Robo Advisors vs DIY Bogleheads 3-Fund Portfolio – Which should we choose?

Reading Time: 14 minutes

You can’t read investment news these days without stumbling upon the subject of Robo Advisory. It seems that one is launching every month or hearing that one Robo Advisor just closed a new round of funding. It’s becoming a huge industry here in Singapore.

 As of the middle of 2019, there’s already at least 11 Robo Advisors that are in operation and ready to take our money. However, should we use Robo Advisors?

What are their benefits? Given that we all know that there’s a perfectly good alternative – the Bogleheads 3-Fund Portfolio (“DIY Bogleheads Portfolio”) – why should we choose Robo Advisors over doing it ourselves and who is it suitable for?

In this post I’ll try to break the topic down and compare Robo Advisors to the DIY 3-Fund Portfolio so you can make a more informed choice! Here’s how I’m going to break it down, feel free to jump to the section that is most interesting for you!

So let’s get right into it!

Setup & Complexity

How much effort does it take to get started with a Robo Advisor? Usually there’s a 2 step process:

  1. Investor Risk Assessment
  2. Portfolio Aggressiveness Selection

During investor risk assessment, the Robo Advisor will assess our investment experience and our risk appetite in order to be able to provide us with a recommended portfolio allocation. This is to ensure that the investor is providing explicit consent to the investment strategy and fully understands the potential loss/gains they will make.

Then the Robo Advisors, as they each have their own investment algorithms tailored to each risk profile, will ask us to select the level of aggressiveness and level of loss we are willing to accept.

Once those 2 steps are complete, we simply have to fund the account and the Robo Advisor will begin investing our money.

In the case of the DIY Bogleheads Portfolio, we must also fill out the investor risk questionnaire in order to start trading with our brokerage of choice. Then we must determine our own portfolio allocation that matches our risk profile and start purchasing the components of our portfolio.

Robo Advisors tend to provide a bit more hand-holding for new investors here compared to the  DIY Bogleheads Portfolio.

Robo AdvisorsDIY Bogleheads Portfolio
Risk assessment quiz & portfolio type selection.Determine target asset allocation based on risk tolerance and investment horizon.

Winner: Robo Advisors

Investor Involvement & Decision Making

Once we’re all set up, which of the options require more effort from the investors to continue management? Well in the case of the Robo Advisors, we simply have different choices:

  1. When to add more funds
  2. When to withdraw funds
  3. The risk profile of the funds

If we want to be hands off, the Robo Advisors provide the most simple and low-maintenance option – very similar to a Target Date Retirement Fund in terms of simplicity. As long as we have a constant transfer of funds into our Robo Advisor, we’re pretty much set, the Robo Advisory firm will perform all the rebalancing for us no matter the market conditions.

As for the DIY Bogleheads Portfolio, we’ll need to log in every once in a while, even if we have a permanent standing instruction to transfer funds into our brokerage account. We’ll need to make purchase decisions each time we would like to buy. Should we be buying International, Local or Bond funds this time?

However, if we have the allocations locked down, it won’t take more than 20 minutes each time to calculate the amount that needs to be invested into each fund and whether any rebalancing is required.

Despite that, I’d say that Robo Advisors are definitely simpler in this regard. If you’d like to be as hands off as possible, Robo Advisors are for you.

Robo AdvisorsDIY Bogleheads Portfolio
Once set up with regular standing instructions, no other management is required.Each purchase the investor will need to decide which of the portfolio ETF they will buy and how much.

Winner: Robo Advisors

Time Commitment

As for the amount of time it takes to manage the portfolio, Robo Advisors are pretty hands off. Aside from ensuring that funds are being added to your portfolio, the investor does not even need to log in to rebalance the portfolio. Again, a very good alternative to a Target Date Retirement Funds – except with higher fees – since we don’t have one of those in Singapore.

In the case of the DIY Bogleheads Portfolio, there’s rebalancing activities once a year and purchasing the correct allocation every few months.

Robo AdvisorsDIY Bogleheads Portfolio
After set up, almost none.20 minutes each purchase.20 minutes to rebalance once or twice a year.

Winner: Robo Advisors

Tax Obligations

Now we get into the more complex issue of tax obligations. It’s always important for investors to understand their tax residency and their tax obligations when investing. If not attention is paid, we could be losing a lot of potential gains or be in serious tax violations.

