• There are ways to maximise your returns from Robo-Advisors. Its not difficult to do so and everyone is able to get this right once you understand what you are doing. 😀

• Previously I wrote an article to list down some points on what were the cons with diversification in investing in general. Click here to read it. 

• Now I am going to share some intermediate level tips on how to reduce your diversification using Robo-Advisors and maximise your returns.

• This article is only meant for those who have some experience using Robo-Advisors.

1. Overdiversification across multiple Robo-Advisor platforms
2. Overdiversification within a Robo-Advisor
3. Maximise your returns within a Robo-Advisor

• There are just too many Robo-Advisors out there in the market now. Do a quick google and multiple names will appear on your search result.

• The goal is choose the one that you feel the most like trying and being convicted after reading 3rd party reviews online.

• For myself, I tried three different Robo-Advisor platforms. However, I am slowly reducing my diversification from 3 to 2 then from 2 to now just 1 platform. Currently I am holding just Stashaway and nothing more. 

• I am planning to exit this last Robo soon (below is the screenshot) as I have already found other ways to better maximise my money while I sleep. Below is my current Stashaway portfolio performance. 

• I have built from scratch successfully a few different Robo portfolios and exited to take profits. Its really not that difficult to build these as the real hard work is done behind the scenes by the Robo-advisors themselves.

• Reason for holding onto 1 Robo instead of 2 or 3 Robos is the fact that each Robo-Advisor has their own methodology to invest your funds, meaning their return of investments (ROI) are different across the board. 

• eg. Endowus ROI can be 8% per annum while Syfe ROI can be 10% per annum depending on which platform you use and within each platform, which plan you decide to on-board.

• To illustrate to you what I meant here using math:

• Not only that, you have to constantly open multiple tabs to view your investments separately and the truth is investing should not have to be so complicated. Moreover, there will be some new features and changes to the existing plans as each Robo will tend to make some minor changes every few months or so to counter new macro-economical forces.

• From the sample math which I shown above, putting all your eggs into 4 baskets may not always lead to a higher return. In this case, putting your eggs all into one common basket is more rational and the returns are higher overall. 😂

• Also, some Robo has additional incentives where you will have to deposit a certain amount of cash into their platform and they will reward you by letting you pay lesser management fees per month as well. Go read up more and you will know! 😌

• Final thoughts is holding on to just one Robo is sufficient.

2. Overdiversification within a Robo-Advisor

• At the very beginning when each Robo-Advisor launches into the market, usually they will introduce just one or two flagship investment products. After some time, they will start to roll out more and more new investment products and it becomes so many, such that its making retail investors more confused than actually helping them to solve their investment problems. 😂

• Here is one real life sample for you. 

• Currently there are 7 investment products launched by Syfe. 

• At the beginning when I first started using last year, there were only two types of investment products available which are REIT+ portfolio and Global ARI portfolio. 😂

• Like I said previously, investing should not be too complicated. Later on, Equity 100 portfolio was launched, then Cash+ came out, followed by the newest baby in the market which are the three types of Core Portfolios. Some of the portfolio contents actually overlap with each other so you just have to research and do the comparison to distinguish and you will be alright. 

• Although there are so many different plans/portfolio to choose from in Syfe, please do not try more than 1. Having just 1 plan is sufficient to maximise your returns. The issue is still the same as what I have shared under point 1. Whether you invest into different Robo platforms or multiple portfolios within a Robo, this will not always lead to higher returns compared to concentration into 1 Robo only and 1 portfolio only strategy.

• For myself, I have tried before REITs+ portfolio, Global ARI portfolio, Cash+ and Equity100 portfolio. 

• Equity100 by far was the best one that I have used so far and it gave me the highest returns as well. I couldn't be bothered to go into the 3 types of Core Portfolio as some of their investment contents have some overlapped with the Equity100 one.

• Please do not follow what I did previously and always do your research and focus on just 1 portfolio in this case based on your risk appetite and investment horizon. 

3. Maximise your returns within a Robo-Advisor

• I have received many feedbacks from my friends and also reading online comments about losing money while investing in Robo-Advisors. 

• The few reasons why you are making losses are as follows:
• Depositing too little cash, fractional investing (<1000 SGD) 😮
• Lump sum investing, not DCA-ing regularly 😅 
• Withdrawing your funds when a bear market / market correction happens 😨

• I will like to reiterate that Robo-investing is not a quick rich scheme to get rich. It can help to preserve or increase your wealth to a certain extend and not overnight grow your investment of 5k into a 10k. 

