Robo-advisors. What are they? To the average retail investor in Singapore, we haven’t a clue about what it is. It’s not really our fault because it has never been talked about. So why should I care about robo-advisors and what can they do for me?
Robo-advisors are actually more than just advisors. Not only do they all have some form of testing to determine a suitable portfolio for you, they also allow you to cheaply and simply invest in those portfolios (Check out Wealthfront orBetterment to have a better idea of a live, working robo-advisor). Basically, the point of robos is to automate away all the irritating, annoying and complicated parts of investing. And I think that by and large, the technology has improved to a point where it is not only feasible to use a robo-advisor, but it is ideal to use one!
Let me just break it down simply to show you how it goes.
- Visit and register with a robo-advisor
- Answer some questions to determine your risk profile, and accordingly, your recommended portfolio
- Review the portfolio recommendation and tweak it to your preference
- Transfer money
- Watch it grow
- No hard-sell for privately managed funds
- No offer of leverage to boost your returns
- No shady investment options
- No need to open a CDP account
- No need to open a brokerage account
- No linking that brokerage account to your bank account
- No linking your bank account to your CDP account
- No overseas brokerage account
- No overseas / foreign currency bank account
- No expensive FX spreads
- No need to execute any trades with any brokerages
- No need to think about lot sizes and bid-ask spread
- No transferring money around for securities settlement
- No need to worry about dividends, rights issues or other corporate actions
- No complicated expensive or complicated fees
- No large minimum capital required
I would consider myself a sophisticated investor by circumstance, not by choice. While many people who read and surf finance blogs are mostly capable of doing their own trading, many of us have acquired this knowledge exactly like me – being forced to learn and do it yourself, because there is just no other way. Even if we wanted to have a passive portfolio, the best that we’ve got is POSB Invest Saver, and that frankly, highlights the sad state of the financial industry here.
There is a huge void in the local finance industry. After people have learnt about unit trusts and then buying off the local SGX, the next step is a huge leap forward that ends up with you having your own broker to get you into international markets and buy in foreign currencies. That is pretty complicated stuff. There isn’t anything in between! I think many, many people (myself included) would prefer to have a suitable product so that we can finally spend our lives doing other things instead of being constantly worrying about our investments (rights issues, brokerage changes, trading suspensions, etc etc). I know that I would use a robo-advisor if there is a suitable one for me.