The majority of Robo Advisors in Singapore rely quite heavily – sometimes completely – on ETF and funds that are listed in the U.S. and this means that we will be subjected to the tax rules and laws of the U.S.

U.S. Citizens and Residents are subjected to U.S. State and Federal Taxes on all of their income (depending on whether the investments are in tax-deferred accounts or special retirement accounts.)

As non-U.S. Citizens or Residents, our tax situation will depend on how we choose to invest in the U.S. securities, however there are 2 major categories of taxes that we will need to pay attention to: Dividend Withholding Tax and Estate Tax.

Let’s take a look at each separately.

Dividend Withholding Tax

As a Singapore-based investor holding the U.S.-listed securities directly through the Robo Advisor, dividends are subjected to a 30% dividend withholding tax by the U.S. government. There are ways to lower this by claiming some of the tax back and although all Robo Advisors say that they will attempt to minimise this withholding tax as possible, it’s not clear how much they can reduce the tax.

However, as a DIY Bogleheads Portfolio investor, we can choose to purchase a comparable Irish-Domiciled ETF instead of a U.S.-Domiciled one. Through the tax relationship between the U.S. and Ireland, our dividend withholding tax obligations drops in half, to just 15%.

Given the significant impact of dividend reinvestment on the final portfolio value, this will mean that the DIY Bogleheads Portfolio has a leg up here.

Robo AdvisorsDIY Bogleheads Portfolio
30% Dividend withholding tax.15% Dividend withholding tax.

Winner: DIY Bogleheads Portfolio

Estate Tax

An estate tax or inheritance tax is paid when you pass on. This is paid by your estate or beneficiaries of your estate. Since both the Robo Advisor and DIY Bogleheads Portfolio involves holding U.S. securities in some form, we have to take a look at how U.S. Federal Estate Tax laws apply to us to make sure we’re not paying more tax than we need to.

As far as I can tell, the majority of the Robo Advisors in Singapore depends on Saxo Capital Markets Pte. Ltd. to be the custodian of the ETF purchased as part of the Robo Advisory services. This means that the U.S. securities purchased will be held by a Singapore-based company which, according to this article, is not exempted from the U.S. 40% Federal Estate Tax.

This means that when we pass away, if we have more than US$60,000 in our investment accounts – that’s not high at all for a retirement portfolio. Anything above that amount is subjected to a 40% tax. To be clear, that is massive. Before your family or dependents can access the funds after you passed away, Saxo and the Robo Advisor are legally obligated to withhold the estate tax to be paid to the U.S. government before paying out the funds to your estate.

In the case of the DIY Bogleheads Portfolio, as long as we are purchasing the Irish-Domiciled ETFs for our portfolio, we will not have this estate tax obligation through the tax treaties that Ireland has with the U.S.

Robo AdvisorsDIY Bogleheads Portfolio
40% estate tax obligation.No estate tax requirement if using Irish-Domiciled ETF.

Winner: DIY Bogleheads Portfolio

Investment Performance

Performance is going to be a tough one to judge quantitatively. Most of the Robo Advisors here all claim great performance. Each of them follow some form of private smart portfolio creation algorithm that back-tests very well according to each of the respective companies.  They’re all also way too young to get proper numbers and given that they were all setup during the longest bull market in recent times, all of them are reporting great returns since they have started.

Since we’re looking for something that will last us during our long FIRE retirement timeline, we’d need to also see how they will perform over 30 years or longer.

Most Robo Advisors claim to invest in broad-based, well-balanced and properly risk-managed portfolios. It seems that they usually follow a variant of the Modern Portfolio Theory with some sprinkle of proprietary algorithm, adjusted based on back-testing – which obviously doesn’t guarantee future returns.

In terms of returns, I have no reason to believe that they will perform horribly compared to the DIY option. The risk, of course, is that their investment models are too tightly fitted to the past performance and doesn’t do well in the future, but that’s speculation and there isn’t any evidence that it would be the case.

So I think for the purpose of this analysis, we will assume that the performance of Robo Advisors and DIY Bogleheads Portfolio are comparable once we’ve managed to set them both up to match our risk profile. That way we can do cost comparisons on equal terms.

Winner: Tie (Assumption)

Fees & Costs

Now we’ve come to one of the most important sections, costs.

If you are an avid follower of the FIRE community, you will know that one key indicator of investment returns is how low we can get our investment fees to be. It’s often one of the best predictors of a fund’s investment performance.

