Should you let a robo-adviser dictate how you invest your money?

UOBAM robo-adviser

Several consumer-facing Financial Technology (FinTech) companies, from digital payments to insurance and transfer payments, have arisen to support Singaporeans’ personal finances. You may have heard of robo-adviser companies such as StashAway, Syfe, and AutoWealth that help with investments.

What are robo-advisers?

To optimise investment portfolios according to the risk profile of the customer, Robo-advisers rely on algorithms. In reaction to market changes, portfolio readjustment is performed automatically.

As such, there is little need for active monitoring by the investor with all these automatic features. As seen from various posts and comment threads on local financial platforms, the low fees paid in relation to human investment advisors have further raised interest in robo-advisers.

A Statista study forecasts that assets under watch by local robo-advisers and user numbers are estimated to rise by over 50 per cent in 2021 to hit US$1.06 billion and 105,000 users accordingly.

Robo-advisers help break barriers to entry
asian-man-using-mobile-phone

Image Credits: Freepik

The perceived difficulty of gaining financial expertise and the scarcity of time for investment and fund management are two widely quoted reasons for not investing.

With technology assistance, robo-advisers eliminate these hurdles, making them a fantastic way to kickstart investing, particularly for beginners. This is not to mention that the procedure of signing-up is reasonably straightforward.

In 15 minutes, a profile can be registered. To propose an appropriate portfolio concerning the investor’s financial targets and risk aversion, one only needs to answer some preliminary questions.

Standard considerations include age, gender, marital status, salary, investment horizon, and priorities, such as funding for a house versus retirement planning. At the same time, risk evaluation focuses on experience with multiple financial instruments and gain and loss perception.

Once that is in place, algorithms based on current financial models will handle the portfolio. Easy peasy, isn’t it?

Advantages of using robo-advisers

The isolation of feelings from investing using robo-advisers is a gain. Investors are far less likely to respond irrationally to disruptive market developments and exit from the market out of panic, with investments using advanced automated trading.

Robo-advisers often foster healthy financial habits by encouraging clients to add to their investments on a routine basis. This induces investors to take advantage of the dollar-cost averaging (DCA), which has been proven to be a successful method for allowing the long-term accumulation of capital by novice investors.

A look at the downsides
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Image Credits: fa.com.sg

No one thing in the world is perfect, and this applies to robo-advisers too. Given their emphasis on ease and effectiveness, robo-advisers cannot make investment decisions precisely personalised to each user’s financial condition.

Instead, they enable clients to pick from pre-selected portfolios from a restricted menu. They deal only with personal finance’s investment facets and miss the human touch of actual financial advisors.

Human financial planners devote much more time to identifying the needs of their customers. Thus, they can provide numerous solutions that cover various holistic financial management elements, including savings and coverage.

Is investor passivity harmful?

The low percentage of investor participation needed is one of the principal selling points of robo-advisers. But is the lack of investor involvement a cause for concern?

Investor indifference may foster a laid-back approach towards other areas of financial planning. Since computers and algorithms can assign this seemingly cumbersome task, this may lead to a refusal to gain financial expertise going forward.

Although robo-advisers cater to tech-savvy, passive, and limited-capital investors, automated investment does not appeal to active investors. This is especially so for those who want to have portfolio ownership and may be dissatisfied with having a bot controlling their assets entirely.

According to an HSBC survey done last June, only one-quarter of Singaporeans had used mobile banking to invest. This hesitation in handling digital capital shows the real lack of investment expertise or trust. It also highlights the need to empower Singaporeans with financial knowledge.

Lack of financial knowledge can be devastating
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Image Credits: City Nomads

Dr Gordon Tan Kuo Siong, Faculty Early Career Award Fellow at the Singapore University of Technology and Design, shared how a lack of financial knowledge can be devastating.

Using the story of Alex Kearns, he brings out the importance of financial literacy. Last June, the news reported the death of the 20-year-old trader by suicide. After Kearns mistakenly thought he lost hundreds of thousands of dollars on Robinhood, a free-trading app, he took his own life.

For sound investment and financial planning, the acquisition of knowledge is necessary. As the term “caveat emptor” indicates, consumers’ ultimate responsibility is to perform proper research when making a transaction. Buyers should request information on the details of the items they purchase.

In short, consumers should arm themselves with the information they need on the investment products that robo-advisors suggest. As for the businesses who promote these services, it is vital to ensure adequate resources on how their products operate.

Some deets on local robo-advisers

Several local robo-advisers have also launched educational initiatives to develop more educated investors. A set of courses covering personal finance and trading on its app, as well as frequent newsletters and market insights, have been made freely available by StashAway.

Syfe posts short articles and conducts online seminars to provide the public with financial information. These programs are praiseworthy and should not be treated as unnecessary supplements.

In conclusion, if robo-advisers boost their customers’ financial literacy and consumers make an effort to consider what they are investing into, buyers will have much more interest in creating machine-enhanced financial decisions and endow their money to a robot.

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Newbie’s Guide To Bitcoin Investing

ACT LIKE CASH, MINED LIKE GOLD

Cryptocurrency continues to gain popularity among investors and venture capital firms. Several of these individuals are betting that Bitcoin is here to stay! Before taking a stand, let us have a quick look at the basics of Bitcoin.

Bitcoin is a decentralized payment system developed by Satoshi Nakamoto (a Japanese pseudonym). This innovative digital currency was publicly released in 2009. We came a long way since then! A myriad of improvements or updates have been made by a network of developers.

Image Credits: pixabay.com

Image Credits: pixabay.com

In simple terms, bitcoins act like cash and are mined like gold. How so?

Global retailers may allow you to purchase goods and services through this “intangible” currency. However, its acquisition poses challenges. Solving extensive mathematical equations are needed to discover new bitcoins. You will have to unlock each block and be rewarded afterwards.

It is fascinating that the developer has set a finite number of bitcoins to be mined – 21 million to be exact. The uncovered bitcoins skyrocketed in the recent years. At this rate, the final bitcoin is projected to be discovered by the year 2140.

THE ART OF ACQUISITION

Develop a strategy to obtain bitcoins by weighing the advantages and disadvantages of these primary options. You can either outright buy, mine for, or receive it.

The easiest way for beginners to acquire bitcoins is to purchase from specialized companies such as the www.coinbase.com. Coinbase.com sells bitcoins to customers at a mark-up of about 1% over the current market price. On the other hand, traders can go to bitcoin exchange websites such as the BitStamp. BitStamp eliminates the middleman as it allows you to transact with other users. See for yourself!

The second option is to dedicate your time on bitcoin mining. Bitcoin miners are crucial to the completion of transactions and the validation of genuine bitcoins. Using the computer, bitcoin miners need to verify a series of transactions that are guarded by a virtual lock called “blockchains”. Miners will run a software to find the key that will open said lock. For finding the coveted key, miners get a reward of 12.5 newly generated bitcoins. Research showed that it takes 1,789,546,951.05 attempts to find the correct key. Imagine how much effort you have to exhaust for that!

Last but not least, you may receive bitcoins offline by selling goods or services. You should apply the usual precautions when meeting a stranger for the bitcoin transaction. Meet in a public place at daytime and bring a friend (i.e., if possible).

Image Credits: pixabay.com

Image Credits: pixabay.com

Are you going to embrace the future of money or treat it as a chaotic addition to the stock market?

Sources: 1, 2, & 3

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