Managing a Lazy Investment: Being Actively Passive

Abstract

While passively managed financial instruments do not require intervention from their investors, some investors actively manage them anyway. To understand why and how, we use a novel micro-level dataset of 6,247 robo-advisor clients who made 9,250 changes to their investment portfolios between 2015 and 2022. Micro-level demographic and financial variables as well as macro-level market returns and volatility are factors in the decision to change one's passively managed portfolio. In addition, how these changes affected investors' returns are studied. A counterfactual test showed that on average accounts which adjusted their portfolio allocation outperformed identical hypothetical accounts in which no changes were made, but this result was not replicated in the field using a more constrained dataset including only realized gains (i.e., closed accounts).

Keywords: Robo-Advising, Portfolio Choices, Individual Investors, Saving Behavior, Household Finance JEL classification: G11

JEL Classification: G11, D14, G51, G41