In this article, we will analyze the advantages and disadvantages of investing in a robo-advisor 😉
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⚠️ This article is just a personal opinion. Not investment advice. Investing involves risk of losing money. Past performance is not a guarantee of future performance 🔺
What is a robo-advisor?
To begin with, what is a robo-advisor? In summary, It is a wealth manager via an application that invests the client's stock market assets!
🔺In broad terms, in a more or less automated manner, the manager invests the shareholder's money in the stock market according to the client's tastes. and the investor profile.
In this way, the client earns money based on the performance of the robo-advisor's stock market returns and the desired level of risk. In reality, for the client. All you have to do is make cash payments into your robo-advisor account, indicate the desired risk profile and the desired stock market diversification.
On the other hand, the robo-advisor takes a percentage of the client's investments.
Note that the robo-advisor's taxation percentage is the same whether the performance is negative or positive!
Should you invest in a robo-advisor?
Sometimes I get asked if investing with a robo-advisor is a good idea?
Let's analyze the advantages and disadvantages 😉
The advantages 👍
- With a simple monthly payment on a robo-advisor application. The client's money is invested every month. As a result, the client delegates the management of his financial assets to the company without any management.
- Robo-advisors have pre-selected strategies with a track record of performance. Although history is not a guarantee for the future, it allows you to have an overview of past investment.
The disadvantages 👎
- Note that my investment method takes about 5 minutes per month! Therefore, I prefer to lose 5 minutes per month and have total control over the management of my stock portfolio.
- Some Robo-advisors do not allow investing in the client's stock market strategy. In reality, this is a shame because with a simple brokerage account, it is possible to make personalized stock market investments.
- Some Robo-advisors require a substantial initial investment amount. WhileInvesting yourself only requires the price of the chosen stock or ETF.
- The security of some robo-advisors is questionable.
- Some Robo-advisors do not indicate certain fees. For example, transaction fees, exchange rate fees or entry fees.
- Some robos-advisors do not allow investing in US ETFs. Which may be a disadvantage for an investor residing in Switzerland.
The importance of low commissions?
👉 It is important to understand that 1 small percent lost per year in stock market commissions. That is a lot of money lost in the long run!
Therefore, in order to make the client's investments profitable, the client must favor a stock market intermediary with the lowest possible commissions!
Commissions – Wealth managers VS robos-advisors?
By carrying out a search on the internet. (Human) wealth managers take about 1 to 2% in commissions (wealth management) per year. Compared to the client's stock portfolio.
🔺In order to compare, Cheap robos-advisors charge an approximate commission of 0.50%, as I write this article.
| Wealth Manager (Human) | Overall between 1 to 2% |
| Robot advisor | Overall between 0.47% to 0.75% |
To give examples, as of the day I am writing these lines. Here are the commissions of some Swiss robos-advisors with less than 150,000 CHF of investment. With the TER fees included:
- Selma – Minimum 0.55%
- Swisscote – Minimum 0.74%
- Clevercircles – Minimum 0.55%
- Finpension Invest – Minimum 0.47%
➡️ As a result, investing in a robo-advisor is generally less expensive compared to a private wealth manager❗
For the client. Is a robo-advisor or a stock market account cheaper?
🔺So there, everything will depend on the fees of the stock market account compared to the fees of the robo-advisor. In addition, everything will depend on the amount to be invested.
👉 Not to mention that fees change depending on the strategy ❗
For example, investing 100 % from the stock portfolio in a CHF ETF has different fees than a US dollar ETF.
As a result, some stock accounts or robo-advisors are cheaper for some investments, but not all.
Finpension Invest
In my opinion and according to my research. One of the only robo-advisors that competes with the fees of stock market accounts. It is Finpension Invest.
Indeed, Finpension Invest has a fee of 0.39% (at the time of writing this article)1.
On the other hand, don't forget to add the TER costs! In this case, the total fee will be approximately 0.47%.
