Asked on 26 Nov 2020
So what's stopping people from directly investing into the ETFs that the robos invest, instead of investing with the robos? Is there any advantage to using a robo instead of following a robo?
Andy Chan, Seedly Student Ambassador 2020/21 at Seedly
Updated on 30 Nov 2020
I think there are a few reasons.
Robos like Autowealth automatically re-balances your portfolio allocation to ensure that the % of equities and bonds remain consistent with your risk profile. This saves time for the investors and most importantly, investors do not need to go through the emotional pain of having to re-balance the portfolio when its in the red.
This potentially helps reduce the likelihood panic-buying or selling when our portfolio is managed by robos. We have the option of 'switching-off' and reviewing the portfolio only once in a while, since we don't need to worry ourselves when the stock market is rallying and a pullback is imminent - our portfolios will be rebalanced automatically.
While we can certainly invest in the ETFs directly, it may not always be cost effective to do so. Some brokerages still do not offer $0 commissions. Hence DCA-ing monthly will cost more since we incur a flat fee.
This is especially expensive for investors who do not have a large capital to invest with. Hence. for investors who want to DCA but have a smaller capital to start with, some roboadvisors are more cost effective.
11 more comments
Actually why not both?
I'm actually doing both personally as well :)
Here's my little quick strategy:
I will DCA into Robo-advisors (EndowUs and Stashaway) monthly
Seperately I invest into thematic ETFs which are more theme focused (eg innovation, china tech) which are often outside of the ETFs which the Robos invest in
I have my joint account investments in Syfe :)
5 more comments
Robo will be a better option for people who have 0 knowledge of investment and is not interested in learning. Robos fees will definitely be higher than ETF since there is 2 layer fees in robos.
Robo help to strategies, diversify and rebalance the portfolio. There is no sales charges for robo too. This is why many people invest through them.
26 Nov 2020
I think it mainly comes down to convenience - robo investers are designed with new investers in mind, and a lot of emphasis has been placed on the onboarding and user experience. As a new invester, it's probably one of the fastest ways to get exposure to the market without active management.
There's really nothing stopping people from investing directly into the ETFs, in fact the fees would be lower since you won't be paying the management fees to the robo advisor.
The main downside would be that you'd have to spend your own time to manage and keep track of your investments. For example, if you're buying into 5 different ETFs, you'll have to keep track of five different funds while the roboadvisor does a decent job of summarizing it for you.
That said, I'd highly recommend that you take ownership of your own investments (even if it's a small % at the start) and not outsource the thinking. Afterall, it's an important skill to learn.
This comparison table between DIY, ETF and robo (Syfe is used as the example) should help answer your question and guide you to decide which is better for you :)