If you have not read the first part of Introduction to RoboAdvisors, you can do so here : https://sgfinanceguy.com/2020/01/01/an-introduction-to-roboadvisors-stashaway-part-i/
In part II of An Introduction to RoboAdvisors, we now take a closer look at the various assets Stashaway invests our money into, and evaluate the pros and cons of investing with Stashaway.
Economic Regime-based Asset Allocation (ERAA)
By utilising an ERAA, Stashaway attempts to achieve an All-Weather portfolio (Green square) that does well regardless of which economic regime the economy is in, and this is achieved through the re-optimisation feature.
Lets break down what this means.
To quote from Stashaway :
“When the economy moves from “healthy growth” to a recession, an optimised portfolio’s exposure to equities will decrease and its fixed income (bonds) and Gold will increase. In this scenario, the equity portion will contain more defensive sectors, such as consumer staples. “
Simply put, an All-Weather portfolio is one that does not do particularly well in any regime, but does decent in all regimes, which means stabilised returns for us investors.
How an All-Weather portfolio is typically achieved is by adopting a 60-40 stock bond strategy (ie Risk Parity strategy). The idea behind a 60-40 stock bond allocation is that stocks and bonds/commodities are inversely related to one another.
When stock prices fall during a recession, the algorithm retreats to safety and increase asset allocation towards bonds and commodities, which are defensive against the recession. When stock prices rise during positive growth and high inflation, the algorithm allocate more assets towards stocks to enjoy the higher dividend payouts. This is achieved through the re-optimisation feature in Stashaway.
While this asset allocation strategy makes sense to me in theory, and aligns itself with my risk appetite, details of the re-optimisation process are unknown to us investors. As such, I tend to take this re-optimisation feature as a pinch of salt.
Nonetheless, so long as the money I park with Stashaway is generating stable returns, I am convinced that their re-optimisation process works, and i am not very bothered by not knowing how it works in great detail.
30% Withholding Tax from US securities (WHT)
To further address the 30% withholding tax I brought up in Part 1 of Introduction to RoboAdvisors, the 30% WHT is applicable so long as Singaporean investors own US listed assets, regardless of whether we buy these US listed stocks through our own broker or through Stashaway. It is not a consequence of investing in Stashaway. It is something that we Singaporeans have to deal with eventually if we decide to invest in US listed assets.
Personally, I am not very bothered about the 30% WHT. As a beginner investor as I am more interested in diversifying my portfolio as much as possible. Moreover, my initial capital is not really that significant for the 30% WHT to have a huge impact on my overall dividends.
Another thing I like about Stashaway is that other than exposure to US bonds, there is significant exposure to international corporate bonds, emerging market bonds and international treasury bonds, which are, firstly, not subjected to the 30% WHT, and secondly, are in line with my aim of diversification. You can view the full list of Stashaway’s ETF selection here.
Despite the 0.8% annual fee rate on assets, Stashaway does not function like a broker. There is no minimum commission fee (Which is typically $25 per trade if you are investing with a broker like DBS Vickers / Saxo Capital Markets / Philip Securities), which means that you get to keep more of your capital and also take advantage of dollar cost averaging to spread out your investments over a few months. Doing a lump sum investment may at times do more harm than good.
Something which I am very particular about as an investor is the safety of the investment, which is important to avoid defaults. As Stashaway is a startup with only 2 years of operation, I am unable to trust my funds fully in their hands without any reassurance.
In the event of Stashaway’s insolvency, Stashaway has a leger with Saxo brokers to state which ETFs are owned by Stashaway, and Stashaway has a leger with you to state which ETFs are owned by you.
To put it simply, the assets are not owned by Stashaway, but they are owned by Saxo Capital Markets, which is the broker Stashaway uses. In the event of Stashaway’s insolvency, as long as Saxo Capital Markets is fully operational, you will be able to get back a decent portion of your assets.
In conclusion, with all things considered, I would recommend Stashaway as a financial product for beginner investors because of its low risk nature and decent portfolio diversification as an alternative to the SSB / STI ETF. I’d see it as a long term investment with an investment horizon of minimally 5 years to see considerable returns. But of course, the longer you can hold on to it, the better it is.
As an investor in Stashaway, you are able to generate between 4 and 11% of annual returns (based on the risk index available between 6.5% and 36% respectively) if one invested in Stashaway from July 2017 to July 2019. The information is updated as of July 2019 on Stashaway’s website (https://www.stashaway.sg/r/stashaway-performance-2-years).
Given that it requires zero effort on your part to maintain anything, I’d see it as a pretty good deal.
Although the annual fee of 0.8% is rather high, but as a beginner investor, your main priority is to accumulate knowledge regarding more investment, rather than cherry pick your own assets at this point in your life. Only when you are more confident in yourself should you start building your personalised portfolio. In the long run, you’re preventing yourself from accumulating more losses.
Personally, with REITs and stock prices at exorbitant high prices right now because of the market’s 10-year bull run, a lot of REITs and stocks are overvalued, and are incredibly expensive. As such, I’m choosing to take a more conservative approach for now by dollar cost averaging into the Stashaway monthly, while preparing my cash reserve to buy stocks at discounts during the recession. I’m choosing to actively continue my investment readings and hold back any stocks, REITs, or ETF investments at this stage.
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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