• Although Robo allows you to deposit any amount as little as 50 SGD etc, please note that when you deposit an amount that is too small (rule of thumb <1000 SGD), Robo will do fractional investing on your behalf.

• You open your Robo-Advisor portfolio, under transaction history you will notice that some of it they will purchase using fractional shares eg. stock ABC bought 312.56 shares in May 2021. 

• 0.56 shares is considered as fractional investing, meaning that you don't have enough to buy 313 shares thus, they will buy with whatever funds you have which is enough to get you 312.56 shares. 

• eg. if one of the stock in your chosen Robo portfolio is worth 500 SGD per share and you only deposit 50 SGD, you will be purchasing only 50/500 = 0.1 fractional shares instead. Any gains will be insignificant as the amount of shares you hold in your Robo is just too small. Thus, it will take longer time for you to see positive returns compared to someone else who place a higher amount of funds at the beginning.

Lump sum investing, not DCA-ing regularly

• This can be as such where you invest eg. 10k SGD into a particular Robo portfolio / plan at the beginning and thereafter, you just sit back and watch your portfolio slowly decline, not knowing what happened and cursing at the Robo for making you lose money.

• When you perform lump sum investing, you are more highly affected / impacted by the performance of the market compared to DCA due to the lesser number of investing points. Let me illustrate and hope that this will enlighten you to think deeper from now onwards. 😁

• The only way to counter this is to DCA regularly which is what I am doing currently.

• This will require understanding the concept of  "Dollar Cost Averaging" (DCA) and more in-depth of how this will affect your investment returns.

• DCA is the action of regularly buying more into a particular investment asset at defined periods such as daily / weekly / monthly etc. The action of buying more can either be by number of shares (10 number of shares per month) or cash amount (only $200 to use per month).

• This is the opposite of lump sum investment where you deposit money to buy an investment asset at the beginning only and thereafter, no more funds are introduced to purchase more in the future.

• When you DCA, you create more investment points throughout and you are able to average down your overall stock price as you are forced to buy into the market regularly ignoring the price of the market.

• If the market is doing well and price increases, you will buy lesser shares and when the market is doing poorly and price decreases, you will be able to buy more shares. 

• On 1st Oct you are able to purchase 15 shares of SPY while with the same amount, you could only purchase 14 shares of SPY due to market price fluctuations. 

• In this sample example, with DCA, you are able to buy a total of 29 shares with 10,000 SGD compared to lump sum investing where you could only buy 28 shares with the same 10,000 SGD.

• Furthermore, by DCA-ing, your average price per stock is lower at $344.82 versus the lump sum investing stock price of $352.60.

• If you DCA just like what I shared above, as long as the current stock market price for SPY is above $344.82, YOU WILL CONFIRM MAKE A PROFIT!!! 

• This is the most important basic concept that you must know in order to understand why you are losing money when you invest in Robo. I hope you get what I am trying to show here. 😊

Withdrawing your funds when a bear market / market correction happens

• Taking reference from the above sample example. The cost price per share is $344.82 for DCA-ing and owning 29 shares of SPY stock.

• If the current stock price is lower than $344.82 please do not make the impulsive decision to sell it right away. 

• Hold on to it with your diamond hands and wait for the market correction to be over.

• Once the stock price goes higher than your cost price per share of $344.82 in the long run, you will see positive returns again.

Hope that this will motivate you to ponder and think deep whenever you do any investments. 😁

There are only that much investing and financial tips I could share here. In order to speed up your understanding to invest safely with a well maintained portfolio allocation across asset classes, it will be of best interest to share real life examples of what people are going through so that we can minimize making the same mistakes.   

Disclaimer: All information stated below are only for illustration purposes. Its not a call to buy or sell any financial products. Please perform your own due diligence before investing as always. 

Here, I will share the first real life example of the following issue that this person is facing.

Seedly.com

To read the original post, click here.

Background Analysis:

He/She is working for a few years and emergency funds have been set aside. This shows that this person has planned and set aside extra savings for the sole purpose of investing. With that in mind, he / she will not be pressured into making irrational decisions and go cut loss or sell the investment assets when the bear market comes or prices of assets drop. 

The only pressure comes from the fact that he / she is planning for marriage, purchasing of first home and family creation where a substantial amount of cash is required to be paid for which comes in around 2 years time.

With a 2 years horizon, its still possible to take some risk in investing.

Main issues with his/her existing investing strategy:

• 10K SGD invested in a few RANDOM stocks in SG and US market using Saxo platform. When you invest in random stocks, you will get back random returns as well no joke. 😅 He / she mentioned that the stocks are mainly dividend stocks, means that their prices tend to remain the same over the long run and do not have much capital appreciation. your returns are mainly contributed from the dividend yields percentage of each stock.

