Finance Smiths

It’s Saturday and I’m glad the weekend’s here. Looking forward to the public holiday next Wed as well. I have lunch and dinner birthday celebrations planned for my mother and mother-in-law. Such a coincidence their birthdays are only one week apart. It will be nice catching up with our families since my wife had a bad week at work.

I have been monitoring the funds transfers into my wife’s StashAway and Smartly Singapore robo-advisor accounts. The standing instructions are working well and the funds are invested a few days after being deposited in the accounts. Just a note on this delay in case you are wondering why the funds are not being invested immediately. It takes time to purchase the US-listed ETFs before being reflected on my wife’s accounts. Besides, she has 2 standing instructions every week to transfer cash into the accounts every week. Which means we are capturing price events on a weekly basis and there’s a continuous inflow of cash to be invested.

We are willing to give StashAway and Smartly a chance to prove that robo-advisors are a viable alternative. Of course, the real test would be in a downturn when the market dips or crashes depending on the severity. Not surprisingly, the fees charged by StashAway and Smartly have come under scrutiny. The common criticism being it’s cheaper to construct your own portfolio of ETFs that you have the flexibility to select and rebalance at your own time i.e. the higher costs of the robo-advisors will reduce your portfolio returns over time. This is assuming your ETF positions are large enough to make paying the minimum brokerage/commission fees worth it when making the initial investments and rebalancing.

I agree with this assessment that the robo-advisors are not the most cost-effective and flexible compared to manual construction of the ETF portfolio. However, that’s provided you have sufficient cash funds to take those large ETF positions initially and rebalance when necessary. Those minimum brokerage/commission fees can be problematic. You are likely to need a high enough paying job or a sustainable self-employment/business to have sufficient income at such levels. You will also need to be disciplined when making those transactions at the pre-determined time and not change your strategy mid-way no matter what the economic, job or market environment is like. It’s not easy to be consistently doing this over a long period of time.

I reckon only a minority of investors can be this consistent with such an ETF investing strategy. Let’s use my wife and I as an example. Although we started investing seriously in Singapore in 2015, we originally started with the intention of investing in ETFs and rebalancing periodically. It sounded good, seemed effective and had minimal work. After all, we had sufficient cash savings and salary income to make it work. I’m going to summarise a series of events from 2015 to 2017 that derailed this plan.

• 2015 was a bull market environment. I started exploring dividend stock investing because I wanted to increase our dividend income. Bear in mind that ETFs generally have lower dividend yields than dividend stocks. I did my research, analysed a number of stocks and proceeded to set up a separate stock portfolio. We didn’t do any rebalancing of the ETF portfolio because we were using our cash to invest into stocks.
• 2016 was a bear market environment. I started averaging downwards on the dividend stocks and ETFs. But I wasn’t rebalancing sufficiently because I was afraid to invest any more cash after watching the markets fall. And I was worried about what an economic recession will do to our jobs and salary income. Hence, I didn’t increase the size of my ETF positions sufficiently despite having enough cash. When the market started rebounding, I didn’t want to average upwards and held back on investing because I was annoyed at missing the boat.
• 2017 was a bull market environment. Having not taken advantage of the 2016 bear market, I started monthly investment plans to Dollar Cost Average (DCA) into ETFs to invest our cash i.e. try to rebalance. But I also sold my dividend stocks and ETFs too early to realise some of the gains, which made little sense when you think about it now. I essentially negated my rebalancing efforts.

You see why rebalancing can be tough even though it’s supposedly something easy to execute at regular predetermined time intervals. Human psychology plays a big part in limiting the effectiveness of rebalancing when you have to do it yourself. Your fears and doubts can play in your mind causing you to second-guess yourself and hesitate when taking the necessary investment actions. This cycle is difficult to break and you need to have enough self-discipline to do so.

The question becomes whether paying the additional fees to the robo-advisor to do it for you without the emotional hindrances is worth it. We are not sure ourselves and this is why we have set up competing investment portfolios. StashAway vs Smartly. Robo-Advisors vs Manual Vanguard ETFs. ETFs vs Stocks. All designed to push them to outperform each other.

