Long story short: if you’d like a simple, passive approach to portfolio investing, I think you’d like StashAway.
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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.
Why consider robos like StashAway
The biggest plus when using robos like StashAway is that they allow investors to invest into a portfolio of ETFs tracking the broad market indices without the high fees.
Given that Singapore brokerages charge roughly $10-$25 per trade to invest in an ETF, buying them on a monthly basis (or even multiple ETFs) can make you go broke quickly when their fees quickly add up.
StashAway solves this problem by making it simple to buy into a portfolio of ETFs with no trading fees. That means you can quickly and easily dollar cost average even daily if you like!
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.
In September 2019, after they announced changes to their platform, I have consolidated my portfolios into one (RI 26%).
Since inception in November 2018, my portfolio returns as of September 2019:
- RI 26%
- Time-weighted returns (%): +9.44%
- Money-weighted returns (%): +15.41%
If I dive into the asset class performance, the decline in the value of equities was offset by the increase in value of US treasuries and gold. The negative correlation of asset classes has helped stabilised the portfolio in turbulent times.
Singapore Income Portfolio
In September 2019, StashAway launched the Singapore income portfolio, which is a diversified portfolio of SGD-denominated assets such as REITs, stocks and bonds (both corporate and government bonds).
Based on their asset allocation at a risk index of 12%, its constituents – which may change with time according to market conditions, consists of the following:
- Fixed Income (50%)
ABF Singapore Bond Index ETF
Nikko AM SGD Investment Grade Corporate Bond ETF
Asia High Yield Corporate Bonds
- SG Equities (10%)
Nikko AM Straits Times Index ETF
- Real Estate (40%)
Lion-Phillip S-REIT ETF
NikkoAM-StraitsTrading Asia ex Japan REIT ETF
I am honestly quite proud of their innovation! The good thing about a SGD-denominated portfolio is the mitigation of FX risk – in our case, USD – which may fluctuate with time. The portfolio also has the option of receiving your dividend income directly into your bank account when received, or you could choose to reinvest it into the portfolio for higher future dividends, which I have chosen as my default option.
While having a SGD denominated portfolio is good news for us given the additional flexibility we have and expanded suite of products to choose from, the resultant allocation of the portfolio is skewed heavily to bonds, and we don’t have the option to modify the risk index of the portfolio today.
Nonetheless, there are no additional fees to having this portfolio in your account and you enjoy the same level of robo-driven intelligent management with their ERAA framework.
StashAway Simple – Cash Management Portfolio
In November 2019, StashAway launched StashAway Simple – a cash management portfolio for investors to set aside cash in a cash portfolio that yields a projected rate of 1.9% per annum. The projected returns are driven by the rate of returns of its underlying investments, net of all expenses and rebates.
It allocates 50% of its assets to the LionGlobal SGD Money Market Fund and 50% to LionGlobal SGD Enhanced Liquidity Fund SGD Class I Acc.
The premise of the cash portfolio is simple, pun intended, to yield a higher than average yield over cash deposits parked in banks, but without the complexities of minimum credit card spends, salary credit requirements or tiered interest structure.
That means that all your cash parked in this portfolio would yield the full projected return of the portfolio, and investment in this portfolio has no minimum balance, limits, management fees or setup/exit fees.
I see this product useful for some groups of people.
For example, those with a lot of idle cash and don’t want to lock their funds up into a 9-month fixed deposit yielding 1.85% can choose to buy into this cash management portfolio yielding 1.9% without lock ups.
Although the risk is slightly higher, given there isn’t SDIC insurance when depositing funds with StashAway and the projected returns can change at any time, I feel that it is a valid trade off for liquidity.
StashAway fees start 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 that can go up to S$25 per trade 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, I find that their fees that they are charging are very reasonable for the service they are offering. Fresh graduates who are just starting out their careers and want to build a diversified portfolio of multiple ETFs across multiple asset classes will find StashAway very appealing because of its all-in-one pricing.
You can also do unlimited dollar cost averaging every month because there are no transaction fees.
Overall Thoughts & Conclusion
There any many robo-advisors in the market today – Smartly, AutoWealth, Endowus, Syfe, MoneyOwl and those from established banks like OCBC Robo Invest, UOB uTrade Robo and DBS digiPortfolio.
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, flexible deposit options, timely updates 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 give StashAway a try, you can use this link and we both get S$10,000 managed for free for six months.