This is the last essay in my Robo Advisors series. Here’s the rest if you’ve not read it yet:
When I discovered robo advisors in 2019, I was curious enough to put in some money just to test it out. But I really started investing via robo advisors because of the pandemic. Stuck at home, unable to go to the bank to do things, Stashaway provided an easy way for me to grow my money.
All I had to do was just register an account, transfer it, and I’m set. It was really exciting to be able to finally invest in the US markets, especially if you’re afraid of investing like me.
Robo advisors really, really made it easy to overcome the internal friction and the next thing I know, I was auto-investing every month.
Sadly, while people gained a lot during the bull runs of 2020 and 2021, I only got a few hundred ringgit of capital gains.
That’s because when I finally got around to investing aggressively into the market, it was already at the peak of the market. Yes, I can never be a unit trust manager because I have terrible market timing.
Losing money when everyone was gaining so much made me start looking deeper into robo advisors. How do they work? Is it really as good as they say it is?
After months of probing deeper, I decided that I am going to stop using robo advisors to invest in US markets. (However, I will continue to use their money market funds such as Stashaway Simple and KDI Save.) Here’s why:
Reason 1: I learned how to invest
Because robo advisors made investing so easy, you can end up complacent, not motivated enough to learn about the fundamentals of investing.
In 2019-2020, that was me. I lived in emergency mode back then: I was trying to manage a hectic job, a new career and a nightmare neighbour whose children screamed the whole day. My brain just didn’t have the space to deal with heavy topics like: How do I open up a stock brokerage account?
But I got that space when I briefly moved to Penang as a digital nomad. In that condo next to the sea with two fluffy cat companions, my brain finally had the bandwidth to figure things out. At 6am every morning, when my brain was at its best, I would learn and experiment. I opened my first brokerage account. I bought my first stock, REITs. I tried other robo advisors besides Stashaway. I made many mistakes.
And the more I learned about investing, the more I realised that I could easily replicate what the robo-advisors were doing for me … without having to pay an annual fee.
Reason 2: I do not want to pay fees for something I can do myself
My education in investing taught me that fees can eat away at your gains in a big way. While some robo advisors such as Wahed and Kenanga Digital Invest had a good selection of ETFs, I didn’t want to pay a percentage of my portfolio to a company to do something I could easily do on my own.
Reason 3: I want to execute my investing philosophy
After months of experimentation and learning, I realised that my investing philsophy was clashing with the roboadvisors’. My investing philosophy:
- Invest in broad market index funds
- I am a passive investor who does not believe in timing the market
- I want to keep my investing costs as low as possible
- I would like a portfolio of 70% equities, 30% fixed income.
- In my equities portion, I’d like to have a 60% US / 40% international ex-US stocks
The only way I can execute this strategy is to do it myself.
Final reason: I want more control
I realised that some robo advisors (okay, Stashaway) were making the mistakes that will impact the growth of my funds, something John Bogle highlighted in his book, The Little Book of Common Sense Investing. (Read my Stashaway review to find out what I mean).
Also, I wanted to choose my ETFs, not depend on the robo advisors’ selection. I wanted more control.
Should you quit robo advisors?
When I finally bought my first US ETF (VOO — Vanguard S&P 500), I felt so happy to finally have control. I also felt really confident that this time, I’m doing the right thing. That, for once my desires were aligning with my investing strategy and personal preferences. These days I just use Rakuten Trade to buy VTI, VXUS or just VT. With these ETFs, I’m investing in the entire world.
So, are robo advisors a bad thing? I wrote about this in Should you use a robo advisor?, but here’s a quick summary of why they can still have a place in your investment strategy:
Reason 1: If you’re paralysed with fear and can’t seem to invest
When I started with robo advisors I was paralysed with fear. Stashaway, despite all its flaws, gave me a way to get over that fear. And because little capital was needed, I didn’t feel as if I was going to make a big financial mistake. Robo advisors allowed me to experiment and dip my toes into investing waters. And once I gained confidence, I moved on to bigger things.
So, if you’re a new investor really afraid of investing robo advisors are really a good way to do it. Just be aware that as your investment increases, that fees will really start to eat into your gains.
Reason 2: You can start small and make mistakes
You often need more capital if you invest via brokerages. Fees can range from RM8 to RM40 or more per transaction. So, to make the fee worthwhile, investors often invest RM3,000 at one go. On top of that, many brokerages do not offer fractional shares, so you’d have to shell out quite a bit just to buy one share. For example, one VOO share cost about US$419 when I bought it. Robo advisors, on the other hand, allow you to invest from as low as RM50. It’s better to invest now, even with tiny amounts. The power of compounding will ensure that you will get a healthy amount after a few years.
Reason 3: Easy access to foreign markets
As I said earlier, foreign stocks are not cheap and many local brokerages do not offer fractional shares. However, robo advisors do give you that option. So roboadvisors are an easy and quick way to buy foreign shares.
Final word: Use robo advisors to get started with investing. Start with a little bit of capital, make mistakes, lose money and learn from it. Sadly, this seems to be the only way most investors learn, and I think it’s unavoidable. However, do not get complacent. Continue to learn the fundamentals of investing and as your investments grow evaluate if robo advisors are still the right strategy. Always be alert on the fees!
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Elizabeth Tai 