Using robo-advisers? Do not be trigger happy

A 938. But back to this episode of money talks now, if the names Saif, stash away and Dallas, if they all ring a bell, then you'll have a clue as to what we're talking about today. They're called robo advisors and they've gained traction in recent years and are especially popular with younger investors thanks to low fees and easy to use apps. It really is. As simple as completing a questionnaire about your risk profile,

your investment goals. Voila, you're in business. A sophisticated algorithm uses the money that you put in to invest in a slate of products based on the profile that you've revealed in your questionnaire, you don't even need to speak to a human being to get this done gone out. The old brokerage firms fees. Financial advisor who buys you a meal in exchange for buying an investment product. Has investing really becomes so simple. Can you completely rely on these fintech products.

What if you run into problems to break this down is ferris we ferris is a master trainer with the Institute for financial literacy. Hi ferris, Welcome to money talks. Hi Andrew thanks for inviting us first and foremost, should everyone sign up with a robo investor? I mean, there's the low management and transaction fees, the algorithm to do all the hard work for you. It sounds like

a good deal. So generally, I think robo advisors kind of appeal to consumers and customers who are cost conscious about fees in order for them to jump into the bandwagon. They will need to be comfortable and confident with tech. Right? The hallmark of Robot Advisor is there is of online access. However, if listeners are intending to invest via robo advisory, something that they need to take note is if the returns on their investment with the Robot adviser do not outweigh the total

cost associated with the advisory firm, right? Such as fees, then they are better off not using one. It's also essential to pay attention to what exactly they are investing in. So I would like to encourage listeners to try because this is a very good platform, including myself, I have three rubles, you know, which I use. Yeah, a lot of research that needs to be done before you venture into something like that. And the thing is because it's so appealing to the newbie investors out there or those

that don't even have an investing account. This just makes it that much more accessible, doesn't it? Okay. We already have those traditional brokers, financial advisory firms. How diff exactly our robo investors to your traditional brokers. Do they actually replace traditional firms or do they actually provide a brand new service? That's uncharted territory really, it really depends on user's preference, whether they want to get a rowboat or rather than getting a human advisor can robo advisors

make you money? The answer is yes, They can make you money with a robo advisor, just like you can make money with any financial advisors that you place your business with

and can you lose money with robo advisors? And the answer is also yes, you can lose money with them, particularly with rebalancing cars and fees and also when you cash out during market downturns, like now, what robo advisors lacks is they are usually limited to investments only there are some, they are able to provide financial planning service from a financial planning perspective, it will be better to go with a human advisor financial advisors because they will be able to

provide holistic financial advice by seeing the whole picture, a good one especially will be able to sense beyond what is said by asking good questions, right, that enable them to understand the client or financial situation. For example, the person might be going through a tough time in this marriage, right? Or they may have dependence or not well, or they may have habits that may put their finances in disarray,

like addiction to for example, gambling or spontaneous spending. So ultimately it goes back to the users their preferences and also their needs. Yeah, indeed, I think the nuances of our lifestyle is not something that a robo advisor necessarily would be curious about, unlike a human being I suppose. Is that what you're saying? Right? Yes, yes. When they engage the robo advisors, you're going through a digital platform, right?

You're not having a human face to face interactions. So what they usually ask is just of questions, they don't really make you dig deeper. So similarly you need to trust the selection of the funds which they select for you. And if you were to pick a financial advisor who go through the process, you need to be able to trust your advice, right? So if you are able to find a good financial advisor, then they will be able to see a holistic picture for you and give you good advice and a robo

can really make you feel. So I remember this quote that I like very much people will forget what you, but people will never forget how you made them feel.

So advisors, good one will really sends beyond the numbers and give you a good Yeah, you're absolutely right because that human emotion and in a face to face meeting that body language, when you respond to certain questions, especially personal ones, which financial advisor is a good one would need to ask you in order to assess what kind of financial appetite or capabilities you have, that's something that I guess a robot can't do is just a simple questionnaire and I suppose

that's what you're going for when you're speaking with a financial advisor or broker in that sense. So let's go back a little bit back in time. Robo investing isn't actually knew I did some digging up. The first robo Advisor was called Betterment and it's still around, it was launched in 2008. And since then obviously things have blown out. It's now 2023 lots of robo advisory platforms are out there. What do you think has changed since Betterment in 2008 compared

to what we have now? Right now, the fees are much cheaper. And also with the proliferation of internet social media, right. A lot more people are jumping on the bandwagon and there's a greater adoption rate and there's also a larger amount in terms of choices in terms of the fund selections typically robust, they focus on passive investing's but be aware that there are some rules they do active and some they may even get

into leverage strategies for investors for picking rubles. They really need to look at the underlying funds because of the wide variety of changes and options that they have is therefore important to select the appropriate robles with the probably underlying asset fund or E. T. F. That is in line with their risk profile, how would you be

