Can I know whether I can buy low and sell high with Robo advisors? Will the robo advisor rebalance my portfolio since the equity is doing bad? (which makes it hard to buy low and sell high) - Seedly

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Asked by Anonymous

Asked on 04 May 2019

Can I know whether I can buy low and sell high with Robo advisors? Will the robo advisor rebalance my portfolio since the equity is doing bad? (which makes it hard to buy low and sell high)

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Dear Anonymous

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

https://www.eventbrite.sg/e/moneyowl-investment-symposium-registration-60702740531

Hope this helps!

2 comments

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Anan Ramachandran
Question Poster

05 May 2019

Thanks man will read it up. I believe moneyowl is looking in DFA instead of ETFs? what are the advantages of moneyowl robo compared to the rest?
Christopher Tan
Christopher Tan

05 May 2019

Hi Anonymous, thank your for your question. You are right. At MoneyOwl, we have decided to use DFA funds instead of ETFs. To read more on why we made this decision, you can read it here https://advice.moneyowl.com.sg/why-unit-trusts-and-not-etf/ With regard to our advantages as compared to the rest of the robos, please allow me to repost an earlier answer here: Investment Philosophy Some of the robos are active mangers, in that they believe they can beat the markets by tweaking the portfolios tactically in line with economic changes. Some of the robos do not believe in active management. As an example, MoneyOwl do not believe that it can beat the market. The investment philosophy is one whereby you should stay invested for the long term without trying to guess when is the best time to get in and out of markets. Underlying instruments Some of the robos use ETFs as their underlying instruments whereas 2 of us (Endowus and MoneyOwl) use DFA as our underlying funds. Investment or Financial Advisory Almost all the robos are investment robos. But for MoneyOwl, although we are a fund manager in terms of our MAS license, at the core, we provide financial advisory. The investment service that we provide is just part of our comprehensive financial advisory service to help you reach your life goals. You will notice that we already have insurance, will writing and in a few months time, we will launch our comprehensive financial planning service via robo and human advisers to integrate all the various areas (insurance, investments, CPF, etc) together. So I think you probably have to ask whether you are looking for pure investment advice or comprehensive financial advice. People behind the technology The problem behind tech firms is that the technology is opaque. You do not know what goes behind the algos. So at the end of the day, you have to trust the people behind the company. As you know MoneyOwl is a JV between 2 longstanding local companies - NTUC Enterprise and Providend. Providend in particular is one of the earliest financial advisory firms in Singapore since 2001. It is well known for its deep knowledge in financial advisory and reputation for championing conflict-free and ethical practice. Sustainability and Secured Platform In this world where start ups come and go, and also with the pervasiveness of cyber attacks, it is important that you invest with a company that is stable and secure. In this regard as mentioned, MoneyOwl is a JV with NTUC Enterprise and Providend, both have been around for decades. We are not a pure startup per se. Also, MoneyOwl is ISO27001 certified which means that we are serious in ensuring that our platform is safe and secure. So in a nutshell, MoneyOwl provide access to low-cost but good quality DFA funds. In addition, we are not a pure robo but a bionic financial adviser. What that means is that besides providing a tech platform for you to get first cut advice, you can also have access to our salaried and conflict-free human advisers if you wish to. Our tech platform is also ISO270001 certified. But above all, it is our corporate parentage that differentiate us completely from the rest of the service provider. As you know, MoneyOwl is a JV between NTUC Enterprise and Providend. Both are long-standing local firms with decades of experience and reputation. NTUC is a trusted brand and Providend is well know for its near 20 years of providing good quality financial planning advice and also championing conflict-free advice. Fintech startups come and go. But our corporate parentage gives assurance to our clients that we are safe, secure and are here to stay.
Lim Boon Tat
Lim Boon Tat, Applied Mathematics at Brown University
Level 4. Prodigy
Updated on 07 Jun 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.

2 comments

2
Anan Ramachandran
Question Poster

05 May 2019

Thanks for the detailed explanation. does all robos work that way. Seems like each have its own methodology and cant seem to find more info on how they actually choose the assets
Lim Boon Tat
Lim Boon Tat

06 May 2019

In general, most robos SHOULD work this way, and if you want to benefit optimally from robos, you SHOULD work this way as well (monthly contributions). The underlying philosophy (and main questions) you need to ask is whether (A) you want to DIY or outsource investment to an external party and (B) you want active or passive management. (A) By going to a robo-advisor, you seem to be choosing to outsource. (B) Not all robo-advisors are passively managing your portfolio (aka buying ETFs and trying to track the market). Some do have their own proprietary strategies although i think most of them just buy ETFs (and NOT individual stock-picking).
Tai Zhi
Tai Zhi, Chief Investment Officer at Autowealth
Level 4. Prodigy
Updated on 07 Jun 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.

2 comments

0
Anan Ramachandran
Question Poster

10 May 2019

Thanks Tai Zhi, Separate question, since Autowealth does not allow fractional share. does that mean some of the invested lets assume e.g 500 monthly, would not get fully invested?
Tai Zhi
Tai Zhi

11 May 2019

Typically, for an investment portfolio of $10,000, the residual cash will be lower than 1% of the portfolio. This means that 99% of the investment capital are invested. Therefore, we are quite efficient in investing the capital whilst maintaining the highest safeguard possible for you. The same cannot be said when you invest in a unit trust or with other robo-advisors. Pls watch this video for other FAQs: https://www.facebook.com/1563327363984028/posts/2227537154229709/