Robo Advisors are profit-seeking companies, and they will have to make their profits somehow. This is the reason that it should not come as a surprise that by going with Robo Advisors, we will be paying more in terms of fees. However, how much more is it compared to the DIY Bogleheads Portfolio and given all the convenience that comes with it, is it worth it?

Well that’s what we’re going to find out here and then I’ll let you decide whether it’s worth it for you.

Pros and Cons Robo Advisors

The key benefits on the Robo Advisors side when it comes to fees are:

  1. The amount needed to start an investment portfolio is very low so it’s very easy to get started.
  2. There’s usually no transaction fees involved when investing which benefits those who are not making high salaries. Perfect for fresh graduates and allows investors to put money into the market quickly and often. With the DIY Bogleheads Portfolio, investors might have to wait a few months to accumulate the funds to minimize the percentage of the investment that goes to brokerage fees.
  3. No account maintenance fees.
  4. Clear and simple fee structure. Often Robo Advisors simply charge a flat percentage of the asset under management and that’s it. Great for when the portfolio size is small, but not as good when portfolio size is large.

The cons:

  1. Once the portfolio value becomes large, the flat Robo Advisor fees quickly becomes very high in absolute dollar amounts that it may not be as worth it to keep the funds there.

Robo Advisors are very good for those starting out investing and they can get in quickly and cheaply, but gets expensive later on due to the management fee.

Pros and Cons of the DIY Bogleheads Portfolio

The benefits of the DIY portfolio is simple, once you get larger portfolio size, the fees become a much smaller portion of the portfolio that it becomes much cheaper than Robo Advisors.

Now the cons, with a DIY portfolio, many brokerages will charge a minimum transaction fee or a percentage per transaction, whichever is higher. Therefore with small amounts to save, the transaction fee ends up eating up a large chunk of the investment before it even gets to work for you.

If we have to wait for a few months before accumulating enough to invest, that could mean our money sits on the sideline for longer than we’d like and miss out on any market gains (which also means we miss out on any losses, we take the good with the bad.)

The Difference in Fee Structure

Let’s take a look at the different fees that Robo Advisors charge compared to the DIY Bogleheads Portfolio:

Cost ItemsRobo AdvisorsDIY Bogleheads Portfolio
Minimum BalanceS$0 – S$3,000
Minimum Transaction for Lowest FeeS$8,000
ETF Expense Ratios0.15% – 0.20% p.a. (We’ll use 0.15%)0.30% – 0.35% p.a. (We’ll use 0.35%)
Robo Management Fee0.50% – 0.80% p.a. charged monthly (We’ll use 0.50%)
Custody FeeS$2.14 per international ticker per month
Transaction Fee0.40% per transaction
Account FeeS$16.05 per quarter

The cost for the DIY Bogleheads Portfolio is based on the brokerage platform that I personally use currently, Phillip Capital’s POEMs. Yours may be different.

So as you can see, the DIY Bogleheads Portfolio has a more complex fee structure and higher transaction cost, but the Robo Advisors have higher management fee.

The Robo Advisors also use lower fee ETFs from the U.S. whereas the DIY Portfolio makes use of the relatively higher fee ETF that are domiciled in Ireland. However, the increase in cost is not by much and is still much lower than the 0.5% charged by the lowest of the Robo Advisors.

In both cases, the investor must pay the underlying fund’s expense ratio as well as all the other fees imposed by the Robo Advisor or the brokerage.

Logic would dictate that Robo Advisors will start out being much cheaper, but will eventually become more expensive than the DIY Bogleheads Portfolio. The question is when.

In order to do a proper comparison, we’d need to do this calculation over time and then comparing the total cost throughout the life-time of the portfolio. We’ll need to find the Total Life-Time Cost for both options:

Illustration of the fees involved in each option
Total Life-Time Cost Comparison

And we’re going to do just that in the sections below!

