Face it, the rise of the robot industry is going to change the world you know.
But not necessarily in a bad way like how Skynet will nuke the human race. Some robots are built in your favour. Case in point, robo-advisors that can help you with your investment portfolio.
What are robo-advisors?
As the name implies, robo-advisors are essentially advisors. In this case, it’s an automated system that dishes out financial advice or manages your investment portfolio with minimal human intervention.
The system is run by an intricate algorithm, which is based on market trends and knowledge that are collected, analysed and executed to an optimal outcome.
Robo-advisors typically give you direct access via its online platform, either in the form of an app or a dashboard that lets you monitor its recommendations and trade executions.
The basis behind robo-advisors goes beyond financial advice, as it also allows you to trade through them via an account. Thus, robo-advisors act as a middleman, executing the trades on your behalf based off their detailed algorithm.
Why would you use a robo-advisor?
There are plenty of reasons to put your money into robo-advisors. Mostly, it’s about creating low barriers to entry for anyone who wants to start investing but is relatively new to it.
When we say low cost, there are two things to consider. First, the cost of entry. In the traditional way, you’ll be engaging an investment manager, who might cost an arm and a leg to manage your portfolio.
Robo-advisors do not have that high cost associated with it. Instead, you are paying a fixed monthly fee that range from as low as two digits to maybe a few hundred, depending on your portfolio size.
These fees will vary between robo-advisors, which could range between 0.2% to 0.8% per annum based on your portfolio size. A one-time annual platform fee might also apply, and again, it’s dependent on the robo-advisor.
The second thing about robo-advisors and cost is the low buy-in fee. That means you only need a small amount to start investing.
In fact, some robo-advisors don’t even require you to have a minimum balance in the account, though that really shouldn’t be the case if you are truly interested in investing. In contrast, traditional investment routes would cost a tidy sum just to open an account.
Lastly, and we think this should be categorised as zero cost, is that there’s no fees involved for depositing or withdrawing capital from your account. In contrast, some investment platforms will impose an early withdrawal fee.
Easy to get on board
There’s an app for everything. Yes, including robo-advisors. In fact, that is the bread and butter of these automated investment systems.
Operating in an online environment, robo-advisors give users instant access to the markets through its app or desktop dashboard.
The whole point of robo-advisors is that it takes the hassle out of investment. It’s as simple as signing up for an account with the robo-advisor, putting some money in and letting the algorithm work its magic.
More importantly, it also does most of the hard work for you. Rather than constantly keeping on a eye on your trades and executing them in real-time, you can just park a budget with the robo-advisor and let it run automatically. Perfect for those who have little time to watch the market.
Sounds simple enough, right? Well, you’ll still need to do your due diligence and understand a bit about how the market works.
While it’s true that most robo-advisors users are mainly more passive and rather let the system do the hard work, you’ll still need to keep an eye on the market movements.
Never put all your eggs in one basket. That’s exactly what robo-advisors subscribe to - a strategy that diversifies your portfolio. In particular, robo-advisors deal with exchange-traded funds (ETF).
With ETFs, your robo-advisor basically lets you invest in a basket of assets ranging from stocks, bonds, oil futures, etc. While you do not directly own these assets, you are entitled to a portion of the profits through earned interest or dividends paid from their price changes in the markets.
One caveat to note, however, is that these dividends are taxable, and this varies depending on the countries the assets are traded in.
Much like how investment managers identify your investing goals through a series of questions, robo-advisors do the same. What makes robo-advisors a notch above its human counterparts is its access and ability to analyse a whole score of data through its algorithm. In doing so, robo-advisors are able to create a personalised portfolio just for you.
Which robo-advisors are available in Singapore?
To date, there are three robo-advisors that you can try in Singapore.
As far as similarities go, all three are licensed under the Monetary Authority of Singapore, which gives them a lot of credibility.
The differences, however, are aplenty. These are the main factors you’ll need to consider to decide which robo-advisors to go with:
- Minimum account balance
- Types of assets
Of course, there are more to consider, but rather than hearing it from us, perhaps it’s better to get started with some of them on a trial program.
How do you get started?
Depending on who you go with, just head to the robo-advisor of your choice to open an account:
In the case of all three robo-advisors, you’ll need to answer a questionnaire designed to help them understand the type of investor you are.
More importantly, it will determine how its algorithm will work to suit your portfolio, thus making the right recommendations.