• 8K SGD invested in 2 Robo-Advisors. This can either be two different plans in the same Robo-Advisor eg. 36% risk level plan and a 10% risk level plan both in Stashaway or one plan in Stashaway and the second plan in Syfe for example. There are some overdiversification in this strategy.

• Regular Savings Plan (RSP) auto deposits 100 SGD per month to invest into STI ETF index for less than a year. In this case, I assume 6 months has passed, which is about 600 SGD into the plan.

• Current cash on-hand only able to set aside only low hundreds per month for investing. In this case, I assume low hundreds as a value less than 500 SGD per month.

Portfolio Analysis:

• I have personally bought and tried all those investments that this person has done currently so I am very familiar with the returns and what he/she is going through now.

• 10K SGD in random dividend stocks in SG and US markets. Firstly, SG dividend stocks tend to have little price appreciation over the years. Their price increments are so small that its almost non-negligible. 

• To earn from holding onto these dividend stocks, the only way is through their  dividend yield. 

• The first thing is to look at which stocks are performing and underperforming at the moment. If you see that dividend stock is what you still believe in for their returns, I will suggest to sell away those underperforming stocks (either you know that within this 2 years that stock will still be making a loss in price or to sell and buy into a current stock that you are holding to increase your overall stock position to get more dividend yield for the year).

RSP:

• If you have bought the RSP for STI ETF with DBS some months ago, I am making a calculated guess that with the recent rise in STI ETF prices, you are still making a price gain from your stock purchase.

• I myself had purchased the RSP as well more than a year ago and held onto this plan for close to one year with a loss due to Covid 19. Now if you are still making some price gains in this plan, better to take whatever gains you have now and exit this plan while you can.

• Holding onto this plan will not help you much. If you are only depositing 100 SGD per month, you are holding onto very little STI stock shares. With so little shares, your monthly dividend yield return will be less than 4SGD. In 2 years, the most you are going to receive for holding onto this RSP plan is about 96 SGD only (4SGD x 24 months). Are you sure you want to do this for 2 years?? 

Moving Forward:

What I will do in your shoes will be (do not blindly follow)

Strategy 1.1: Aggressive and risk for 2 years

• Exit the RSP plan (600 SGD)
• Exit the Robo-advisor (8k SGD)
• Exit the Dividend stocks (10k SGD)
• Cash on-hand (500 SGD)

• Open an crypto online account

Before I get any hated comments for my above statement, putting your eggs into the same basket is applicable and rational in instances where:

• you have lesser capital for investment 
• you have been investing with less than 6 months experience
• you have a long term horizon to invest for the future

1. Buying Stocks / REITs All From The Same Sector / Industry

Imagine spending your money to buy 10 shares of SHOP, 10 shares of AMZN and 10 shares of BABA shares. Or buy 10 shares of TSLA and 10 shares of NIO at the same time.

What do the above cases have all in common? They are all from the same industry! 

The first case is all are in the E-commence space while the second case is all are in the EV space. If the EV market has a downtrend or when a market sector rotation happens, you will see both your TSLA and NIO prices to go down at the same time.

For Singaporeans, a simple case will be buying into 100 shares (1 lot) of OCBC, 100 shares of DBS and 100 shares of UOB. All three are big banks in the financial sector in Singapore. Unless you have huge amount of free money to spend to buy all three at once, why will you want to buy all three while you are trying to build up your portfolio from scratch? 😂

I personally bought both OCBC and DBS at the same time last year. Now thinking back, I felt I should either go all in for OCBC or DBS instead of trying to get a bit of both and so call 'over diversify' in this case. Yes, you might be thinking along the lines where both OCBC and DBS are different companies but they are still in the same financial sector. When the pandemic happened last year, both are affected at the same time if you get where I am coming from. 

2. Buying Stocks From Different Sector / Industry But >10 or >20 Stocks

Imagine you buy 5 shares each for the following companies: FB, BABA, TSLA, MSFT, NIO, GOOG, FVRR, JD, QQQ, SPY, ARKK, ARKG etc

The issue here is do you really think you have the time to really put in effort to read up on their financial performances and monitor their stock performances of each company that you bought shares of the above? The answer is clearly 'No'. 

If you have a 9am to 9pm full-time job or have family commitments etc, you definitely do not have the time to manage your this portfolio of 12 stocks. There are some in this list that are speculative in nature, some are tech, some are ETF, some are overlapping stocks etc.

At the end of the day, you will start to lose track of the performances of this portfolio and will not make the right decisions which is to get the maximum return from your portfolio.