Preconditions & Assumptions for Investing

In order to calculate the Total Life-Time Costs of both options, let’s assume that we’re going to invest into both options with the setup below. We’ll do it such that the starting conditions for the hypothetical investor is the same for both cases:

Monthly Investable SavingS$2,000
Robo Advisor Investing FrequencyEvery Month (Since no transaction fee.)
DIY Portfolio Investing FrequencyEvery 4 Months (Accumulate S$8,000 per purchase to minimize brokerage fee.)
DIY Portfolio Ticker Count3 International (IWDA, EIMI, IUAG) and 1 Local (ES3)
Fund PerformanceAssumed same performance of 7% real return p.a. for both Robo and DIY.
Safe Withdrawal Rate4%

Using the above pre-conditions, we will simulate the investments using 2 investment scenarios:

  1. Scenario 1: Standard Retirement – The person works and invest for 40 years in order to retire at around 65 for a maximum of 30 years.
  2. Scenario 2: Early Retirement – The person works and invest for just 20 years and retire around 45 for a 50 year retirement period.

Both scenarios have the investor start working at 25 and live until the ripe old age of 95 years old.

We will withdraw funds from the portfolio at 4% per year during retirement to sustain our standard of living. Ready? Let’s take a look at the results!

Scenario 1: Standard Retirement – Work and invest for 40 years with 30 years of retirement

So after a total of 70 years of S$2,000 per month investment, here’s what the portfolio value looks like for this scenario:

Chart of the portfolio value of Robo Advisor vs DIY Bogleheads Portfolio
Portfolio value of Robo Advisor vs DIY Bogleheads Portfolio

Here’s the chart for the total fees paid:

Chart of the total fees paid for Robo Advisor vs DIY Bogleheads Portfolio
Total fees paid for Robo Advisor vs DIY Bogleheads Portfolio

Here’s the percentage of fee per month against the total portfolio value:

Chart of the percentage of the portfolio value that is paid as fee for Robo Advisor vs DIY Bogleheads Portfolio
Percentage of the portfolio value that is paid as fee for Robo Advisor vs DIY Bogleheads Portfolio

Here’s the summary table:

CaseRobo AdvisorsDIY Bogleheads Portfolio
Portfolio Value @ RetirementS$4,418,813.27S$4,721,499.73 (+6.85%)
Portfolio Value @ EndS$8,990,668.75S$10,489,577.02 (+16.6%)
Total Fees Paid @ EndS$1,591,287.31S$958,679.71 (-39.7%)
Average Fees Per MonthS$1,894.39S$1,140.40 (-39.8%)
Starting Monthly WithdrawalS$3,233.47S$3,299.05
Total WithdrawalS$7,742,571.26S$8,692,762.54 (+12.3%)
Months to cost more than DIY47

Let’s break it down:

  1. Robo Advisors are cheaper for the first 4 years of the investment.
  2. After 4 years the DIY portfolio becomes cheaper and remains cheaper for the life of the portfolio.
  3. The DIY Bogleheads Portfolio ends up paying 40% less in fees (S$632,607.60 less) for the life of the portfolio in total than the Robo Advisor.
  4. The DIY Portfolio value at the start of Retirement is 6.85% higher than the Robo Advisor.
  5. The DIY Portfolio value ends up with 16.6% higher at the end of life than the Robo Advisor.
  6. The DIY Portfolio also provided 12.3% more withdrawn funds based on a 4% withdrawal of the portfolio value each year.

Of course, this is an ideal scenario where the performance is a constant 7% return, we are not guaranteed a performance this consistent, not even close.

The actual results in the real world will never follow such a clean graph, but the key point will remain true: As our portfolio increases in value, the more costly the Robo Advisors become and the cheaper it is to manage it ourselves through the DIY Portfolio.

Scenario 2: Early Retirement – Work and invest for 20 years with 50 years of retirement

Now let’s take a look at the second scenario, the early retiree. This is the likely case for somebody like me who will work and invest for a shorter length of time but want to live on the investment for much longer.

Here’s the total portfolio value:

Chart of the portfolio value of Robo Advisor vs DIY Bogleheads Portfolio
Portfolio value of Robo Advisor vs DIY Bogleheads Portfolio

Total fees paid:

Chart of the total fees paid for Robo Advisor vs DIY Bogleheads Portfolio
Total fees paid for Robo Advisor vs DIY Bogleheads Portfolio

Then the fees per month:

Chart of the percentage of the portfolio value that is paid as fee for Robo Advisor vs DIY Bogleheads Portfolio
Percentage of the portfolio value that is paid as fee for Robo Advisor vs DIY Bogleheads Portfolio

Here’s the summary table:

CaseRobo AdvisorsDIY Bogleheads Portfolio
Portfolio Value @ RetirementS$970,041.08S$989,715.68 (+2.03%)
Portfolio Value @ EndS$3,162,076.94S$3,724,494.50 (+17.79%)
Total Fees Paid @ EndS$645,601.42S$395,417.49 (-38.94%)
Average Fees Per MonthS$768.57S$469.29 (-38.94%)
Starting Monthly WithdrawalS$14,729.38S$15,738.33
Total WithdrawalS$3,718,769.18S$4,135,376.84 (+11.20%)
Months to cost more than DIY47

Again, we see a very familiar result. Given the shorter investment timespan we see only a 2% higher balance in the DIY portfolio compared to the Robo Advisor over the 20 year investment.

