There are many options of roboinvesting platforms, more prominently we have DBS digiPortfolio, OCBC Roboinvest, Autowealth and Stashaway. These options all come at a different portfolio management cost. As promised, I will not be using this post to compare them but for those of us who want a snapshot of the fees structure, I have collated a table for your convenience.
| Name of Roboinvesting Platform | digiPortfolio (DBS) | OCBC Roboinvest | Autowealth | Stashaway |
| Annual Fees (% of amount vested) | 0.75% | 0.88% | 0.5% | 0.8% to 0.2% (depending on vested amount) |
| Additional Fees | NO | YES | YES ($18 USD) | YES |
From the above table, we can see that these fees are all seemingly small. Personally, the fees comparison part is moot for some of us. For example, if we have zero knowledge of investments, these fees become a mandatory cost to invest. There is definitely a value proposition for roboinvesting when compared to mutual funds and unit trusts, which has a higher management cost of 2-5% per annum.
Costs aside: WHY NOT?
I believe the marketing campaigns have done enough to tell people why they should put their money with their platform to invest. That is why I feel we should look at potential negative aspects involved in investing with roboinvesting platforms.
1. Risk is not reduced
When you allow algorithms to buy and sell on your behalf, it will still expose your capital to risk. Furthermore, those algorithms does not reduce the amount of risk if you are aiming for higher yields. The reason being that the active trading algorithms are more likely to sell at a loss than an actual person.
It is no doubt that Algorithmic trading is the Future but it is still advantageous to trade on your own especially when you want to further your own understanding about what you buy. Relying on programmes will not only cost you more but also leave you in a state of helplessness should the market crashes.
2. Guaranteeing (some) Losses
The price to pay for programmes to invest for you comes with guaranteed losses for your capital. Some might say its short sighted to think like that but do note that these losses are incurred whether your portfolio achieve positive or negative yields. This is because, these fees will be build on top of whatever gains or losses in your principle capital.
Remember about the impact of compound interests? It works both ways.
3. Over-diversified Portfolio
Many have heard that diversifying into different areas of the market reduces capital risk. Contrary to that believe, there is actually also risk when over-diversifying. Over-diversification occurs commonly when people invest in too many shares or ETFs in small quantities. When investing in small volumes, there is a higher likelihood for early selling due to the smaller losses incurred. However, these small losses will actually add up eventually as the percentage losses are still the same.
I am not in any way asserting that algorithms are not able to overcome this in fact it does by pooling capital from many investors to raise capital for diversification. However do note that there is a slight chance that if you are not investing substantially, you will unlikely benefit from the profits made in your virtual portfolio.
4. Computerised Portfolio
Association with algorithms means that potentially companies which have done well for a quarter will be overbought by robots. This means that you will be potentially buying a share which is known not to be doing well for the next quarter. In short, relying on computerised programmes to invest will entail buying into stocks which many investors wouldn’t.
Closing Thoughts
Always understand that in investments, efforts pays off and for one to profit, others must lose. Knowing that its is a zero sum game, be sure to make informed choices when investing in roboinvesting platforms. Hope these pointers help us understand better about the potential shortfalls of roboinvesting platforms.