Basically I made this mistake very early in my investment journey where I bought I think 10+ different individual REITs company stocks. It was super difficult to monitor each and every one of them unless I am a full time investor looking at charts every day but this was not the case. Diversification will lead to your own demise and this is more evident as a young investor who is still finding your feet. 

Best to focus on a handful xxx amount of stocks that you know you can manage on your own, rather than buying so many and losing count of your investments. Remember, quality is more important than quantity! 

3. Buying Multiple ETFs / Robo-Advisors 

Guys, always focus on quality than quantity in investing!

Thought of buying abit of each of the following ETFs: ARKK, ARKG, ARKF, ARKW?

or how about buying VTI and VYM?

My friend, chances are that you have bought into ETFs that have some of the same companies in both of the ETFs and its overlapping each other. Overlapping ETFs are the ones that we want to avoid. 

This is the same for Robo-Advisors. There are many mushrooming in the market now such as Stashaway, Syfe, UOBAM, Endowus, Moneyowl, DBS / OCBC Robo etc.

In the past, I was using three Robo-Advisors at the same time and I made the decision to cut down to two instead as having so many which is not beneficial at all. From two I cut back to one and now I exited 100% from Robo-Advisors.

How I did the cut was to pull out the list of assets that both Robo are investing my money in. I went to compare their returns over 10 years and chose to keep that Robo that gave the higher return and the one I felt had the higher potential to go further in the future.

4. Having $10,000 Split Into Buying >5 Different Asset Classes

Let say you are just starting out to invest and you have set aside $10k for this after factoring in emergency funds and savings etc. 

SG example 😁

You take: 

• $2000 to invest in MCT shares (MapleTree REITs)
• $2000 to invest in G3B shares (STI ETF)
• $2000 to invest in SSB (Gov Bonds)
• $2000 to invest in Syfe Cash+ (Cash Management)
• $2000 to invest in Syfe Equity 100 (Robo-Advisor)

First look at this, you might think that this is a good diversification method as you spread out your risk into 5 different asset classes.

You might want to relook at this, think again and ask yourself questions.

Why only allocate $2k so little into Bonds that needs to be held for 10 / 20 years before expiry to gain the full bond coupon payouts? 10 years is a long time and to just put in $2k really does not make any sense at all. 

Why put $2K into Cash+? Why not $4k into SSB or $4k all into Cash+?

If I am young and able to take some risks why not put $6K directly into Syfe Equity 100 to maximise my returns in one area instead of splitting evenly into Bonds, Cash Management etc

Do you get where I coming from? 😀

$10,000 is not alot of money and to over diversify into 5 different asset classes with each asset class only given $2k. In reality, how much returns can that asset generate with that smaller amount of fund allocation?

Not only that, 5 different assets means you have to monitor 5 different things at one time. Its not very productive and it consumes your time which can be used to watch more Netflix for some hahahaha. 😂

Another example.

If you want to purchase Cryptocurrencies with $10,000, how will you do it?

A: $5,000 into BTC and $5000 into ETH

B: $10,000 into BTC only or ETH only

I will do it method B hands down. Focus on one coin and maximise its returns. $10,000 is a small sum of money, to split it into more than 1 coin in my opinion is not the most wise choice to do so unless its $100,000 then it will be a different story.

5. $500 Split Into >1 Asset Class  

This is the same as point 4. 

If the amount to invest is so small eg. $500, I will discourage you to split into 2x $250 or 5x $100 to invest. The amount is just too little for each investment and there will be no economies of scale in returns. 

I believe some of you will do this at some point in your journey at the beginning as this was what I did when I first started out due to not knowing the unknowns out there and trying to do this to make some cautious baby steps. 😁

6. Buying 1 Share For Multiple Stocks

This will link back to my pointers for 4 and 5.

Not knowing the unknowns and trying to make baby steps by buying 1 or 2 shares of different companies to diversify your risks. 

Means having the mentality to just buy 1 share of eg. TSLA and if something goes wrong, its just 1 share.....

Number 1: you are buying too little shares per company. If the company share price increases, you don't earn much capital gains (no economies of scale).

Number 2: Of course when the company share price drops, you don't lose too much and this makes you feel better.

Its obvious that number 2 is the key driver that make you purchase stocks in this manner. Understanding the company and why you buy their stocks by reading their fundamental analysis and entering the market at a price that you are comfortable with using technical analysis is the key to overcoming this problem.

There are no right or wrong. Is just from my experience, for now I am more focus on doing concentration in buying stocks rather than to buy many stocks at smaller amounts.

Nevertheless after going through the list above, please do your own due diligence before investing as always.