Traditionally, funds investments were split into passive and active funds. Passive funds were assets like your Straits Times Index ETF, which aimed to replicate the performance of the market, while active funds were managed by actual brokers, which aimed to exploit profitable conditions and beat the market.
As active funds were managed actively by brokers, commission fees were higher, investments were risker for larger dividend yields, but yet did not guarantee a higher rate of return as it is difficult to outperform investment benchmark indexes.
A couple of years ago, we had a new player coming into the funds investment scene, known as RoboAdvisors. RoboAdvisors are considered a passive fund managed by human-machine hybrids with minimal human interference, and utilises algorithms which are capable of adjusting asset allocation in accordance to different economic regimes. To put it simply, a robot manages your asset for you, hence the name RoboAdvisors.
RoboAdvisors today are a convenient way for a beginner to start investing because it requires minimal supervision from the investor himself, and also because fees charged are low unlike active investing, which means you get to keep a greater portion of your dividends.
Between passive and active funds, I’d say that RoboAdvisors lies more towards passive investing. This is because RoboAdvisors generally do not require human supervision (at least on the users’ part) and relies on algorithms instead to determine when to re-balance one’s investment portfolio. And because of how diversified the asset allocation is, as it is mostly investments towards ETFs, I’d consider RoboAdvisors to be a lower risk investment as compared to other investment products like stocks and Real Estate Investment Trusts (REITs), and has about the same risk level as the STI ETF.
Today, specifically, we will be taking a closer look at Stashaway’s General Investing product, one of the first RoboAdvisors to be licensed by the Monetary Authority of Singapore (MAS).
Stashaway was founded in 2016, and is currently managed by the ex-CEO of Zalora Group, finance industry veteran Michele Ferrario.
The highlight of Stashaway as a RoboAdvisor is its ability to allow users to customise their own portfolio targets in accordance to their age, annual income, and occupations. Stashaway will then create a portfolio for you in accordance to your portfolio targets, and assign a recommended risk index depending on your financial background.
Stashaway Risk Index
As a beginner investor, the most important thing to take note of with regards to the Stashaway Risk level is the risk metric used, Value-At-Risk, or VaR. A higher risk level percentage would mean a more aggressive asset portfolio allocation, while a lower risk level percentage would mean a more conservative asset portfolio allocation.
As you adjust your risk levels on your profile, the risk metric, VaR, is what is adjusted. For example, if you start off with $10,000 SGD in your Stashaway portfolio, and set your risk level to 20%, there is a 99% chance by the 99%-VaR risk metric that you will lose not more than $2000 SGD in a year, or 20% of your initial capital.
By setting your risk level to a lower value, Stashaway will allocate a larger proportion of your capital towards bonds. Setting your risk level to a higher value would mean that Stashaway allocates a larger proportion of your capital towards overseas based equities (Specifically, a larger proportion of your capital will be directed towards ETFs).
One upside of this approach is that as a beginner investor, you do not have to worry about where your assets are allocated to. You can simply cash your money into Stashaway and the algorithm will do the work for you depending on your risk level. The downside is that you’re unable to control the percentages of allocation of your assets.
Apart from risk levels, Stashaway will also suggest a suitable timeline for which you’re recommended to hold your investments for so as to see a sizable return.
Fees for General Investing Product
For the first $25,000, Stashaway charges an annual fee rate of 0.8%. As a beginner investor, that is the percentage we’re most likely to concern with.
Another important thing to take note is that Stashaway practices a Fee Stacking Policy, which means that even you invest more than $25,000, the first $25,000 will still be subjected to a 0.8% fee rate. In the long term when you have accumulated large amount of capitals in Stashaway, this may affect your total dividend payout.
Apart from that, as an investor, another important point to note is that as many of Stashaway’s assets are US based, US based dividends are subjected to a withholding tax of 30%, which can cut a sizeable portion of your dividends if you are planning to invest for the long term. This is a point I will be addressing in Part II of Introduction to RoboAdvisors.
Other Stashaway Products to take note of
Apart from General Investing, Stashaway offers other products such as Stashaway Simple (Savings account with a higher interest rate compared to banks), Income Portfolio (With an emphasis on Singapore based rather than US assets), and Goal-based investing. Do take the time to explore these products if you have the time to do so.
Wow, but there are so many RoboAdvisors on the markets these days? Which one should I pick?
My personal opinion is that it does not matter to an extent which robo advisor you choose. Reason being algorithmic performances (at least for now) between robo advisors do not have drastic differences in returns in the long term, though there might be slight variances in the short term.
However, given that different robos on the market have unique traits, you can factor that into consideration when choosing a robo for yourself. For example, not all robos, like Stashaway, re-optimize their portfolios and this is a factor in considering the returns of different robos.
I’d personally recommend Stashaway because of its seamless UI, prompt customer service and convenient customer service as you can get customer support over WhatsApp, and also because its fees are more competitive if you are planning to invest below 25k SGD.
In part II of An Introduction to RoboAdvisors, we will take a closer look at the various assets Stashaway invests our money into, and evaluate the pros and cons of investing with Stashaway. With all things considered, I will provide my own opinion on how Stashaway performs as an investment.
Personal Stashaway Referral Code
(By using this referral code, we each get up to $10,000 SGD managed for free for 6 months!)
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