2039: An investment space odyssey

Still of Hal 9000 from the motion picture 2001: A Space Odyssey
Source: Metro-Goldwyn-Mayer | YouTube

Investing was far different in 1989.

American mutual funds managed just $980 billion, about one-fifteenth of their assets today. Index and exchange-traded products didn't exist. Alternatives like hedge, private equity and venture capital funds were relatively secretive, niche vehicles for a privileged group of wealthy individuals and big institutions. Financial advisors charged hefty fees to put clients in a mix of stocks and bonds and mail them monthly progress reports.

In short, a lot has changed.

The next 25 years are likely to prove just as revolutionary, according to leading investment industry experts. Actively managed mutual funds could be a relic thanks to instantaneous access to computer-driven index funds. Algorithms may replace many financial advisors. Once exotic, exclusive "alternative" funds seem poised to go mainstream, often available with the click of a mouse. Call it the robot era of investing.

"In 2039, it will be common for investors to have their portfolios managed by algorithms rather than by humans," said Andrew Lo, a professor of finance and the director of the Laboratory for Financial Engineering at the MIT Sloan School of Management. "The algorithms will incorporate individual or institutional preferences, constraints and lifetime goals in a seamless and optimal fashion to maximize the chances of achieving those goals."

Lo believes that investors will stop choosing between mutual funds that allocate to small- or large-cap stocks, for example, and instead send comprehensive personal data to an online financial management portal. That software will analyze both short- and long-term financial needs and design the most efficient investment plan to meet them. The program robot will then execute the plan automatically, providing updates to the investor and adjustments to the portfolio as needed.

In other words, investors will be offered tools that provide holistic, automated solutions, not do-it-yourself products. Or as Lo puts it, "Meet the financial equivalent of HAL in '2001: A Space Odyssey'!"