What is stopping people from directly investing into the ETFs that the robos invest, instead of investing with the robos? - Seedly
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John Lim

Asked on 26 Nov 2020

What is stopping people from directly investing into the ETFs that the robos invest, instead of investing with the robos?

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?

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    I think there are a few reasons.

    Convenience

    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.

    Cost

    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.​​​

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    Jay Hou

    Jay Hou

    05 Dec 2020

    W , etfs dont ccome cheap usu is very costly eg USD300 for this - https://secure.fundsupermart.com/fsm/stocks/etf-factsheet/NASDAQ/QQQ Which is why pp choose robos instead of buying directly (qn asked by John)
    Andy Chan

    Andy Chan

    05 Dec 2020

    @Kenny TDAmeritrade and Firstrade have $0 commissions for US ETFs I think. There are different brokerages you can use for different markets.
    Thank You!
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    Kenneth Lou

    Kenneth Lou

    Level 9. God of Wisdom

    Updated on 01 Dec 2020

    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 :)

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    Kenneth Lou

    Kenneth Lou

    30 Nov 2020

    Yup you can either opt in or out for the rebalancing part for Stashaway. I opted in, was a good decision!
    Jay Hou

    Jay Hou

    30 Nov 2020

    Dear Kenneth, but i m not sure, currently in "good" times, would it be better NOT to allow optimisation? In bad times, yes great to optimise ...but ,,,in times when economy on road to discovery....
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    Help with rebalancing, remove the emotions and prevent timing the market

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    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.

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    John Lim

    26 Nov 2020

    Thank you so much!
    Thank You!
    Can you clarify
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    Foong Yi Zhuan

    Foong Yi Zhuan

    Level 4. Prodigy

    Answered on 01 Dec 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.

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    Dawn Fiona

    Dawn Fiona

    Level 7. Grand Master

    Answered on 07 Dec 2020

    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 :)

    https://www.sgbudgetbabe.com/2020/05/is-new-syfe-reit-worth-investing-in.html​​​

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    PolicyWoke

    PolicyWoke

    Level 5. Genius

    Answered on 04 Dec 2020

    Hi John,

    The main advantage is, robo-advisors in general do the automatic portfolio-rebalancing for you, so you don't have to do so yourself manually.

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    ferdz

    ferdz

    Level 2. Rookie

    Answered on 01 Dec 2020

    Just to add 1 minor point, Robo-advisors reinvest the dividends collected from the ETFs (if any) to get the compounding effect. Investors must do it manually in order to feel the compounding effect.

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