“Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”~ Warren Buffett
Investing needs perseverance and consistency. Do not anticipate to see instant results in your investment value. You have to be patient while waiting for compound interest to do the magic.
It is easier said than done, experts ask us to stay the course no matter what direction the market goes but in real life, emotion intermingles with our decision making.
So, it might be a good idea let your investing process auto runs with no interference from human’s emotion and decision making.
Robo-advisor or DIY?
What is Robo-advisor? Robo-advisor or robo-adviser are a class of financial adviser that provide financial advice or investment management online with moderate to minimal human intervention. It is a financial digital platform that uses algorithms to automate your investment portfolio.
Robo-advisor such as StashAway will create a portfolio based on your risk appetite and investing goals and periodically rebalance your portfolio.
DIY- do it yourself just means you take full control of the investment. You open a brokerage account, choose your own fund and invest according to your risk appetite and goals.
With the advancement of information and technology, basically you can do your own research and choose the ETFs that suit you. However, there are a few considerations to think before deciding which method is a better choice that suits you.
#1 Are you comfortable to do it?
If you find it difficult to open a trading account let alone converting your money to fund your account, you might be a good candidate to choose Robo-advisor. Anyway, no trick can be learned by day-dreaming. No matter how difficult you think a task is, just spend 30 mins of your time every day reading some books, watching a few YouTube videos and talking to your friends, you can learn anything in this world!
Read my post on Index Funds Investing Made Easy and How to Fund IB ( Interactive Brokers) using MYR, you are done with the brokerage account and ready to do it yourself if you wish!
Assessing your risk appetite and investment goals might be a bit tricky, you need to be honest with yourself. Familiarize yourself with asset allocation and if you can’t decide your equities/bonds percentage allocation, it is wiser for you to use Robo-adviser.
#2 How much do you plan to invest every month ?
Investing a small amount of money every month by yourself might not be practical. As you know, a share of VUSD costs more than USD60, and VWRD is more than USD90, if you invest less than USD1000 per transaction, it might be better to engage a Robo-adviser to do the job for you. You can invest any amount in StashAway or at least MYR 5 in Raiz. Some Robo-advisers require a minimum amount of MYR100 for every investment such as MyTHEO.
If you still want to DIY, please save up to USD1000 and only invest every quarter instead of every month. Remember, the minimum fee of Interactive Brokers for buying U.S ETFs is USD1.
#3 Are you a busy man?
Yes, I need to do three steps every fortnight to invest my Irish domiciled ETFs,
- Use TransferWise to convert my MYR to USD,
- Log in to my bank online to transfer MYR to TransferWise OCBC account,
- Log in to Interactive Brokers (IB) to buy my desired ETFs according to my asset allocation.
The whole process takes less than 15 mins but if you opted for StashAway, it probably takes less than 1 min ( I have no experience but I think it is quite straightforward) or even 0 min if you set up your auto debit and link your bank account to your Robo-adviser!
For me, I would rather spend 15 mins and save on management fee imposed by these Robo-advisers.
#4 Are you keen to pay the fee for convenience?
The expense ratio (ET) for VUSD and VWRD is 0.07% and 0.22%. If you leave your money to Robo-advisers such as StashAway to invest on your behalf, the fee ranges from 0.2-0.8% depending on how big your portfolio is.
Most of the Robo-advisors charge fees according to your portfolio size – the larger your portfolio, the less fees you pay. What is the difference between 0.07% with 0.8%? It is 10X difference! If you think you can’t DIY and want the service of a Robo-advisor, prepare to pay the fee!
#5 Do you want to control your investment?
You have no say when you engage a robo-adviser on your investment. The robot decides for you which combination of equities/bonds to buy. You can’t customize your portfolio according to your preference. And of course, if you do not know the way to customize your portfolio and allocate your assets, it is better to leave the job to a robo-adviser!
#6 Are you emotionally stable looking at market?
If you manage your own investment, like most investors, you will be inconsistent in execution!
Initially you plan to invest USD1000 monthly, when the market goes up , you might hold back and hope to invest only next month.
The ” wait-and-see” mentality would destroy the beauty of cost averaging! Therefore, if you can’t control your emotion and invest consistently as planned ignoring the market’s direction, Robo-adviser might be a better option for you!
Conclusion
Whether Robo-advisor or DIY Investing is better depends greatly on your needs and situation. I would suggest you to choose robo-advisor if you plan to invest small amount every month.
And if you can’t stay the course and stick to your plan because of volatility of the market, robo- advisor will be a better option!
But if you are a disciplined investor and have more money to invest every month or quarter, DIY is certainly a better choice because this will save you a lot of money in the long run!
Even you do not have any knowledge about asset allocation and which ETF to buy, it is not an excuse because all these can be learned with just a few computer clicks!