In addition, the dividend tax system is advantageous with Finpension Invest 👍 (according to their website).
▶ Finspension Invest is an excellent robo-advisor. However, the real question is according to your stock account and your stock market strategy. Will you spend less than 0.39% (without the TER fee) in commissions? 🤔
Finpension Invest VS Interactive Brokers
⚠️ To give an example. Finpension is more expensive compared to Interactive Brokers!
👉 In reality, Interactive Brokers' fees are very hard to compete with for a robo advisor. Especially US dollar investments!
For example, if an investor at IB invests 1000 CHF (or 1000 Euros) in a SP500 ETF in US dollars. In this case, the fees will be approximately:
- 2 dollars exchange rate (about 2 euros or 2 CHF)
- Around 0.40 CHF or 0.40 Euros for the purchase of the ETF
That is, for example, for a purchase of 1000 CHF or 1000 Euros in an ETF SP500 in USD. There are only about 2.40 CHF or 2.40 EUR that are evaporated for trading transaction costs.
➡️ This is approximately 0.24% without the ETF TER fees. ❗
| Approximate commission without TER | |
|---|---|
| Finpension | 0.39% |
| IB | 2.40% |
Note that if you want to add the TER. In the case of the VOO ETF for example, it is 0.03%. In the end, commissions will be approximately 0.27% with TER included.
| Approximate commission with TER | |
|---|---|
| Finpension | 0.47% |
| IB | 0.27% |
▶ Note that it is very difficult for a robo-advisor to compete with the prices offered by IB!
🔺Therefore, for a stock market strategy mainly in the US stock market. At the moment, I prefer IB to a robo-advisor.
Finpension Invest VS Yuh VS Neon Invest
Now I have compared the fees regarding a stock market strategy that invests mainly in Switzerland.
For this situation, I compared the fees of Finpension Invest with Yuh and Neon Invest.
Note that Yuh and Neon Invest are my 2 favorite Swiss stock market accounts 😉
Here is a summary of the fees of Finpension Invest VS Yuh VS Neon Invest. Regarding a Swiss strategy.
| Finpension Invest (Switzerland 100) | Neon Invest or Yuh | |
| Trading commissions or management fees | 0.48% (TER included) | 0.50% + ETF TER fees |
🔺In this case, for a strategy mainly in Switzerland. We see that Finpension is cheaper than Yuh or Neon Invest 😉
Taxation
In Switzerland, the taxation of a robo-advisor will depend on the origin of the financial products concerning the robo-advisor's financial investments.
As a result, some robo-advisors may be more tax-efficient compared to others.
Conclusion
Investing in a Robo-advisor: Advantages and Disadvantages
I have summarized the commissions with a simplified table.
| Robo advisors | Private wealth manager on the stock market | ETF via cheap stock account | |
|---|---|---|---|
| Average commissions requested | 0.47% – 0.75% according to robo-advisor | 1 to 2% | Around 0.27 – 0.50% depending on stock market strategy |
➡️ Analyzing the pros and cons of this table. I prefer to invest in ETFs myself in a cheap stock account rather than in a robo-advisor !
Indeed, there are fewer investment constraints! In addition, asset management is freer.
🔺 Regarding commissions, it should be remembered that when it comes to US investments, Interactive Brokers has better fees than robo advisors.
🔺 On the other hand, regarding a stock market strategy mainly oriented towards Switzerland. Finpension is currently slightly cheaper than Swiss stock market accounts!
Therefore, in my opinion 😉
- For a stock market strategy mainly in the USA – Stock market account via Interactive Brokers
- For a stock market strategy mainly in Switzerland – Finpension Invest
⚠️ This article is just a personal opinion. Not investment advice. Investing involves risk of losing money 🔺
Investing in a Robo-advisor: Advantages and Disadvantages
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Investing in a Robo-advisor: Advantages and Disadvantages
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