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Our previous blog post discussed using a robo-advisor as an alternative to DIY investing or working with a dedicated financial advisor, especially for beginning- and intermediate-level investors. This post looks at how to prepare yourself for investing with a robo-advisor.

A robo-advisor might be just right for your investing needs.

Robo-advisors are a great option for people who don’t have a big portfolio or tons of time to monitor individual investments. Robo-advisors, as the name might suggest, use computer algorithms to automate the selection of investments, based on an assessment of your risk appetite and investment goals or requirements. A typical robo-advisor automatically manages and optimizes investors’ assets and savings by investing in a diversified portfolio of ETFs (exchange-traded funds) or mutual funds. Some robo-advisors are completely software-based and involve no human advisors. Other platforms offer a hybrid approach that blends the input of software and human advisors.

The first robo-advisors started appearing during the 2008/2009 global financial crisis. These include startups (primarily in the U.S.) such as Betterment, Personal Capital, SigFig, Future Advisor and Wealthfront. The ecosystem has grown substantially since then, with more than 65 additional robo-advisors receiving significant funding since 2013. Through technology, these robo-advisors provide sophisticated portfolio management techniques to the general public and have drastically reduced traditional wealth management fees.

Robo-advisors rely on algorithms.

Robo-advisors will not make you a quick buck, but they work as a long-term investment and savings tool by investing in a diversified portfolio of ETFs. They’re a particularly good option for people who don’t have much investment knowledge or time to manage their investments. The portfolio construction technique is tried and tested, and based on decades of data.

You can set aside a certain amount for investment each month and set up an automatic monthly transfer from your checking or savings account to the robo-advisor account. You don’t need to remember to make a contribution and you don’t need to manually adjust your portfolio because the robo-advisor’s algorithms do it for you.

Don’t let automation scare you — embrace it!

Some people think the idea of having an algorithm invest for them sounds scary. But in fact, once you tell the robo-advisor your goals, your investment timeline, and how comfortable you are with different levels of risk, the algorithm will likely do a better job of investing than you might. The robo-advisor doesn’t have emotions and so it can’t panic during market dips or be swayed by irrational excitement about a particular stock. It simply analyzes the data and uses that to determine the best mix of investments for you.

Are you ready for a robo-advisor?

Learn financial and investing basics.

Study basic financial principles and terminology — such as dividends, P/E ratios, yield, and compounding — as well as different types of investment products — such as stocks, bonds, and index funds. The Heels & Yield workshops can give you the knowledge you need to get started.

Understand what investing can accomplish for you.

The truth is that average long-term rates of return tend to range between eight and 12 percent — not 15 to 20 percent, as some people might tell you. The idea that you’ll make enormous returns to bail you out of your money problems is a fantasy. (It does happen occasionally, but it’s not a sustainable investment approach). And that eight to 12 percent average will consist of  both good years, with gains of 20 percent or more, and bad ones, with losses of ten percent or more. Don’t expect a smooth ride!

Recognize the strengths and weaknesses of the investment industry.

The investment business is awash in conflict: brokers get paid for selling securities, publishers get paid for selling magazines, financial networks get paid for attracting viewers. Healthy skepticism is always a good thing. You want to find an honest, impartial financial advisor or planner who can help you figure out what works best for you. You want someone whose interest — and compensation — aligns with yours. A financial advisor, whether an individual or a robo-advisor firm, should get paid to help you succeed rather than earning a commission every time you buy or sell.

Consider these things when choosing a robo-advisor.

Once you’ve learned some investing basics, you’ll want to research robo-advisor firms. Some things to consider when evaluating robo-advisors are

  • Account fees and commissions
  • Minimum balance requirements
  • Tiered service levels (so the account can grow with you)
  • Connections with your current bank and financial accounts
  • Access to human advisors
  • Stability/longevity of the company

Heels & Yield’s Money course offers more details on choosing and working with a robo-advisor.

Practice staying calm in the face of market fluctuations.

You shouldn’t be surprised if the first-year return on the money you put into a robo-advisor is six percent instead of eight percent. Or it might be 12 percent. Or you might even have a loss. Some of my friends who started with a robo-advisor late in 2015 experienced three percent losses in the first five months before results turned positive in 2016. The exact number depends on short-term (one- to three-year) market trends and the luck of your investment timing.

This is the hard reality of investing. Having concrete goals, creating a well-thought-out plan, and staying calm during stormy investment weather is part of your journey to becoming a savvy investor!

There are 3 robo-advisors in Hong Kong.  We will talk about how to use 8 Securities robo advisor and Aqumon in our January blog posts.

Investigate these five areas when selecting a robo-advisor.
  1. Do you understand the technology and the algorithm? How does the company develop the algorithm? Is the data reliable? Is the algorithm sound?
  2. Can you track changes in the portfolio and understand why you make or lose money, so you’re educated in the process and can make better investment decisions?
  3. How much money do you have to invest? Does the minimum requirement for investing — which varies among robo-advisors — match what you have available?
  4. How flexible are your investment choices? Can you easily adjust your profile if your goals or circumstances change?
  5. How varied is the product offering? What funds and market sectors can you invest in through the robo-advisor?

Working with a robo-advisor isn’t for everyone. But it has some advantages over investing on your own or working with a financial planner. Educate yourself about these advantages and you may find it’s the best option for you.

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About Heels & Yield


Heels & Yield empowers women to manage their finances and to nourish their health and their wealth through its proprietary holistic wealth management practices. To help clients achieve holistic wealth with guidance and accountability, Heels & Yield offers services including group workshops and private wealth mentoring that combines financial education with personal financial coaching.



This blog and its contents were created by Heels & Yield Limited. Our blog and its contents are for general guidance and informational purposes only and should not be treated as legal, accounting, financial, investment or tax advice. For specific questions related to your financial, legal or tax situation, please consult your own attorney, accountant, and/or independent financial advisor for expert advice and carefully consider all relevant risk factors. Heels & Yield Limited is a financial education company and not a financial advisory firm or a law firm or a certified public accounting firm. Please visit our website for full terms of our disclaimer and terms conditions of use. Please read our full disclaimer here.

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