over 4 percent per year is impossible to substantiate -- especially for those of us here in Lake Wobegon who are all above average. These companies have not been through enough economic cycles to know how today's models will perform prospectively regardless of what back-testing may indicate. It is also surprising to see this claim as part of an SEC or FINRA-sanctioned marketing statement given the restrictions both agencies place on me as a financial writer.

Bottom line: An investor determining for themselves that at least some money be allocated totally to stocks can't do any harm by using a robo-advisor for some of this money. It is cost-effective and assures that some mix of investment styles is being maintained and updated. The percentage combination of stocks and bonds, however, is more complex and includes some or all of the extraneous factors listed above. For this, there is no substitute for a greater DIY financial self-improvement effort or possibly the services of a live, fee-based adviser.

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