able to know which ones to go for then? Would you need to do a lot more research than you would normally do if you went to a financial advisor, for example, besides look at the fees which is given right. And it's easy to find out. The second thing that users may want to find out would be the portfolio management and experience like the leadership behind. Right? And look at the underlying funds. So they can actually look at their website one way. Another way is they can even go to

the extent of writing to the customer service to the support. Say, what are some of the historical performance? Can I see what are some of the underlying funds that you're investing in for your core portfolio then? With that they can actually do further research whether historically, although I need to qualify that all investments comes with risks, historical performance, not

indication of future performance. Right? But having said that if you are able to see a fund or E T. F that has right through the volatility that even during crisis is to eventually recover, then you can have the confidence that you can stay in this for the long term. You do not want to invest in a fund or in the E. T. F. That over time actually is not growing. The returns are diminishing, right? So the research has to take this, of course. I mean, the same

would apply. Right? Yeah. What happens here is with the certainty is in terms of cost. So you would have an edge in terms of savings in terms of course. So the same thing when you look for advisor. Yes, you need to look at and so you are absolutely right. Hi, my name is julie you and I'm the host of the climate conversations. Each week I speak to guests who give us tips on how we can protect the

earth every once in a while. We also have interesting stories like how Singapore's first Tesla owner prompted billionaire Elon musk to reach out to Prime Minister Lee hsien loong or chef who makes the juiciest burgers from only plant based ingredients for more stories like these. Look for the climate conversations under C N A and me listen apps or wherever you get your podcasts with robo investing, Farris my impression is that people just put money into the platform or the app and then

let the algorithm do its thing. I mean that's what we do on our social media app. Right? It's just I enter to search them google does it for me, voila. Right. But there also is no close monitoring of the stock market or you're not making frequent transactions and you alluded to some of these limitations earlier.

Is that really the case though? Can you really just hand over portfolio management wholesale to an Ai you can provided that they demonstrate a good track record, what I would like to share would be in terms of some principles, right principles that I thought, introduction to personal investing. What I emphasize on during our sessions is in order for investors or for participants to be able to invest with confidence, right? They need to invest on a regular basis.

When this is investing in a regular basis means dollar cost averaging, but dollar cost averaging is not like a super bullet right? Three conditions I would say must exist for it to work effectively. The first is the investors or the participants needs to have time in the market, right? That's the first one, staying for the long haul. Right. Second. They must not panic sell. But the third condition is the most important, which I alluded earlier, which I have explained this. They

must invest into a good underlying assets, right? Or fun or E. T. F. That demonstrated that even when there's a crisis, right, They will event actually recover. So with that, let me share with you one story. Uh of course this is my story. I need to be real, right? So as I shared with you earlier that I use three different types of robo advisors, Right?

And to be honest, although I'm a master trainer from Institute for Financial literacy, I still find myself having a habit of constantly checking the prices because the apps are available in our mobile phone. Yeah, it's like a job has it for you, isn't it? We have easy access to them. Right? Exactly. Yeah. Yeah. And it makes me wonder if the funds that invested has gone down, gone out. It makes me really, really emotional, right?

So just now you were saying that can we just leave it to them if you have done your research, Right? And they have demonstrated that over the long haul, even after crisis they will recover over a significant period time. Let's say they went to crisis, for example, 97 dot com, you know, sorry, 2008 as well. 2008. So I covid so and so forth. So what happens to me, right? Because of the constant looking at the app, sometimes it triggers my emotion and give

a lot of anxiety, right? Yeah. And I actually redeem some of my funds. Yeah. So practical tip to the listeners and I did it for myself. Okay. Some of you may find that it's a bit extreme. So I want to show view. So if listeners really want to use robo is important to design in a way that do not sabotage the performance of their funds by taking emotions out of the equation how, by investing regularly,

which I have just mentioned, right? The dollar cost averaging, which I talked about the three conditions time in the market. They mustn't panic sell like me and that is triggered. They're going to sell right? The third one is the underlying asset must have demonstrated this one. I have emphasized this again and again after researching and having the confidence that this is the robo that you have selected.

The listener may want to after setting up after putting your money after triggering the money investing amount or the annual amount or lump sum investment, depending what they need their risk profile in the preferences. Delete the app, delete the app and continue to invest it regularly and look at it in 10 years time. This is what I did. This, this is this is like me and Facebook like this is causing too much anxiety, too much work. I don't want to think about it. I'm just going

to delete it. I mentioned that I use a few rubles frankly. This is what I did with one and all that. So I want to be honest, one that I'm significantly invested in. It's quite a significant amount. I also want to let you know, let the listeners know that confession is good for the soul. I do have a small portfolio which I pick my own stocks. However, looking at my historical performance, I mean I'm not very smart. The funds that invested in the has much better returns

than the portfolio that I'm managing on my own. So I do admit that there are a minority out there who does better than the market. But despite me being a trainer who teaches financial literacy right? Humans being humans, I think that I'm very smart. But the data shows that I'm not very smart. Well nobody is immune to such things, right? Nobody is

immune to not knowing enough for making mistakes. Okay, so one of the biggest attractions of robo investing is like you said, and we all know the low cost in terms of fees, it's a very big attraction. So when we pay for a human broker now,

