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In this video, we talk about:

1) Robo Advisors and how they're the perfect tool for beginning investors who want to grow their money
2) How to get started with Robo Advisors
3) The best Robo Advisors you can use

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Singaporean based StashAway was the first robo advisor to gain Securities Commission approval in Malaysia.

Not long after, MyTheo and Wahed Invest joined the fray to provide some welcomed competition in the scene.

I’ve been investing in robo advisors for just over a year now, and I see 3 clear reasons on why they’re perfect for the young investor.

Let’s get started!

1) Robo advisors remove emotions from investing 00:43

Robo advisors are a class of financial products that aim to manage your portfolio with minimal human intervention. They’re meant to remove from investing an unavoidable trait we human beings have, emotions. In the investing world, emotion destroys.

Hype investing

Investing bubble

An investment bubble forms when a financial product gets over hyped by the general public. The term bubble is used because the price tends to rise and rise till it reaches an unsustainable point and just… pops.

A classic case can be seen with Bitcoin in late 2017. An initial price hike was fueled further with “investors” who knew nothing about the product, which is a good sign that the increase was unjustified. This bubble burst… Hard.

If you got in at the peak of Bitcoin’s rise to fame, your investments would have halved in value in just over a month. The illustration shows a (very real) example of what happened then.

The investment journey of a hype investor.

Robo advisors are meant to prevent just this. Using them, I don’t choose individual stocks or index funds I want to invest in. All I get to decide on is how much risk I’m willing to take, and the software does the rest.

They don’t care about what the flavor of the month is. Hyped up investments like Bitcoin don’t even deter them. They just sit there.. rationalizing numbers and facts. Like a bunch of savages.

In the event their ever so complex model identifies a weakness with a certain fund in your portfolio, it’ll initiate re-optimization and move your money to higher potential funds – no manual intervention necessary.

I’m not claiming this to be fool proof, and a true measure of test will only come when the next recession hits. Regardless, I’m not staying out till it comes.

2) Good Portfolio Diversification 02:44


Robo advisors provides diversification to my portfolio. Generally, I’m lacking exposure in the foreign markets with the likes of ASB & EPF weighing heavily in the Malaysian market. Ideally, I want my investments to diversify in:

Geolocation (Malaysian, Asian, Europe, US)
Product (Stocks, ETF’s, bonds, treasuries, commodities, currency)
Company size (Small, mid, large)
Industry (Technology, healthcare, financial, etc..)

To understand how robo advisors do this, its important to first understand the cornerstone of their investments, index funds.

Index Funds

Index funds are a basket of stocks that fit a certain criteria. For example:

S&P 500 – Tracks the largest 500 companies in the US by market cap

U.S. Small-Cap ETF – Tracks small companies with large potential for growth

ETFMG Alternative Harvest ETF – Tracks companies engaged in the cannabis business (wait, what?)

I’d rather have my investments spread across a variety of stocks rather than putting all my eggs in one basket.

Other big names in the S&P 500 ETF include McDonalds, Boeing, Bank of America, and Coca-Cola.

There are arguments that it’s too heavily weighted towards the technology sector, but that’s a topic for another day.

Example

Assume I have RM100 that I’m ready to invest. With this, I can either a) put it in a robo advisor and get exposure to over 100 shares through index funds, gold, and bonds; or b) own 1/13 Apple stocks, if that’s even possible. It was an easy decision for me to make.

The amount of diversification I could get with such a small amount of capital not something I’d pass up on. Of course I could directly invest into a selected fund of my choice but it goes back to point 1, removing emotions.

3) Lower fees 05:02

The next closes thing to robo advisor style investing are mutual funds. They pool funds from investors (you and I) and create portfolios for their clients.

Their difference stems from the fact that mutual funds are actively managed by professionals, getting involved in individual stocks and more complex investments like warrants and IPO’s.



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