Asked by Anonymous
Asked on 04 May 2019
Thank you for your question. I understand where you are coming from when you say that you would like to buy low and sell high. while it would be perfect to do that, the reality is that it is quite difficult to do so and evidence tell us that most people fail to beat the market. But what evidence also tell us is that regardless of when you enter the market, over the long term (at least 10 years), the stock markets always go up.
It is with this in mind that at MoneyOwl, we do not attempt to time the market (please note that not all robos believe in the same philosophy). You can invest at anytime and at MoneyOwl, being a bionic financial adviser, we do our very best to help you ignore short term noises and stay invested for the long term. What we will also do is that we will do regular rebalancing so that your portfolio will always reflect the asset allocation that you are comfortable with. By rebalancing, it also helps you to lock in some profits. As an example, when the equities markets go up and bonds come down, your portfolio will have more equities than bonds - more than how your original portfolio should look like. What rebalancing will do is that it will sell equities (that have gone up in price) and buy some bonds (that have gone down in price). So in doing rebalancing, you are in effect doing some “buy low and sell”.
I have written an article on the topic of marketing timing and you might want to read it here https://advice.moneyowl.com.sg/breaking-the-addiction-to-active-management/
MoneyOwl is also holding an investment symposium and you can sign up for it here
Hope this helps!
05 May 2019
05 May 2019
In a very (very) general sense, any investment strategy that involves (i) regular contributions and (ii) regular re-balancing, will result in the illusion that you are buying low and selling high. Let me explain
(1) Regular monthly contributions for example, will buy equities/bonds for you every month. This means that you are buying a fixed value (not a fixed number) of shares every month. When the share price becomes higher next month, it technically means that you bought in low the previous month.
(2) Rebalancing almost guarantees that you will lock in some returns. For example, if you're on a 60/40 portfolio mix of 60% equities vs 40% bonds, when equities rally (go up in price) and the mix becomes 75-25, your robo-advisor will start sell some equities (selling high) and buy more bonds (buying low, relatively at least).
In your specific case of equities doing badly, the robo-advisor will actually start buying more of equities given (A) your fixed monthly contribution of $X; and (B) equities typically fall faster than bonds so to make sure your portfolio mix remains, the robo-advisor will spend more money buying equities.
In an aggregate sense, robo-advisors dont do too badly.
05 May 2019
06 May 2019
Yes, AutoWealth helps you to take advantage of excessive market volatility to lock in extra returns from selling high and buying low through portfolio rebalancing. Read on to know more...
Significant market movements may cause portfolio assets to deviate from their original intended allocation weightage. AutoWealth rebalances clients’ investment portfolios timely to realign the allocation weightage of portfolio assets to maintain a consistent risk profile for all our clients and for robust risk management.
For example, the escalated U.S.-China trade tensions in 4Q 2018 caused Emerging Market Stocks to decline materially and U.S. Government Bonds to rise materially causing an underweight in Emerging Market Stocks and an overweight in U.S. Government Bonds. In this case, AutoWealth will sell and take profit on some U.S. Government Bonds whilst using the sales proceeds to buy some Emerging Market Stocks at the market discount to realign the allocation weightage of portfolio assets.
In another example, the eased U.S.-China trade tensions in 1Q 2019 caused Emerging Market Stocks to rise materially and U.S. Government Bonds to rise by a smaller margin causing an overweight in Emerging Market Stocks and an underweight in U.S. Government Bonds. In this case, AutoWealth will sell and take profit on some Emerging Market Stocks whilst using the sales proceeds to buy some U.S. Government Bonds to realign the allocation weightage of portfolio assets.
Our portfolio rebalancing is supported by well-established research, including those documented in “Pioneering Portfolio Management David F. Swensen, CIO of Yale Endowment Fund”. The research concluded that threshold-based rebalancing statistically generates extra investment returns by exploiting excessive price volatility.
10 May 2019
11 May 2019