A case for robo-advisors

[JEPG]

@Daniel

Most people on this forum are likely experienced enough to invest directly without goofing up.

I would argue that I am experienced enough to invest, accumulate, manage multi-assets at a buy/contribution level, very much less when it comes to take the decision to restructure your portfolio because it has “naturally” drifted from your strategy.

Especially when it has done a double digit growth and you are “asked” to sell some of the very asset that has trigger this growth. And this feeling is something unanticipated when I started to diversify, and the emotional / behavioral / discipline to execute is demanding, even for someone who has applied a strict strategy, tested their risk tolerance and navigated rough water of volatility, and pretty comfortable with their asset allocation.

Thus, hands-off automation (will look into IB) may help.

[JEPG]

Thanks a lot for your questioning and motivation

Selling, high or low, is an issue. Early in my financial life I sometimes sold when I tried to speculate and panicked whether to secure gains or stop loss. The stress vs. Performance and 0-strategy was quite a 0-sum game, but we’re talking almost “teenager trading” and in the end, no loss of the few thousands I played with

I have increased my risk tolerance by understanding and being comfortable that I buy something when buying assets, i.e. the stock (if stocks) is the currency as we often describe here. Sometimes it’s cheap, sometimes it’s more expensive, but it’s an active asset hopefully creating value. That is why we invest, isn’t it? If I own 100 AAPL, I will own 100 AAPL tomorrow, whatever its price.
Others buy fancy cars (losing value ), I buy stocks/x/y/z.

So selling is an issue because it is not in my algorithm and mindset in the first place when I finally committed to investing.

Then there is a question everyone could relate, because I read a lot about the “fun money allocation”. Everyone hopes it can work, that’s not just adrenaline. What if fun got funnier and suddenly is 25% of your NW ? Good luck contributing to your core portfolio to get it back to 5%. But you’re at risk to lose all your gains if you do nothing … or fomo.

Or maybe you bought gold and were lazy to rebalance, and got over performance these days and now your asking yourself, “well that laziness paid off, is rebalancing really a thing?”.

Selling if robo does it is no issue, I did exactly that, tested it with a small amounts. Similar allocation, minus fun money… and guess what… enjoyed doing nothing and stress level down about it. And I know it’s there, available, for deposit of any size or withdrawal, and pushing the buttons on its own to get a rebalancing premium (hopefully) and stick to the rules I defined. Started beginning of 22, bad year, and certainly the best tool to make me invest even more in these conditions, and forget about it. Is it because of small amounts I feel ok about it ? Small aum so quite small fees as well ? Maybe.

It may teach me that it works ok for me so “just trust your guts and your rules and push the buttons yourself in the core portfolio”. And double check so you don’t add/miss a 0 when placing the order (credits to @Moustachienne ).

Thanks!!!

[JEPG]

@JEPG

So selling is an issue because it is not in my algorithm and mindset in the first place when I finally committed to investing.

And the reason I “asked” the community is because as beginner “we are taught” to buy& forget, as a bit more advanced and/or honest with our risk tolerance, to diversify by (still) buying some other asset classes; and I owe a lot to y’all for the teaching. With diversification comes selling at one point or another and I felt unprepared, but maybe that’s just me.

@TeaGhost said they manage to get their multi-assets portfolio allocation with contribution

@nabalzbhf answered it’s no issue to deal with rebalancing at portfolio level

So maybe I’m not an adult investor yet , and/or, that:

@TeaGhost

If you ask me, the products only make sense for a wise, mature, mustachian that already won / was about to win the game and doesn’t want to tinker with his portfolio anymore. Pretty small customer group…

[Your_Full_Name]

@Daniel

Most people on this forum are likely experienced enough to invest directly without goofing up.

Goofing up means creating higher returns, right?

Right?!

[Mirager]

@JEPG

Sell, high or low, is an issue.

This is something not talked about nearly enough in any investing/FIRE community I’ve ever seen, and I believe for good reason: most active posters are early/mid in their accumulation phase, so programming themselves to just always buy is easy.

Selling is very hard emotionally. I like to think of rebalancing as selling high to buy low, but that’s just…buying…isn’t it?