However, at the end of the investor’s life, that difference has compounded to a 17.8% difference in the DIY portfolio’s favor. The total fees paid in total is also 39% less.

Again, the total withdrawal in the DIY portfolio is higher as the portfolio balance is higher on the DIY side.

The number of months where the Robo Advisor has lower absolute fees remained the same at 47 months or about 4 years.

So on the fee side, the DIY portfolio is a better choice for such a long time horizon and portfolio balance.

Important: I’d have to repeat that this result is also due to the regular returns of our simulation. If the Robo Advisor’s investment approach handles the rebalancing and market cycles better than the DIY portfolio, then the results could turn out very different. However, there’s no way to tell one way or the other that the Robo Advisors will outperform in the long term compared to the DIY portfolio, so it’s up to you to decide if you think that this is important enough to affect your decision.

Winner: DIY Bogleheads Portfolio

Putting it all together

Phew! That’s all the analysis we’re doing today to compare the Robo Advisors to the DIY Bogleheads Portfolio! I hope that it was informative and insightful for you.

Let’s bring it all together and see why an investor should choose Robo Advisor vs why they should select to DIY and hopefully you’ll be able to make a decision on which one you will go with.

Choose Robo Advisor if you:Choose DIY Bogleheads Portfolio if you:
Don’t mind the higher fee.Want to maximise returns by minimising fees and dividend withholding tax.
Do not have large amounts to save each month.Want to avoid having to deal with U.S. Estate Tax when you pass away.
Prefer the most simple to set up and most simple to manage solution – a set-it-and-forget-it option.Don’t mind spending 20 minutes every month to manage and rebalance your portfolio.
Don’t want to risk having your emotions to get in the way and ruining your investment.Have no problems sticking to your investment plan & portfolio allocation.

At the end of the day, I think picking either one and sticking with it is not a horrible option. It’s certainly much better than not starting investment at all.

So if investing is something you’d rather not think about and spend time on at all, then a Robo Advisor would be a good choice.

However, if you prefer to minimise costs, maximise returns, don’t mind doing some research and don’t mind spending a few minutes each month – an hour or so each year – adjusting your investments then DIY is the way to go.

Aaaaaaaand that’s it! Simple!

I hope that makes sense and I’d love to hear which option sounds like the one for you!

Let me know what you think in the comments below or just tweet at me @firepathlion.

Until next time!


40 thoughts on “Robo Advisors vs DIY Bogleheads 3-Fund Portfolio – Which should we choose?”

  1. Just curious what’s your recommendation of how to allocate the $8000.00 per quarter.

    Since to get the lowest fee possible we should invest $8000.00 and above to enjoy the Low percentage charges.

    • Hey Xavier! Thanks for asking, the way I would recommend you allocate the S$8,000 is to look at your current portfolio allocation to see if any of the assets are sitting below your ideal allocation and put all of the funds into that asset class.

      Say if your ideal allocation is 10% local fund, 80% international, and 10% bond, but are actually sitting at 15% local, 75% international and 10% bond, then the easiest would be to put all of $8,000 into the international fund to try to bump it up to 80%.

      If everything is already equal then you can pick one that you think is currently undervalued (which will increase its percentage) and then the next month, rotate to the next fund.

      This way you are optimally making the purchase to reduce the fee and at the same time will automatically be “rebalancing” throughout the year by adding money to the fund that is cheap or underperforming. This also reduce the need for you to rebalance all at once at the end of the year.

      I hope that explanation is clear, let me know if you would like more elaboration!

  2. Hey FPL! Thanks for the insight and your recommendation!

    Definitely makes more sense to save costs while consider it as a form of rebalancing.

