Robo-advisor doesn't just pick a portfolio, it picks the portfolio for you. It takes information that you provide and turns it into the right portfolio for you. Okay. We talked earlier about risk aversion and ways that you can measure risk aversion. You don't just have to ask somebody, "Well, how risk averse are you?" You can ask them very targeted questions that bring out their risk aversion in a way that's going to be quantifiable and useful to you. Okay. So that's one thing. But another thing that's probably going to be the most key customizations they do, is going to be targeting, so where you are on the life cycle. Where are you now relative to when you picture yourself retiring? Okay. So that's going to be one of the most important customizations that they can do. There's going to be other things too we can talk about, but this is going to be key here. Okay. Now, if you think about it, there's going to be a real pattern that you would expect in life cycle investing. Okay. These are the pattern you would expect, and this has been how people thought about life cycle investing forever as long as people have been saving for retirement, which is that more risk is more appropriate when you're younger. When your investment horizon is far off, it's more appropriate to think about taking a lot of risk than when your investment horizon is starting to approach, as retirement is starting to be around the corner. So if you go back to like the '50s or '60s, if you were going to a financial advisor back then, there's a rule of thumb that they love back then, and this was a standard thing they would say, "Well, look, you need to be adjusting your risk to where you are relative to retirement. The rule was always, let's take your age in years, subtract that from 100 and the result is going to be how much we put in equities. So if you're 20, then we'll put 80 percent in equities. But once you're 60, it's only going to be 40 percent in equities. So just generally speaking, we are going to be taking down your equity exposure over your life along that line." That was just a rule of thumb that people like to follow back then. This is still pretty much the conventional wisdom that people follow, that over time, if you're investing for the long horizon, then you think "Well, I can put money in something risky. Yes. It's risky. It's going to go up and down, but over a long horizon, I should expect the ups and downs to wash out." Okay. Now, I don't want to suggest to you that you can count on that. If you think about the defined benefit plans, we are talking about at the top of this module, there's a lot of expectation there of risks evening out over time, and it didn't quite work out that way. They didn't even out nearly as much as they'd hoped. So I don't want to raise people's hopes too much that you can count on that, but it's certainly more reliable at a longer horizon than a shorter one. Okay. So in that long horizon, you ramp up the risk. As the horizon shortens, you lower it. Okay. So this leads me to a product these days that it's not robo-advising, but it's very popular and it gives you a sense of what robo-advisors are doing. That is target date funds. Okay. Target date funds are by far the most popular choice these days for retirement savings. Okay. This is the basic idea the target date fund, what are they doing? They're doing essentially what I just said. So when you walk into your job and they hand you, they send you to the website saying, "Okay, here are the choices. Click on these things, and click on the funds that you like and tell me what percentage you want and which fund and that's where your money is going to go once we start taking out of your paycheck." The overwhelming choice these days is the employee will say, "Okay, about when am I going to retire?" If I'm right now starting a job, right now, I might think, "I'm probably going to retire something like 2065." All right. Something like that. So I would look and I say, "There is a 2065 target date fund." Okay. I'll just go with that, 2065 target date fund. Just send all my money to the 2065 target date fund, and that's it. That is a very, very popular choice these days. Just one and done. I just pick the 2065 fund and I'm all done. Now, what's going to happen now that I chose that? Well, that fund is going to execute that life cycle tilting that I just described. When you're way off from retirement as you are now, it's going to put you heavily into equities and a little bit into bonds. Okay. Then over time, it's just going to follow a rule by which equity investment goes down, bond investment goes up. Okay. Now, bear in mind, and we say target date, some people have gotten confused with these funds. They think they hear target and they think there's a target amount at the end. If I invest in this, I'm going to have enough money to retire in 2065. That's not quite what they're saying. They're targeting that date, they're following a rebalancing rule that targets that date of 2065. But how much are you're going to have then? That's really going to depend on what happens with the market. This confusion was a big deal back during the financial crisis. If you think about in 2008 or 2009, market went way down and whatever your target date fund had in equities at that time, well, they were exposed to that return. If you were sitting and thinking that there's a definite amount of money that you're going to get at retirement and now you see your bounce go way down, well, know there's not a definite amount of money. They're following a rule, that rule is keyed to your life cycle, but the market is still going to do what it does, and you're still going to be exposed to the risk. Okay. So to illustrate this, let me show you some numbers that I pulled off of Vanguard's website. Okay. What I did was, they have a disclosure, which shows all of their target date funds, and they show for each target date fund how they have allocated the assets of that fund. As you see on this screen here, you have target date funds for 2065. That's the furthest out date that you can get targeted fund for and then 20, then it's set every five years. So 2060, 2045, and so on, all the way down to 2015, which would be people who are just about to retire or something like that. At this point, people who thought they were going to retire in 2015 back when they invested in the fund earlier. Then they also have a fund I've put at the very end here, which is the fund they have for people who are currently retired. Okay. So I've lined them all up and color-coded them, so you can see the tilting of the assets that I'm talking about. So in this chart here, you see the dark blue at the bottom, that's their allocation to the valuated US equity portfolio. The orange is their allocation to evaluated international equity portfolio. Okay. So the blue plus the orange is essentially Vanguard's view of the world market portfolio. You can see that if you're invested 2065 funds. So your means you're really young person, you're just starting your job, you're like 90 percent percent in equities, and a little bit that 10 percent there in bonds. You see it basically stays there for a while until you get to 2040. So about 25 years later, it starts to taper you off of the equities that goes down every EC, every time as you go from one fund to the next, representing people who are closer and closer to retirement. As you go left to right here, you see that the allocation to that equity market portfolio is going down, starts at 90, ends up all the way at 30. So those even in retirement, they still got you in the market a little bit there. Even in retirement, you're still in the market sum, but you're deeply into the fixed income, the bond portion, which is the gray and the yellow. The light blue at the top is basically cache. So you can see that life cycle investing there. So there is a very simple example of customizing your portfolio allocation to where you are in the life cycle. Let me point out one more thing, which is that, what's Vanguard doing as they about efficient portfolios here, you're seeing that easy approach they mentioned before. Remember I said, the easiest way to think about mean-variance efficient portfolios is that the market portfolio of evaluated index of everything is more or less an efficient portfolio, and then you lever up and down your investment in that market portfolio. Well, that's what Vanguard is doing. If you look at that graph, that's exactly what Vanguard is doing. Basically, this 60-40 mix of domestic versus international stocks is the market portfolio. All they're doing over time is just, you're investing more or less in that market portfolio, and then putting the rest essentially in something like other risk-free rate or any case the bond return. So that is the essence of robo-advising. They are a customized portfolio that is taken to account, just one key factor, which is how close are you to retirement and coming up with a customized retirement plan on that basis.