Long story short: if you’d like a simple, passive approach to portfolio investing, I think you’d like StashAway.
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Not sure how to start with $10,000? Read this or read on!
Robo-advisors: new age wealth managers
In this digital age, sophisticated wealth management services from estate planning to wealth building and retirement still remain inherently personal and tailored. However, a niche market exists for the individual looking to grow their wealth with a diversified portfolio of index funds without human intervention, with only a small initial sum. Meet the robo-advisors.
Robo-advisors, or robos for short, are new kids in the block in the wealth management space. They offer simple, digitised wealth management solutions that charge a fraction of the cost incumbents are charging.
Traditional banks and mutual funds typically charge several percentage points in annual commissions, on top of funds loaded with sales charges both on entry and exit. Smart investors are aware of these charges, and avoid them by buying ETFs with low expense ratios that track the broad market.
If you can’t beat the market, join them
Most investors try to beat the market by stock picking but in reality, many under-perform the broad-market index fund like the S&P 500 in the U.S. or STI in Singapore.
Common sense tells us — and history confirms — that the simplest and most efficient investment strategy is to buy and hold all of the nation’s publicly held businesses at very low cost
Jack Bogle – the founder of the Vanguard Group – recommended investing in low-cost index funds, which are broadly diversified, hold many stocks and operate with minimal expenses. His argument has been echoed by plenty of other legendary investors, including Warren Buffet and studies like these.
Robos offer personalised wealth management solutions
Robos like StashAway offer a goal-based investing solution tailored to your risk tolerance. They start out with a goal – the reason why you’re investing (is it for retirement? buying a house?) and risk tolerance (what would you do when your investments fall by 50%?). These questions help shape the kind of investment strategy undertaken by the robo. For example, if you’re investing for retirement and you don’t mind large fluctuations in your portfolio, the robo might recommend a higher equities allocation relative to bonds. This portfolio allocation is set at the start.
Set it and forget it
The beauty of robos is that once you have set it up – such as regular deposit plans, risk tolerances and investment goals – you can forget it and continue living your life as you would normally.
Robos are smart enough to rebalance your portfolio to your target allocation of stocks, bonds and alternative investments like gold whenever it drifts too far from the target. This automatic rebalancing helps you to sell high and buy low – increasing your overall returns and maintaining your risk profile.
One of the key metrics we use before we commit to any investment product is its performance.
When I created my StashAway portfolio, I created two sub-portfolios with different risk profiles (one at 36% risk index and the other at 20%). For StashAway, these risk indexes represent the 99% Value-at-Risk (VaR) – a metric used to measure the probability of not losing X percent of the portfolio – where X refers to the risk index.
In my example, my portfolios have a 36% VaR and 20% VaR respectively, i.e. a 99% probability of not losing 36% and 20% of my portfolios’ value respectively.
Every month, I’ll deposit $400 split into two sub-portfolios evenly.
Since inception in November 2018, these are my portfolio returns:
- RI 36%
- Time-weighted returns (%) – +7.1%
- Money-weighted returns (S$) – 120
- RI 20%
- Time-weighted returns (%) – +7.5%
- Money-weighted returns (S$) – 128
I am pleasantly surprised by the portfolio of lower risk, which is outperforming the higher risk portfolio amidst the trade war. If I dive into the asset class performance, the decline in the value of equities was offset by the increase in value of long-term US treasuries and gold. The negative correlation of asset classes has helped stabilised the portfolio in turbulent times.
StashAway fees starts at an all-inclusive management fee starting at 0.8% per year. These fees includes unlimited deposits and withdrawals and unlimited ‘buy trades’ for your ETFs – especially useful if you have a small amount of money to invest without killing yourself with the minimum commissions incurred at other brokerages.
This is on top of the annual ETF fees (~0.1%-0.2% per year) and 0.1% currency conversion fees charged by the broker for SGD deposits.
There are no minimum balances – so you can start with just $1.
Overall Thoughts & Conclusion
The core concept is largely the same – to help individual investors manage portfolios automatically on a digital platform without the high fees through automation at scale.
Like many of their U.S. competitors like Betterment and WealthFront, StashAway aces in their digital mobile interface. Its sleek and polished UI, easy deposits and regular engagement with the community makes it a superior choice.
I’ve also had a great time interacting with their staff and customer service officers over events and emails. Their consistent customer-centric interaction won me over.
There is no doubt that investment returns are key in choosing a robo-advisor, but as someone who works in one of the world’s largest private wealth management firm, I saw how investment returns come secondary to trust and relationships. In the absence of face-to-face communications with a financial advisor, parting with your hard-earned money requires a little more than just projected returns on a fancy website.
StashAway gets that balance right.
If you’ve enjoyed reading, or wish to sign up with StashAway, you can use this link and we both get S$10,000 managed for free for six months.