Finance Smiths

Personal finance apprentices-in-training

What to do with negative returns of Smartly and StashAway

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It’s been a long wait but the returns after fees on our SG robo-advisors (Smartly and StashAway) accounts are finally in the negative territory consistently. The net amounts are hovering around less than 5% after accounting for dividends, funds performance and currency impact. I’m saying this with a sense of relief because my Smartly and StashAway investment strategy of dollar-cost averaging every month and value-cost averaging when the markets dip now has a higher chance of working out.

As a heavy net buyer of ETFs every month with salary income and no capital withdrawals, I prefer equity markets to be less expensive when I buy in. Market dips and crashes just mean I get more value for our money. I have been slowly increasing our automated monthly investment amounts in the various bank monthly investment plans and robo-advisor accounts. I do this every time I see consistent negative returns on them.

Essentially, that’s how I ensure I’m averaging downwards over time, by taking advantage of negative returns. This is important for my dollar-cost averaging and value-cost averaging investment strategy to work favourably in the mid to long term. I don’t do lump-sum investing because it requires me to take an immediate risk with a large amount of money. I prefer an income-linked investing strategy where I take a proportionate amount of risk with the amount of money I earn every month.

While this is a disciplined, controlled and measurable way to build wealth. It does not allow for an exponential increase in wealth. Which means patience is the key to our success in this case. The problem is that my wife is impatient and she prefers a faster way to build wealth. This was always going to be an issue for us because of the fundamental differences in our financial personalities. It’s just surfacing now as we get more weary with work and want to see a quicker way out.

Wife’s remuneration review outcome

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I did mention a few weeks ago that my wife will be receiving her remuneration review outcome for the year 2018. And that I might post something about this when it happens. Which it has and this is why I’m writing about the topic now. It has been a tough year for my wife’s bank with annual profits posting a significant 20% drop compared to the previous year. We always knew this was going to negatively impact her salary increase and performance bonus.

With my wife’s expectations managed downwards, the remuneration review outcome was acceptable but still disappointing. Especially coming off a promotion year in 2017. The base salary is important for this reason. Even with the performance bonus in terms of number of months reduced, the drop in the absolute number isn’t as bad if the base salary is high enough. Which is why going after the promotion helps in expanding your salary band upwards.

In any case, my wife was rewarded for managing her team well and I’m happy for her. Dealing with the additional stress and pressure was tough for her though. Is the additional money worth it? Only if you can manage the higher workload while maintaining your physical and mental well-being. If you burn out from the effort, the additional amount of money is not going to be enough to justify you falling apart. While she managed to stay away from the brink/cliff, there were times when things got so bad it made her wonder whether the promotion was worthwhile.

This entire experience has made us question the viability of a continual chase for promotions. Although more money always comes in handy, the trade-offs get worse with every level we climb. And we don’t even have kids yet. Perhaps it’s time to coast, camp, or whatever the term is for staying put at our current levels with just enough effort without over-exerting. This gives us more time to think about what to do next or at least consider more carefully what the trade-offs are before we push for the next promotion.

Anyway, it’s going to take time for the salary increase to kick in and the performance bonus to be credited. We have already budgeted the spending for our upcoming trip to Sydney and Melbourne (Australia) in mid Nov 2018. Since we have been buying into the equity markets dips recently, we might use this opportunity to build up our cash position again. We are definitely getting more conservative as we plan for a family. Fear of having more to lose perhaps?

Buying on market dips

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I just updated our assets, liabilities and net worth figures for Oct 2018. It has been a bad month in terms of stock markets performance but we still managed to squeeze out positive percentage increases in every financial indicator category:

  • Cash Funds
  • Investment Portfolio
  • Retirement Funds
  • Total Assets
  • Net Worth
  • Savings Rate

More importantly, I was making manual SG & Global ETFs investments and transferring cash funds into our Smartly and StashAway robo-advisor accounts throughout the month (especially in the last week). I was trying to buy in on the market dips without over-utilising our cash balances. Including our automatic monthly investments, we probably invested about S$8,000 in the month of Oct 2018.

I have also been adjusting our various automatic monthly investment amounts upwards, just to ensure we are buying more ETFs at such lower stock markets pricing levels. This has certainly been an exciting month in terms of investing actions taken. I’m happy to wait it out if the stock markets stabilise. Otherwise, I’m fine to take more investing actions in the next few month if stock markets continue to drop. Nothing fancy – just more manual investments, cash transfers and upwards adjustments of automatic investments.

Work has continued to be challenging. While the banking sector is still doing alright for now, job conditions will keep deteriorating as banks cut costs to maintain profits. After all, there’s not a lot of new areas of revenue growth going forward. It’s an interesting situation to be in. When I discuss this with my wife, it feels like we are at a tipping point. Perhaps one of the last few generations to enjoy the perks of somewhat decent banking jobs before the landscape gets altered forever.

I don’t envy the position where fresh graduates find themselves in nowadays. Permanent structural changes to the economy tend to happen once every decade and it’s about time this occurred. Which makes it more difficult for them to gain work experience, much less protect themselves from recessions without sufficient income and assets. Then again, they have little financial liabilities. It might actually be the experienced workers around my generation that will suffer more when we find ourselves out of jobs with heavy financial liabilities.

As I buy into market dips, I realise it’s not the size of my investment portfolio that gives me assurance. It’s my cash inflow and balances that gives me confidence to make the investments. That objectivity comes from knowing my cash position is strong enough to withstand any negative outcomes. But that means I’m always going to be underweight in equities. Would I ever take the risk and make that big investment when the chips are down?