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Over the past two months, we have noticed a significant increase in people searching on DollarsAndSense for investing-related topics. This comes as no surprise.
With the current volatility in the market, perpetuated by steep declines and unexpected rise in the stock markets, investors, both new and experienced, are likely to feel a mixed bag of emotions. This would include greed, fear and uncertainty.
As most of us already know, investing based on our emotions is not a good idea.
While the herd mentality may serve us well in other aspects of life (if everyone is running away from a building, it makes sense to run from it, rather than to check out for ourselves what’s wrong), psychology can work against us in the financial markets. And very often, it does.
To better understand what are some mistakes that investors in Singapore are making, our writer Timothy spoke to the CEOs of some of Singapore’s most prominent robo advisory platforms. As these platforms cater to thousands of retails investors, they are in a good position to observe the sentiments of many investors, and to point out to us what are some of the mistakes they are seeing.
Participating in the interviews were Michele Ferrario (StashAway), Tai Zhi Ow (AutoWealth), You Ning Sun (Endowus), Chuin Ting Weber (MoneyOwl), Dhruv Arora (Syfe) and Asheesh Chandra (Kristal.AI).
Timothy Ho (DollarsAndSense): We are seeing a lot more people searching and reading investment-related articles on our website. Is this a similar trend that you are seeing on your platforms?
Michele (Stashaway): Yes, we have seen an increase in the number of incoming enquiries from our clients. However, we have managed to maintain our average pick-up time for calls at 8 seconds, replies to WhatsApp within a few hours and emails within the same day. Our Client Engagement team has done a wonderful job to make sure we were always accessible.
Tai Zhi (AutoWealth): Yes, sign-ups have increased significantly in March and April. The same way consumers loved splurging at the Great Singapore Sale, many investors are now committing their idle funds to take advantage of the huge market discount.
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You Ning (Endowus): We have experienced strong customer sign-ups and AUA growth during this period. We’ve also seen our existing customers not only stick to their investment plans, but invest more money into the market; something that has fortunately served them very well given the recent rally. There has also been increased interest in CPF and SRS investing during this period as our clients took the opportunity to reposition their portfolios in the recent market drop.
Chuin Ting (MoneyOwl): As MoneyOwl is not a roboadviser, but a comprehensive and bionic financial adviser, we have not just an investment platform, but also a comprehensive planning platform, an insurance platform and a will-writing platform. We have continued to see increases in enquiries and sign-ups during this period, including for investments, but among the services, there is also huge interest for comprehensive planning where investments are integrated with other financial decisions and into a holistic plan.
Dhruv (Syfe): The last three months have been the strongest since the inception terms of new clients coming on board and the assets we manage. We believe there are two reasons why we are seeing this effect. Firstly, people experienced a significant market correction, which made them appreciate our investment strategy as it helped them to reduce temporary losses. This proof point combined with the opportunity to come in after the correction seemed to have attracted a wide variety of investors. Secondly, the launch of REIT+ in collaboration with SGX provides everyone a completely new experience of investing in real estate which is low cost, diversified and convenient, and therefore nudged thousands of people to start investing.
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Asheesh (Kristal.AI): At Kristal.AI, we have come up with a line of products best suited for current markets and customized on an individual basis. We have also kept our channels open and helped our investors solve their queries. In such times, the right information is the only weapon we have, and we want to help our clients access that. In return, we have seen significant growth on our platform in the last 2 months. Our support and RM teams have also seen an increase in the number of queries and we have adopted both digital and offline methods to provide our clients the best advice.
All of the robo advisory platforms we spoke to have seen an increase in interest among investors in Singapore, both new and existing. Some have also launched new products during this period, such as the Syfe REIT + and the Endowus CPF portfolio.
But with an increase in interest, there are many more activities among investors, some of which may have been spurred by emotions. We ask the robo advisory platforms what are some mistakes that they are seeing among investors.
Timothy Ho (DollarsAndSense): There are both opportunities and fear in the market right now. What are some mistakes that you see investors making?
Michele (Stashaway): We see three common mistakes.
# 1 Some clients have leverage investments and are now struggling to make margin calls. A few of our HNW clients who invested in leveraged investments elsewhere faced margin calls and struggled during the March market crash. (Note: we do not offer leveraged investments at StashAway).