  3. Hi FIRE-Path Lion,

    You might want to consider switching to Standard Chartered to save on the Account Maintenance Fee, Foreign Shares Custody Charges and Cash Dividend Handling Fees(levied on your local stock market and bond fund). SCB has none of these and it only costs US 10 /trade vs GBP 20 for POEMS.

    Further more if your total holdings with the bank exceeds $200k, you’ll qualify for priority banking that offers a low 0.2% commission per trade, no minimums. Not too difficult to accumulate $200k if you store all of your 3-Fund portfolio at the bank.

    • Hmmmm I have heard that SCB is cheaper, however I’ve also heard that their foreign exchange spreads are quite high (1%-2%?) If the exchange spread is as high as 2% then it negates all the other positives since that really eats into the amount used to purchase securities no matter how large your trade is. Do you happen to know what the actual exchange rate spread is for SCB?

      I’m actually considering Saxo as an alternative if we look at just the fees alone, their minimum fees are even lower than SCB.

      • Hi, I read complains about poor FX rates on SCB being equal to 1%. Then my question is why no one is going to use some middle man solution? For example, open SC trading account in USD or EUR (this are 2 currencies in which most Irish-domiciled ETFs are available) and then find online FX company where you can send SGD and convert it to USD/EUR via wire back? It should be the most effective way.

        • Hey Seb! That’s often going to be more expensive because (depending on the bank and the 3rd party FX company) they charge several fees that make that solution not worth it:
          1. Transfer Fee. Usually when you transfer funds in non-local currency, the transfer provider will charge a transfer fee. If you use a U.S. bank or provider that perform USD transfer for free, you will need to pay for a Telegraphic Transfer to send the money overseas.
          2. Foreign Currency Deposit / Receiving Fee. Now I’m not sure if SCB charges when you transfer funds into a Singapore account in USD. Usually banks will charge you when you want to deposit funds in cash in foreign currencies. They may also charge you when you Transfer foreign currencies in.

          This is to close the loophole that you have mentioned. Either way, there’s fee involved. You’ll have to calculate which option is cheaper. Often it may not be worth the trouble.

          In this case, I haven’t looked into the details but I suspect that trying to do the above will end up being more expensive than just letting SCB convert the currency in the first place.

          • Hi, I don’t live in Singapore anymore and SGD was never my main earning currency, so I did not explore the available options. But I am sure they do exist and you may be wrong in the way you think they work. So online FX changer (focused on SG market) should have SGD bank account in Singapore for free and FAST SGD transfers. In my experience with various banks in the world and different online money changers is that they usually send bank transfers as OUR (sender cover all fees), meaning that you are neither going to be hit with intermediary bank fees, nor the incoming TT transfer fee usually charged by SG banks (S$10). Please have a look at this post: https://forums.hardwarezone.com.sg/121414629-post8.html . I am sure there are more options to the one shown in this thread, it’s just a matter of doing some research.

          • You are right here. I’ll have to look into this more. It certainly sound like something that could be done to save on the exchange cost and still take advantage of SCB’s low fee structure.

      • It’s usually no higher than 1%, I’m seeing 0.88% now at 11PM SGT. Not sure how some people are reporting 2%, maybe that’s when both US and SG markets are closed/outside of working hours? What sort of rates do you get with POEMS?

        SAXO levies a 0.12% Custody fees for foreign stocks and a charges a Currency conversion fee of 0.5 %. It does still seem cheaper than POEMS though.

        • Hey Mark! POEMs charges a low flat custody fee per ticker so I think it’s better than a percentage one once the portfolio size becomes larger! So seems like on that front, might be better to keep POEMs for me

          • Hmm but I think we’re talking about the cost of currency conversion from SGD to USD here. What’s POEMS’ foreign exchange spread like?

            Also, it actually gets worse as your portfolio size gets bigger because POEMS charges the custody fee on your entire USD portfolio, every year. 😅 The SCB 1% foreign exchange spread charges applies only once, that is at the point when you convert over to USD.

          • Hey Mark! Based on my previous trades, the difference between the rate that is charged by POEMs and the rate I see on Google or XE.com is about 0.28%. If we take Google and XE rates as the middle between the bid and ask spreads, it’s likely that the bid-ask spread for POEMs is 0.56% which isn’t too bad.

            For custody fee, I am currently using the Prepaid account, which according to this info sheet on Philip Capital website:
            https://www.poems.com.sg/FinancialServices/CC_INFOSHEET.pdf The custody fee is a flat dollar amount ($2.14) per ticker per month, not based on percentage of the holding. So as the portfolio size gets larger, the custody fee is a really small percentage of the portfolio value to maintain the account.

