Why You Shouldn't Invest In Robo Advisors (And Why We Still Do)

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In this video, we discuss 3 reasons why investing in Robo Advisors might not be the best choice for you, and 3 reasons why it might.

Want to start investing with Robo Advisors? Use these links to get freebies:

StashAway MY ►
StashAway SG ►
(FREE 6 months management fees)
Wahed Invest ► (use code EMIBIN1 to get RM10 FREE when you sign up)

No investment is perfect and there are always downsides to any asset class you choose.

If you decide to buy individual stocks – what if you chose the wrong one?

ETF’s are generally safer, but you can still choose the wrong ETF’s.

Roboadvisors help you choose the right ETF’s based on your risk preference, and as with any other investment class, it comes with its own unique pros and cons.

FLAW #1 – UNNECESSARY FEES

All ETF’s charge what they call an expense ratio, but all robo-advisors charge an additional fee on top this expense ratio.

These fees (expense ratio + robo-advisor fee) are usually deducted from your returns, so there’s no need for you to pay anything extra.

Instead of paying these these fees, you can just individually buy all the ETF’s in a portfolio separately from the robo-advisor.

This way you only pay expense ratio, and this makes sense for apps like Wahed Invest, where there are only 4 different investments classes to choose from.

It’s harder to do this for apps like StashAway & MyTheo because they offer a lot more asset classes, but it’s technically still possible.

If you invest 1k a month for 30 years, fees will cost you around 100k. The more you invest, the more it’ll be.

FLAW #2 – NO CONTROL OVER INVESTMENTS

With robo-advisors, you dont get to choose what you’re invested in. Instead you have to trust the companies to do well, and they know they can’t just invest in something like the S&P500 and have average returns.

But if they do decide to invest in certain assets and you disagree, you can’t do much about it.

For example, my very aggressive StashAway portfolio has allocations in gold and REITs. What if I want to invest in gold or REITs?

On Wahed Invest, my very aggressive portfolio has allocations in Sukuk which is essentially a bond.

What if in my personal view, very aggressive portfolios should be very aggressive. Why bonds and commodities? Maybe there should be cryptocurrencies instead 😉

FLAW #3 – NO CONTROL OVER TIMING

This is a small flaw because we’re not meant to time the market with long-term investments like this anyway.

But because of the process of how all robo-advisors work, there’s a slight timing delay in terms of when your assets are being bought or sold.

Lets say you have 1k invested in a robo-advisor now and you submit a withdrawal today expecting to get your 1k back.

But the company needs some time to execute the sell order, maybe 1 or 2 days later.

What if the value of investments drop within these 2 days? You’ll get less than 1k banked into your account.

BUT, we still invest in Robo Advisors despite these flaws. Here’s why:

REASON #1 – LOW BARRIER TO ENTRY

Not everyone has a lot of money to start and most robo-advisors require less than RM100 to get started investing.

This is only possible they pool your money and can therefore buy fractional shares on our behalf.

You can DIY through brokers that allow fractional shares, but there are not many out there yet.

Even though you’ll pay more in fees, robo-advisors give access to the masses to start investing which is invaluable.

REASON #2 – PASSIVE INVESTING

Most investors should have ETF’s in their portfolio as a foundation of their portfolio.

REASON #3 – BEGINNER FRIENDLY

A lot of people are deterred from investing because they think it requires a lot of knowledge and its difficult.

But should YOU use robo-advisors?

Watch the entire video to find out!

Timecodes:
00:00 – Why You Shouldn’t Invest In RoboAdvisors (And Why We Still Do)
0:37 – What’s the best investment?
1:07 – Robo Advisor Flaw #1
4:37 – Robo Advisor Flaw #2
6:02 – Robo Advisor Flaw #3
8:01 – Why we still use Robo Advisors
8:12 – Robo Advisor Strength #1
9:27 – Robo Advisor Strength #2
11:04 – Robo Advisor Strength #3
12:35 – Should YOU invest with Robo Advisors?

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These videos are for entertainment purposes only. We are not financial advisors and this is not financial advice. You (and only) you are responsible for your financial decisions.

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