That’s where ironclad rules come into play. Or, the dream, the goal, Jerusalem, the Holy Grail: dividends/CC ETFs, never having to sell

[Abs_max]

I think you are mixing few things. but following are few comments

1. Unless you rebalance every week, there is no way self rebalancing costs you 0.6%
2. Your post makes me wonder if you are talking about rebalancing to maintain a portfolio split OR you are talking about an investor who is not sure what portfolio they want and keep changing all the time?
3. Rebalancing doesn’t always mean selling. Mostly it means buying (via new contributions)different instruments every month to maintain the split.
4. Rebalancing means selling and buying mostly when there is no new contribution
5. Normal recommendation is to rebalance annually. It shouldn’t be that complex exercise

[Moustachienne]

@JEPG

First, selling, when you’re not used to. Because you are a super optimized accumulative buyer.

Then, selling what’s high and getting higher, to buy something that’s crashing. You were used to converting cash into cheap VT, during a crash, happy to buy low. Not used to selling your up-140% YTD gold ETF to buy some down-50% YTD stocks ETF - and going (made-up figures).

Hi JPEG,

I’d say there’s two reasons to my above post.

Firstly, the difficult decision I think would be to decide to change the investment strategy. However, once one is decided on a new strategy to implement, I’d think I might as well implement it myself - it actually seems easier than transferring all my assets to another place and allow them to do it.

Second point is about the size of the transfers. Value will of course be relative to overall assets. I’m thinking that at most one might possibly wish to transfer 30% from one asset class to another single asset class. Maybe I would do 3x10% transitions just for peace of mind. Repeating myself here, if the other institution is just going to implement the same strategy, the hard decision seems already taken beforehand, and might as well do it oneself.

[JEPG]

Thank you for your message.

@Abs_max

Unless you rebalance every week, there is no way self rebalancing costs you 0.6%

Never said so. Actually the price of it is not the main issue. Mostly the behavioral issues.

@Abs_max

Mostly it means buying (via new contributions)different instruments every month to maintain the split.

Until it doesn’t. Fast drift and/or when contributions become marginal compared to the invested capital over time.

@Abs_max

Normal recommendation is to rebalance annually. It shouldn’t be that complex exercise

Technically it isn’t. It just happens to me, that it is a bigger stress at high stakes than I imagined. And not just another 0 in a text box.

@Abs_max

Your post makes me wonder if you are talking about rebalancing to maintain a portfolio split OR you are talking about an investor who is not sure what portfolio they want and keep changing all the time?

Allocation is set and stable in contributions. It’s more about maintaining the stability over time. First rule was “Time in the market is more important than timing the market” i.e., just buy. Well this is not as simple as that afterwards, because recurring buy of magnitude x kCHF on your monthly paycheck savings is a no-brainer. End-of-year rebalancing selling xxx kCHF of A to buy xxx kCHF of B is another league, for me at least. It’s challenging my asset allocation at a different level, it’s challenging the market timing with bigger consequences, and be cool-headed, especially if it’s a yearly action you are not used to, when pushing the buttons, is not so natural.

[Abs_max]

Let’s see how it goes for me. I do it myself and so far it works

[Mirager]

@Abs_max

(via new contributions)

My rough rule of thumb estimate is that it’s not possible to rebalance in any sensible timeframe via new contributions when a portfolio has crossed 100k, that’s more like holding money back for ages to buy a dip (with whatever real or imaginary opportunity cost there is), but it’s not really rebalancing.

[Abs_max]

I don’t know why somehow it is not a problem for me.

Ahh I know why . Looks like I am mainly moving away from cash for last few years . Maybe in next few years it would become a challenge.

[Brndete]

@Mirager

My rough rule of thumb estimate is that it’s not possible to rebalance in any sensible timeframe via new contributions when a portfolio has crossed 100k

Why not?
If you invest let’s say 5k or 10k every month, it’s very feasible, especially given how correlated the major markets are for stocks. Slightly different for bonds etc. but still easy enough to catch up.

A reasonable timeframe for me would be 1-x years.

[Mirager]

@Brndete

5k or 10k every month

I wish, sadly I can save 1-2k at most/month.

@Abs_max

Looks like I am mainly moving away from cash for last few years . Maybe in next few years it would become a challenge.

Not sure I understand.

[Brndete]

Still good, also with 1k or less you can smooth out the movements between markets and currencies, and leave a little bit to luck.

[Abs_max]

I meant for me since I used to be 100% cash until 2021; I was mainly increasing investments into equity etc over the years and hence it was more or less trying to get to allocation versus trying to stay there. so maybe that’s why I didn’t have the issue