frugal

Why I withdrew from Stashaway

Let me put a full disclaimer first. Stashaway is a good platform. I like it. I think it is suitable for most beginning investors who want fuss-free asset growth. I just do not think it is suitable for me, which is why I withdrew from Stashaway.

In January this year, I came across the robo-advisor, Stashaway. It managed your assets for a low cost without you needing to know anything. With a promo code, I decided to give it a try for the first 6 months, since they managed your money for free for the first 6 months.

At that time, I had very little knowledge of Stashaway. Since the fees were not a factor, I just took advantage of it and decided to try them out. I set up my account on the computer and downloaded the app. It was seamless. I loved it. The user interface was really good and easy to read for a newbie. The app was even better. It functions just as well as the web application and I set up my monthly deposit of $150 to it.

If you to hear more of my praises about Stashaway, you can read my thoughts here. But when the 6 months were coming up, I reconsidered my decision to continue depositing into Stashaway. Was it really worth it for me to pay 0.8% of my assets to Stashaway? Can I do it better myself? Is the performance worth it?

After giving it some thought, this is why I withdrew from Stashaway.

Stashaway’s costs are too high

For a starting investor, you probably do not have more than $25,000 worth of assets. Moreover, being a relatively new robo-advisor, more people tend to err on the side of caution and not deposit too much money into it. So, after the 6 months, you will be charged 0.8% annually.

Ever since my first deposit into Stashaway, I have accumulated way more knowledge about DIY investing. To a layman, 0.8% seems very little. “It’s less than ONE percentage! What’s there to worry about?”.

How costs affect your portfolio value

However, this short article from Vanguard illustrates my point well. A measly 2% in cost, can wipe out almost one-third of your total value.

Okay, but Stashaway’s fees are only 0.8%, and it gets even lower as you invest a greater amount. But here is the problem, when will you reach an amount greater than $25,000?

Depending on how much you deposit regularly, it can take up to 5 years (>$400 a month). Even then, the costs are still pretty high. I feel that the costs only can be considered low (comparable to DIY investing) when it reaches 0.5%. At that point, you probably have more than USD$100,000. You can start up an Interactive Brokers account and purchase UCITS ETFs on a monthly basis without paying a monthly fee. (IBKR has a monthly fee for users with less than USD$100,000 in their account.)

I switched to a DIY approach for my passive index portion of my portfolio. That is why I withdrew from Stashaway.

But the costs justify their rebalancing algorithms right?

Stashaway uses its own investment strategy, ERAA (Economic Regime-based Asset Allocation). Although I believe this involves a bit of trying to time the market and speculating the booming sector in the future, they still use cost-effective ETFs to justify their decisions.

Jack Bogle, the largest advocate of passive investing, has mentioned in his Little Book of Common Sense Investing, that trying to speculate the future booming sectors is futile. Holding a low-cost diversified index fund is significantly better for the majority of investors. He strongly believed in Mean Reversion.

Mean reversion is a theory used in finance that suggests that asset prices and historical returns eventually will revert to the long-run mean or average level of the entire dataset.

Investopedia

There is no point in hopping onto the latest trend when the average is good enough. I prefer the passive index investing idea. There is no right or wrong. But this is why I withdrew from Stashaway.

The greatest enemy of a good plan is the dream of a perfect plan.

Jack Bogle

Even if you really like the idea of reallocation, you have no control over the allocations.

Since the 2020 Market Crash in March, Stashaway decided to “re-optimise portfolios to prepare for uncertain times ahead”. In the email they sent to investors, they outlined that they are reducing US exposure, increasing Chinese Tech exposure and including commodities (Gold) into your portfolio. Although the performance was good, my portfolio at that time regained a couple of percentage points to go to the green.

I did not like it. Firstly, although there was a lot of quantitative easing leading to a potential depreciation of the US dollar, I felt like it did not justify the decrease in US exposure. USD is the world currency. The US is still the largest economy in the world. The US’ stock market is closely correlated to its GDP. I liked the US stock market, and I liked the exposure to it. Although I understand they may have re-allocated to prevent worried investors from withdrawing their funds, I felt that it was unsuitable for me.

Secondly, they included commodities in my portfolio. I personally do not like commodities. Commodities, such as gold, do not produce any tangible value. They can sit your drawer and preserve value. But its value is dependent on the demand and supply of the market. Unlike a business, commodities do not make your life easier or more convenient. Investing in good businesses with good products creates value in your life. This is what causes your money to grow. Again, it is a good hedge against the current volatility in the market, but I personally would not include it.

These are my personal reasons why I withdrew from Stashaway.

Under what circumstances would Stashaway be logical?

  1. You have very low monthly deposit values

If you have very low monthly deposit values, the currency conversion fees (IBKR) would be quite a significant percentage of your cost.

I would consider anything below $500 to be low. In fact, I would recommend a minimum of $1000 SGD a month to be worth it to use SGD. This is so that you can buy at least 2 shares of CSPX.

  1. You have completely 0 knowledge about investing (not even index ETFs)

If you are completely new and want to dip your toes first while accumulating some knowledge in the meantime, Stashaway is a viable option. Remember to use a promo code. I will not publish my code because I personally do not use it and have no need for it. There are many other bloggers that use it and you can use their code.

  1. You want a fuss-free experience

Stashaway has a really good user experience. I cannot deny that. It beats DIY investing and most other robos hands down. It is just really easy to start. I would rather you start investing than produce more excuses to laze around. Time in the market will allow compound interest to grow your assets.

  1. You want to purchase fractional shares

Using IBKR to purchase UCITS ETFs will not allow you to purchase them fractionally. In other words, you need to have enough funds to buy one whole share of the ETF because that is the minimum board lot. For people who do not have enough funds, Stashaway is a good idea.

Leave a Reply

Your email address will not be published. Required fields are marked *