We hate to say it but you’re probably using your roboadvisor wrongly

The stock markets are in the red right now. Especially if you invested sometime in January or February. 

When I wrote this article for Endowus back in late Feb, I had put in $13,250 into the roboadvisor, with 100% allocation into equities (equities = stock market.) 

As of 23 March, it was worth $10,465 (it’s since recovered a little).

Here, let me show you. 

That’s fine, to be honest. 

I’ve slowly built up holding power over the years. And I have absolute faith that a globally diversified portfolio of index funds and ETFs – which many other roboadvisors also invest in – will rise up in the long term.

What’s not fine though, are your misconceptions about roboadvisors.

But it’s okay, we are here to help you with that. 

Roboadvisors might be simple to invest with, but they’re NOT low-risk

Simple doesn’t mean safe. 

It’s simple to jump off a building, for example, vs an airplane. 

But that doesn’t make it safe. 

If you’re investing through a Roboadvisor, you’re still a passive investor with a significant portion of index funds and ETFs in your portfolio. That still means you take on the risks of the stock market. 

Yes, the index funds that many robos make you invest in might be considered ‘safer’ options than individual stocks (SBUX, TSLA, BIDU etc) because they’re diversified, but that doesn’t mean they are completely protected from market fluctuation.

For example: Over the last quarter, I’ve seen my Index Funds fall as much as 15% before staging a recovery. 

Index Funds are equities, and should be considered as mid-high risk.

Roboadvisors are not genius tools that allow you to repeatedly beat the market in the short term

Yeah, they are not.  Sorry to burst your bubble. 

They’re managed funds or digital advisors that save labour costs by cutting out human financial advisors. Disruption! 

The ‘A.I’ in a lot of them – at least those in Singapore – seems to be a cost-cutting function through automation. 

Not one that enables them to beat the market day after day after day.

You will have to accept your investments will rise and fall over the short term. There are no two ways about it.

For that reason, we wouldn’t put money we’d need in the next five years into Roboadvisors 

I was pretty amused a couple of weeks back when I saw a Facebook ad for StashAway. On it were comments lambasting StashAway for their investments not doing that great. 

Let me show you two of them: 

Now, this is precisely why we don’t invest money we need in the next five years.

If you’re saving up for a wedding, or honeymoon, or a renovation, this money should be put in a highly liquid, super safe place. Not anywhere with exposure to the stock market. 

Just your regular bank account will do – if you’re below 27, you can look at Stan Chart’s JumpStart account. We personally use OCBC 360 because we’re too lazy to switch accounts.

If you don’t have income, DBS Multiplier is an acceptable choice too if you’ve built up yourself up regular dividends. You can also try UOB one – it lets you replace salary credit by carrying out three GIRO transactions monthly.

Stick to your goddamn risk profile

Most roboadvisors will allow you to change your risk profile – meaning to say that you can switch from something like 80% stocks and 20% bonds to something like 40% stocks 60% bonds with the single click of a button.

Now, we think that’s a bad idea. You should just ride it out. 

Because when you switch your risk profile, you’re effectively selling your stocks at a loss and BUYING bonds in this market crash. 

Doing that during times where the markets have crashed is terrible because “buying high, selling low” is an incredibly hard way to make money. 

You can’t decide that you’re a ‘long-term-investor-taking-on-moderate-risk only during good times’, and decide to switch your strategy the moment risk appears. 

That’s like training for years to fight a war, then throwing your weapon aside the moment the enemy appears – without even fighting. 

Crazy. 

We know it’s hard to remain invested

In these uncertain times, you’ll get all sorts of people telling you that your long-term passive investment strategy is wrong. 

Now, it’s not that you/they are wrong – it’s probably just that you have different circumstances, skill level and strategies. 

Traders will say “sell all now, and then buy back at a lower price.” 

Maybe they’ve honed their abilities and monitored the markets.

Did you? 

Value investors will say that “oh, I’m going to pick undervalued stocks now, there are so many things on discount.” 

They’ve done their research and crunched the numbers. 

Did you? 

I could go on forever, but the main point is this: You decided some time ago you are a passive investor – that’s why you decided to invest with a roboadvisor.

You made your decision, you have done your risk profiling, and it’s a great plan. 

Buying the index funds – through a roboadvisor or not, is one of the simplest and most accessible ways for a regular salaryman to invest.

TL;DR: The way you invest might be noob. But your mindset shouldn’t be.

Stay woke, salaryman. 

(Illustrations by Lim Hui Shan)

Update: Smartly announced it’s shutting down. People were forced to liquidate their holdings there at a loss as a result. Now, please make sure to watch out for the financial health of your roboadvisor (the company) as well. Now, that’s one more risk to manage. 

IMO, if you want a roboadvisor which is less susceptible to collapse of this kind, DBS DigiPortfolio or OCBC RoboInvest are your best bet. They are slightly more expensive than the competition, tho, but hey, everything has a price.

We still advocate that the best choice for people is to learn how to invest themselves. 

It doesn’t need to be difficult. 

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