what are we really paying for that? We may not get from a robo advisor, break it down for us various When we pay a human advisor, what they do is they do the holistic planning, But if you are engaging human advisor or financial advisors that just go through the motion or just paddling or trying to sell your product, then that's not a good advisor. Right? So, human advisors, if they take into consideration your goals, your

needs, looking at finances holistically, that'd be very helpful. Why don't we use risk profile as an example for robo advisory platform? Usually what they do is a few sets of questions, right? Let's say on a scale of 1 to 10, by going through this risk profile question, the user assessed that psychologically right there skill is actually eight, you know, they can take on high risk their growth investor. Right? However, with a human advisor, if they did in the right way,

by understanding their needs, their circumstances right? And understanding their ability to risk their risk capacity. So all those cycle basically the user may be able to take high risk, but circumstantially, maybe they have a couple of dependents who are depending on them? Maybe they have depths that they need to repay. Maybe their job situation is not so steady. They may not have the ability to risk this money much lower risk appetite, correct, correct.

Would you then say that the platform is safe because I know that robo advisory firms are regulated here in Singapore, which is a good thing. But what happens if the company goes under is my money going to be safe? Yes. Yes. All rubles are regulated by M. S. They have this capital market license, right? The money that they are investing

in right is separated from the operating account. Right? So in the event that if they put the fails, you are entitled to the right based on of course, based on the valuation at the point of time. Yeah. So listeners do not have to worry if they were to go bust, they will still be able to get back their investment subjected to

market evaluation at that point of time. Okay, so one of the biggest captive audiences that robot investing seems to be attractive to the younger investors and of course the retail investors, we saw a surge in the number of retail investors, not just in 2022 it was as early as the pandemic years where people had all this extra cash put aside from not traveling from not spending robo advisory was one of those things that they decided, yes, I'm going to spend

on that because it's more accessible for me to invest now. Why was this segment previously underserved by brokerages before the younger generations? They are more familiar with tech and these days with internet there's a lot more research that you can easily, there's a lot of bloggers, you know, there's a lot of information and google is our best friend, right? What we need, what we don't know, we just ask our best friend and we will be able to find

out that. But the important thing is how to distill the information that is relevant and that is applicable to us. But it's important to highlight just one point, not just for the younger generation and even for the generation X and all the baby boomers using the advisory firm you can save in terms of fees but if they're not comfortable they can always start with a small sum. Right and see how things work. You call it. Play money yes money not to use more

than 10% of your investable assets. I mean in the worst case scenario, if you're not comfortable, the maximum that you lost is 10%. If you find that is too high, you can reduce the five. Absolutely. On that note though, just a quick question about how much cost savings we actually do save using a robo advisory compared to using a traditional broker Ridge? How much actually in

percentage terms I suppose you can do that. How much actually are we saving using a Robo advisor because the fees for the advisers, I think they have been adjusted over time. So generally speaking, the robo advisor fee is less than 1%. Right. Let's suppose that if you will, do, you go with a financial advisor if you read fee, which is an additional 1%. So you could talk about 1% savings, but if there's an upfront fee

then there's additional is being incurred. I think advisors can also adjust their red fee, whether is it more than one or less than one, then are there any other fees? That one, it will be good for listeners to go and find out. I mean one more point. One more point. Sure, yes, please.

There's something that I think listeners may not be aware and you may be surprised as well actually for those who prefer to pick their own stocks, who prefer to buy and hold for exam, they buy one of the blue chips company by a certain E T. F. That they find a potentially it will grow over the period of 10 years and they just buy and hold actually it's more expensive to go with robo rather than buy and why is that? So because the annual management fees on the yearly basis. Right.

So let's say if it's 1% just use an example like you have to buy and hold investor, you just want to buy this particular company or by this particular, Right? And you will only exit in 10 years time. So you are only paying that breakage, the transaction fee and the redemption fee, right? Whereas it applies to your management fee, whatever because they are charged on a yearly basis.

I thought there's just something additional to highlight. Yeah, that's a good caveat actually because I think people are not really sure how long they should go, whether it's a long play or a shorter term play when it comes to robo investing. Some final advice we'd like to get from you ferris for newbies, absolute newbies to robo investing. How can they actually seek advice to get started? What do they need to consider? One way to start is to go through the process, Right of research on

their own. They are with blogs. If listeners are willing, we do have public talks offered by FL, which they can attend as well. They can always try by opening up one account. Then after that they can decide whether they want to put their money in. Ultimately, in order for them to start, they need to start by investing and some money if they are uncomfortable, they can always start small. Okay, that's good advice for beginner investors or those looking to start a small portfolio with less effort.

Robo advisors could be an avenue to try out, but it remains to be seen if the robots can in fact fully replace humans or perhaps it will continue to be a coexistence because in some ways nothing can truly beat the human touch On that note. Thank you so much for your time ferris for explaining this world to us, ferris, we is a master trainer with the Institute for Financial literacy.

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