# 2 Not selecting a suitable risk level. During the 2.5 years since our launch, we spent significant time ensuring that our clients took the appropriate risk level for their timeline and risk propensity, and understood that investing is a long-term game; this effort bore fruits as only a very small percentage of our customers reacted fearfully to the market crash. We have been in a 11 year bull market and some of our younger clients have not experienced a market crash like this. Some of these clients panicked when the markets crashed and sold at much lower prices.
# 3 Clients who have not set up an emergency fund. Unfortunately, these clients had to liquidate their investment portfolios and moved into our cash management portfolio, StashAway Simple, as some of them needed the funds urgently because they may have been laid off or to meet other short term obligations.
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Tai Zhi (AutoWealth): Here are 3 mistakes that I like to point out.
(1) Taking the often-exaggerated news headlines & investment houses market calls without double pinches of salt.
(2) Not fully realising the US$9 trillion of unprecedented economic stimulus = loads & loads of money printing = erosion of your cash/bank balances unless you invest them to preserve and growth your wealth = widening gap between the rich & the poor.
(3) Not fully appreciating the “forward-looking personality” of financial markets with respect to the economy over the short term and the convergence of financial markets with respect to the economy over the longer term.
You Ning (Endowus): Allowing fear to take over. Investors should avoid changing their regular investment plans or selling their investments. It’s impossible to predict how the markets will do in the short-term, but it is a high probability bet that in the long run, the market will be higher than today. So stick to your plan.
Another big mistake is trying to time the market. It is impossible to time the market. No one can sell at the top and buy at the bottom. Inertia or paralysis is another common pitfall. Some people do nothing even though they have cash set aside to invest. Do something! In the long run, anything is better than holding cash.
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Chuin Ting (MoneyOwl): The biggest problem is a mindset of thinking about investments in either a “time silo” or a “segment silo”.
These mindsets can result in actions which jeopardise one’s larger financial and life goals.
If we are only concerned about the short term, the risk is that we end up timing the market based on a reading of the macro environment: either directly, e.g. selling because we think the recovery is fake and thinking you can come back in later, trying to catch the bottom or avoid short-term declines; or we do this indirectly, by investing in portfolios where the fund manager does such tactical asset allocations or optimisations based on an analysis of the economic environment.
From the track record of fund managers, we see that these tactical shifts are generally futile as most active managers (who can be using passive instruments like ETFs anyway) underperform the market and even those who manage to beat it in one time period, do not manage to do so consistently.
If we think of investments in the absence of the context of a larger financial plan, we might be investing too much or too little, or in the wrong portfolios, because every decision in one aspect of your financial life affects the rest. For example, we might be investing a lot thinking this would make us rich, but this leaves us with limited funds to buy basic insurance coverage, thus leaving us open to a catastrophe that can cause our plan to fail and decreasing our ability to take risk. Hence it is important to approach planning in a comprehensive manner with investments being part of that plan and not a standalone activity.
Dhruv (Syfe): We are not speculative or active managers and do not believe in timing markets nor asset classes. However, from a behavioural finance perspective, investors tend to overreact to market turmoil as fear overcomes greed.
Historically, fleeing the stock market by dumping stocks for cash until you think it’s safe to get back into the market, has proven not to be successful. The following chart illustrates an investment into the S&P 500 index during the financial crisis in 2008 and shows the effect of missing the early months of the recovery on the returns after one, two and 3 years.
According to this, dumping stocks and moving into cash for only three months can reduce your returns by more than half (from +69% to +33%) during the year following the market bottom. Therefore in our opinion, the biggest mistake is to panic or trying to time the market.
Asheesh (Kristal.AI): The biggest mistake is to be too sentimental or fearful. Whenever markets go on a wild ride, emotion-led investing takes precedence and this is where investors stand to lose the most. Even a bear market provides opportunities if you look wisely. On the other hand, not every bear market is opportune to take huge risks. Being cautious is okay; being part of the ‘momentum investing’ crowd isn’t. Now, more than ever, investors should be looking to optimise and personalise their portfolios instead of blindly following dictums.
Don’t Let Emotions Dictate Your Investment Decisions
One of the recurring themes that we see happening is many investors, new and even experienced, allowing their investment decisions by the emotions.
During a time when the world and the financial markets may be going through a volatile and uncertain period, investors would do well for themselves by staying calm and sticking to their long-term investment plans, whether through these robo-advisory platforms or their own investment portfolios.