For beginners, investing is daunting. However, with more knowledge on personal finance, more of us are aware that we need to grow our money lest it be eroded by inflation.
There are so many ways to do that beyond just putting your money into a high-interest savings account. Some buy stocks, while others place their trust in government bonds.
But a good place to start could be to try out a robo advisor. Usually, the minimum investment is pretty small, which makes the stakes low. The commission fees are also more affordable than established brokerages like UOB KayHian or Philip Securities.
What are robo advisors?
It’s not as technical as it sounds. Usually, when people start their investment journey, they go through a brokerage and there will be an investment manager who will advise them.
Instead of having a real life manager, robo advisors use algorithms to offer advisory. It’s usually easy to use, where you simply input your budget, risk appetite and how much you want to achieve in how long.
The robo advisor will then generate an investment plan for you, and you can invest directly as well as monitor the progress. In Singapore, some of the more established robo advisors are Syfe, Stashaway and Endowus. But in the recent years, traditional banks have also joined in the fray and pushed out robo advisor products too. For those who are familiar, the DBS Digiportfolio and the OCBC RoboInvest may come to mind.
Usually, putting your money into a robo advisor is a low-risk type of investment, as they typically invest in global exchange-traded funds (ETFs).
Comparison of robo advisors in Singapore
We’ve selected the most popular robo advisors in Singapore. Here are their fees and the minimum investment required.
||Fees per annum
||0.8% (up to $25,000)
||0.65% / 0.5% (< $20,000) / 0.4% (>$100,000)
||$1,000 or US$1,000
||0.75% to 0.85% depending on portfolio
||0.5% + USD$18
||0.6% (up to $200,000)
Sources: Individual robo advisors’ websites
As you can see, Syfe and Autowealth have the lowest fees for amounts lower than $20,000. If you only have a tight budget, Stashaway and Syfe require no minimum investment amount.
Pros and cons of robo advisors
If you’re putting in money for investing with a robo advisor, you might be rightly concerned about the good and the bad of robo advisors. Why choose them, will you lose money?
Advantages of robo advisors
Some of the key advantages of robo advisors have already been covered. They have lower fees than traditional investment brokerages, and so you don’t need to worry about fees when you need to withdraw, deposit, or even rebalance your portfolio. No forms to fill and no need to talk to a middle-man investment manager. It’s fuss-free in that sense.
Most of them also do not lock your money in, so you can easily withdraw if you change your mind. It might take a few days to process, however there is typically no fee to do this.
Additionally, with certain robovisors requiring no minimum investment, you can literally start with $100 and see how you feel about the experience. You don’t need to have thousands set aside.
The interface of robo advisors is also easy to use with little technical jargon. A well-deployed format is a lifestyle selection of what you want to save for. Retirement, buying a house, or going on a blow-out trip? Based on how much you need and the timeline you have to save up for it, the robo advisor will quickly calculate for you how much you need to save each month.
Disadvantages of robo advisors
Roboadvisors work based on algorithms, so if you are an advanced investor you may find it rigid, unlike a human investment manager that can respond to your wishes — like choosing which securities, and so on.
Some robo advisors may also carry hidden fees, in the form of currency conversion, or subscription fees. So look out for those and be sure of what you’re paying.
Are robo advisors safe?
In Singapore, robo advisors are regulated by the MAS. They are required to be licensed under the Securities and Futures Act (SFA) and/or the Financial Advisers Act (FAA).
But, since the rise of digital banking, there are some exemptions granted to robo advisors. They do not need a long corporate track record, but they need senior management members who have experience in fund management and technology. They also need to be audited by an independent party after the first year.
There are a few other exemptions. Robo advisors do not need to obtain full data on a client’s financial status, and they can pass clients’ investment instructions to brokerages without having an additional capital markets services license under the Securities and Futures Act.
So, compared to banks, robo advisors have relatively relaxed rules. If you are concerned about the above points, you may want to go for robo advisory platforms from established banks like DBS and OCBC instead.
Ready to invest? Take note that investments come with risks, even those you may take up with robo advisors. While robo advisors offer a passive way of investing, it doesn't mean that it comes with guaranteed returns. However, compared to other investment instruments, it is relatively low risk.