Any value in Robo Advisers in Australia?

For those who don’t know, Robo Advisers help you decide on an investment portfolio, invest the money, and automatically rebalance it for you. Sign up, complete a questionnaire, the Robo Adviser will recommend a portfolio and fine tune it. Once you start depositing money into your account, the Robo Adviser will automatically invest according to your selected model portfolio and also periodically automatically rebalance if your weightings drift too far from your selected model portfolio… for a fee of course.

Fees vary depending on the Adviser selected and the amount invested.

There is a good write up on Robo Advisers here: http://www.etfwatch.com.au/blog/2016-australian-robo-adviser-roundup

I thought it would be interesting to put in my goals and see what the model portfolios are. I am not sure I would use a Robo Adviser though because the fees seem high and I don’t like the automatic rebalancing.

 

Stockspot

Stockspot recommended the Topaz Portfolio consisting of:
50% VAS
15% IOO
10% IEM
15% IAF
10% GOLD

I'm not sure about this. It doesn't immediately appeal to me.

 

Ignition Wealth

Ignition wealth recommended the Growth Portfolio consisting of:
VGE - 6.00%
VGS - 22.00%
WDIV - 7.00%
IAF - 10.00%
VIF - 8.00%
AAA - 2.00%
IHD - 10.00%
VAS - 18.00%
VSO - 5.00%
DJRE - 6.00%
VAP - 6.00%

This seems like a crazy level of diversification!

 

Quietgrowth

Quietgrowth rated my risk tolerance as 5/5 and recommended the following portfolio
31% - VAS
5% - VHY
12% - VTS
7% - IEU
4% - IJP
32% - VGE
5% - VAF
4% - GOLD

This seems reasonable in some ways but another user @ACMH16 Raised the following questions:

Here is the argument for GOLD: Natural Resources provide a hedge against inflation.

I think the point here is that at 4% it won’t make any noticeable difference. Stockspot weighted GOLD at 10%.

Japan: Market Index ETF
Why Japan?
Japan, is an important advanced economy in the world. Having an exposure to this market is desirable.

Europe: Market Index ETF (IEU)
Why Europe?
Europe, including the U.K., is the second most important advanced economy in the world. Having an exposure to this market is desirable.

I take @ACMH16's points. Diversification needs to serve a purpose and not just be because something is desirable. IMO this portfolio needs fine tuning.

 

Sixpark

Sixpark recommended the Balanced Growth Portfolio consisting of:
VGE - 7.5%
DJRE - 10.0%
STW - 27.5%
VGS - 27.5%
IFRA - 10.0%
IAF - 17.5%

This portfolio seems more straightforward and no GOLD this time!

 

Clover

Clover gave me a risk score of 7.9/10 and recommended:
25% - Australian Shares
35% - Global Developed Market Shares
8% - Australian Listed Property Shares
8% - Emerging Markets Shares
25% - Fixed Income

No examples given, which is a shame. Seems to be weighted heavily towards fixed income.

 

Betterwealth

Betterwealth don’t have an automated option but I guessed the Clover portfolio into the portfolio builder and it produced an amazing analysis.
Here is what I entered:
8% VAP
25% VAS
8% IEM
35% IOO
24% VAF

Then Betterwealth shows:
-Exposure Breakdown by Industry and by Top 10 Country
-Top Company Holdings
-Performance (1 month and 1 year)
-Dividend Yields
-ETF Metrics

I like it a lot http://beta.betterwealth.com.au/portfolio/dashboard/etf-selector

 

There is another school of though here: Boglehead/Vanguard way to retire.

The model portfolio may simply be: VAS, VAF, VGS

In terms of allocation, it was suggested as follows:

So, perhaps during accumulation: 50 / 30 / 10 / 10 and later move to 30 / 30 / 30 / 10

 

I tihnk the Robo Advisors are a good shake up to investment advisors who apply a "set and forget" attitude to their clients. I think there are a lot out their and if they are not doing something to make a difference then they should be displaced by technology.

And the portfolio's discussed above are not bad. Their is a grounding for what they are doing and I have seen worse.

However it is fair to say that technology is affecting all knowledge workers - legal, health, finance. If you cannot generate value with personal, intimate, forward looking and fast advice you will be replaced by technology or the work will go overseas.

 

The sad fact is that I could have probably renovated a place and flipped it in the amount of time it would take me to wrap my head around those options

 

I hear you! I must say I find property a lot easier to understand. That said, the returns are lousy and tenants can be troublesome. I look at my parents at nearly 80 having to sell down their last IP and buy terrible properties in Adelaide hoping they can make $30k per year after expenses. Not good

It's making me consider alternatives. Out of direct shares, LICs and ETFs I am finding ETFs a bit easier to understand. The answer is probably very simple but I used to work as a data analyst, so I tend to over complicate things

 

It's all very sexy isn't it this slicing and dicing of assets. It really doesn't need to be this complicated though. If you want to go the etf / asset allocation route I'd strongly suggest picking up some books by Peter Bernstein or John Bogle to get a foundation upon which to make your decisions.

 

Dead or alive. You're coming with me.

Your move, creep.

Robocop.

 

That's a good idea actually. I am not in a rush so have time to build some knowledge on which I can develop a strategy. I am just going by gut feel at this stage and it's not really working for me. I have the feeling I will align with Bogle, so I will start there. I appreciate the advice.

 

Great movie!

 

Thank you for your cooperation.

 

Mr Anderson, one of your lives has a future, the other does not

 

Eenie meenie miney mo works for me.

 

I have seen investment professionals who have chosen their clients retirement plans on less than that

 

Actually, that's a good point. Because of my background I am highly analytical and don't like to proceed with a plan until I really understand what I am doing and have a solid plan to follow. What I need to come to grips with is that building a portfolio is a work in progress. I will be starting with a lump sum and contributing regularly over time. I am planning to build the portfolio over 15 to 20 years. So it doesn't have to be perfect at the start and stick with the same formula for the next 20 years. I can start by building a base, which could be very simple like 50/50 VAS and VGS and then diversify from there. I imagine over time as economic conditions change, I could bias more towards international shares or more towards Australian shares or whatever. Building a portfolio that can be adjusted over time to align with economic conditions makes more sense than trying to predict the perfect the perfect formula going forward. I guess I have a lot to learn.