Last month’s post on robo advice had a look at a couple of options … but there is more. They all work in much the same way. In the “old days”, to enter the investing world you would have to register with a broker (e.g. Self Wealth, CommSec) to get access to shares or Exchange Traded Funds (ETFs) – and you would be charged brokerage for each buy and sell. Each ETF also has a management fee (usually 0.10% to 0.50% per year) but that is deducted from your returns internally.
A recent Choice article outlines two things have worked against young people investing in the stock market. Firstly, a lack of knowledge about how to start investing, and then, not having a decent stash of money saved up to make broker fees worthwhile.
With the robo advisors, small amounts are no problem. For a monthly fee they take care of the purchasing and the brokerage – This is usually a much easier experience as it takes less thought and action.
- From the robo advice website you open an account and establish your identity.
- After a few questions to get your risk profile, the robo advisor will suggest a portfolio of ETFs.
- Your bank account details must be given to fund your initial portfolio of ETFs.
- You might also setup a regular investment and some of the robo advisors ( Raiz and FirstStep have a cool rounding feature where your everyday card purchases are rounded to the nearest dollar – and the rounding excess will go towards your portfolio.
- The Robo Adviser does regular rebalancing of your portfolio.
Robo your Investing
Lets Robo On, Six park, Stockspot, Raiz, Clover, QuietGrowth and FirstStep have some great offerings and are worth a look.
| ROBO ADVISOR | Fee Schedule | $2,500 portfolio fees pa | $10,000 portfolio fees pa | $200,000 portfolio fees pa |
|---|---|---|---|---|
| Six Park | Minimum $10000. Management Fee 0.4% to 0.5% | …… | $50 | $1,000 |
| Stockspot | Fixed fee of $66 pa for balances < $10k with asset based fees of 0.396% to 0.66% pa | $66 | $66 | $1,320 |
| Raiz | $1.25 per month <$5K; 0.275% pa >$5K | $15 | $27.50 | $550 |
| Clover | Minimum $2500. $5.50 per month <$10K; 0.45% -0.65% pa >$10K | $66 | $71.50 | $1,210 |
| Quietgrowth | Minimum $2000. Promotion No Monthly Fees <$10K; 0.40% – 0.60% pa >$10K | $0 | $0 | $1,045 |
| First Step | $1.25 per month <$5500; 0.275% pa >$5500 | $15 | $27.50 | $550 |
The above prices were compiled July 2019 and should be checked before you start investing.
Robo your Super
All of the above Robo advisors will help you build up your ETF investments as a “side hustle”. But, there is a new way of adding to your existing super (hopefully you have made an effort to make sure it is an Industry Fund!) in a relatively painless way. Longevity has a mobile phone app that automatically tops up your Super calculated as a percentage of your everyday purchases – into whatever super account you choose. It is based on your everyday spending and then calculated as a percentage of your spend (default 1% – but go higher if you can -and maybe a set amount each payday!). At the minimum, if you spend $200 on groceries, this will generate a 2 dollar deduction at the end of the month. You can limit your monthly deductions to an amount – so that you don’t go negative in your everyday account.
Because Longevity operates in the superannuation environment it is taxed favourably compared to investments outside of super where earnings are taxed at your marginal tax rate.
What to do Now?
There is always a bit of inertia involved to enter the world of investing. More experienced investors who already have a lump of cash and a disciplined approach to saving perhaps don’t need savings apps like Raiz. They could buy ETF’s directly through a discount broker (e.g Self Wealth), or setup a more sophisticated robo account with Stockspot. Robo investment apps such as those in the above table aren’t after this demographic. Most Robo Advice platforms are targeting younger people who might not otherwise start investing until much later in life.
“Raiz aims to encourage its customers to be mindful of their spending and to start saving and investing some of their income … the average Raiz customer has made 11% per annum since launch
Raiz’s Managing Director, George Lucas. from Choice
Simple steps
When in doubt, do something.
Singer-Songwriter Harry Chapin of “Cats in the Cradle” fame
The beauty of Robo Apps and instruments is that they are an easy way for anyone to start investing. Slack Investor says … just start! The rounding and transactional nature of Raiz and Firststep really appeal to me. Slack Investor likes this sort of painless saving and would get either of these apps as a great first step into investing. I wish these vehicles were around in my younger days. There are risks involved (i.e. share prices going down!) – but hey, That’s Investing – and the risks diminish over period of time (say, 5 years) – According to ASIC, Risk is part of the investing experience.
Given the huge returns money invested early in life can generate, the costs of the lower priced robo devices (e.g Raiz, FirstStep, Longevity) of around $1.25 a month is very reasonable. Pick a platform, install their app and set your contributions – You are launched into the wonderful world of investing – get on that road!