We hope to get better at rebalancing so that our manual Vanguard ETF portfolio outperforms the robo-advisors. But even if we fail, we will be happy with our robo-advisor accounts performance. In a way, we have hedged out this manual intervention risk by automating a portion of our investment portfolio. The key is to balance their growth rates so we rely on both the manual and automatic components to generate the returns. It’s an internal competition that we have set up for ourselves with 10 years as the timeline. I wonder who will prevail.

Finally, a lull in my workplace. My team has worked hard in this project to get to this point where the pace has slowed and we have time to address outstanding lower priority items that have been outstanding for a while. We also have time to attend internal and external training sessions, which is always a nice break away from work. Things are not going as smoothly at my wife’s workplace. She is stepping up into a higher level role for a period of time as a trial and the ongoing uncertainty with the restructuring has lowered morale in general. It’s her month end this week and looks like a busy one to get through.

Anyway, I would still count ourselves as fortunate that we still have our jobs. From what we hear, the graduate employment market is worse than the experienced employment market. Reason being experienced employees can still be cross-trained to take on other roles while fresh graduates have to be trained from scratch. The former is less costly than the latter and firms are all about cost control these days as revenue streams dry up.

Despite the workload at our jobs, we are not required to travel and usually get off work by 7 plus, sometimes at 6 plus. On certain occasions when it gets really busy, we will work until 8 plus but this only happens a few days each month. We are not required to work on weekends but my wife sometimes works on public holidays. She goes in to the office for less than a day and gets a full day off-in-lieu. The pay is decent when you compare it to the number of hours we put in and our stress levels. We have heard the work conditions are a lot worse at other banks.

Which brings me to this conclusion. We actually have a lot more downtime than we thought. At least 4 hours each weekday and the entire weekend. Thinking about what we do with all that downtime actually makes me feel bad for ourselves. We are definitely not hustlers because we refuse to give up our family life, social life, etc. But we have done enough to offer one piece of advice to the readers who have been asking me how we got to where we are with our asset accumulation.

Don’t overthink and just do it

This is it: Stop overthinking and start doing. It’s amazing when I look at what fresh graduates and experienced employees our age are considering these days.

1. How to stop working full-time as soon as possible and still enjoy all the luxuries
2. How to retire early by investing
3. I want to have a great career and work in a job that I am passionate about
4. I want to be a successful entrepreneur and make a difference in the world

All fantastic stuff to ponder and ambitious goals to aim for. However, when you look at what they are doing on a day to day basis, it doesn’t add up. The reality of achieving any of the above requires you to be exceptional. Being normal like us isn’t going to cut it. Which means you have to be better than us. Yet, we continue to see people stuck at the planning stage and not take any action.

We didn’t get to this point just by planning alone. A career path is forged by executing the strategies you come up with consistently and knowing when to take risks. Don’t think about quitting even before you begin. Take it one step at a time and it’s pointless comparing your achievements to others. No need to make yourself feel better or worse. Most importantly, don’t burn yourself out. Once that happens, it will take you a long time to recover and you will never be the same.

I have a good personal example of this. When my wife first started her graduate program at a bank in Australia, she was the youngest and most inexperienced in her cohort. Everyone else had more work experience and better grades. We later found out that my wife was actually the replacement choice because one graduate dropped out after accepting his/her offer. That was probably the reason why it took several months for the bank to get back to my wife.

My wife is not a fast learner and doesn’t plan a few steps ahead. She just focuses on her current and next step. She’s not lazy but takes a while to pick stuff up. But she doesn’t work overtime to make up for it because she just takes her time to eventually understand it. Her learning and work curve looks like a gentle incline. Not steep at all but ever sloping upwards. This has allowed her to still thrive in the corporate world, while others have been burnt out or become disillusioned.

Often, you will find that taking it one step at a time in the corporate world works better than constantly thinking about how to navigate the long journey ahead. Focus on what you are doing and start working on it. The results will show over time but not if you keep getting distracted.