  4. Thank you for the detailed and informative write up! I love the way you break down ideas and present it in digestible pieces. FYI there’s a typo in the 5th last paragraph
    “However, if you prefer to minimise your returns,” should this be maximise?

    • Hey Jocelyn! Thank you for reading and I’m glad you enjoyed the post! Also yes! You caught my typo. It’s supposed to be minimize cost and maximize return! I’ll get that fixed 🤦🏻‍♂️

  5. Hi, love your write-ups, there’s so much work put into them. But, just wondering what brokerage you’re currently using? And if you’ve done any analysis on the different between them?

    • Hey Skylar! Thanks for reading and for your kind words! Unfortunately I have not done any comparisons between brokerages yet but I’ve been getting similar requests for it so I might do one soon! Is there any brokerage that you are looking at so I will make sure to include it when I do a comparison.

  6. Hi there! Love your write ups. Recently trying to go into FI planning as well.

    Have a quick question. What do you think about using robo Advisors for overseas portfolio and at the same time invest another sum into sti etf? Do you think it’s feasible at all?


      • Mainly for the ease of roboadvisors! Just putting a sum to auto transfer every month for roboadvisors and also at the same time for dbs savings plan into sti etf.

        Of course I think it would definitely be better to invest it on my own but I’m still starting out so there’s a lot I’m not sure of yet and to read up but I do want to take advantage of the funds I have now currently and not wait around a few months haha. Do you think that’s a wise choice?

        Thanks for the reply btw!

        • I certainly don’t think it’s a bad choice! Robo Advisors are extremely easy and has low management overhead. If you want to take some time to learn how to do it yourself, you can do a lot worse than by investing through Robo advisors until you’re more knowledgeable.

          The management fees are relatively low and the portfolio used is diversified. Do make sure that you choose one that invests in broad based passive funds though.

  7. Hey! What do you think of the new SPDR MSCI World ETF that was recently opened and is basically the same as Ishares one, except it has 0.12 TER compared to 0.20.
    Would it be better to invest into this fund from now on?
    Thank you and love your blog ;3

    • Hey Lumi! Yes I’ve heard of the SPDR MSCI World ETF. I would say it’s a great option for when you are adding to your portfolio instead of IWDA as the components are essentially the same but with a lower expense ratio. However, since the difference in expense ratio is only 0.08% (which is only $8 per year for every $10,000) I would say it’s not worth it to sell all your IWDA holding to buy this one if you have already purchased IWDA (since brokerage fees are usually around 0.4% which is 5x more than the annual saving), just buy this one when you are adding to your portfolio. Although, depending on your brokerage, they may charge custody fee per each ticker, so adding a new ticker will mean you may have to pay more in custody fee on a quarterly basis for an additional ticker. So you’ll have to work out how much that is and whether the 0.08% saving will be worth it.

      The only issue I can find with this new ETF would be daily volume and NAV. Since it’s relatively new, the NAV will be low which means the fund isn’t large. This also means that there are less people trading this ticker and thus if you need to sell it, you might have a harder time finding a buyer. If you’re just buying it over time and will be unlikely to need to sell a large amount of your holdings urgently, then this shouldn’t matter much. However, it does also mean that during crashes and downturns, it might be hard to get out of your position. For long-term buy-and-hold investors like us, it should not matter though. Hope that helps!

      • On thinking about this longer, the 0.08% saving is a 40% saving over then 0.20% TER which is quite significant.

        Although the brokerage fee is 0.4% in my case, if I sell all of my IWDA holding and then buy this immediately, the savings in TER will cancel out the cost of the brokerage fee within 5 years. As long-term investors that’s nothing, so it could also be worth it to sell all my IWDA to buy this to save on the TER.

        The only remaining concern would be the size of the fund and the daily volume as I mentioned. IWDA last trading volume is about ~55,000 but SWRD is in the ~200 so that difference is quite large still. The NAV for IWDA is $20 billion where SWRD, being new, is just $325 million so quite a sizable difference.

        I’m cautious, so I’ll wait and see for now to see if the volume and NAV increases before shifting over. It’s also entirely possible that the TER for IWDA will be reduced in response to the launch of SWRD.

  8. Hello FPL, thanks for this insightful post on roboadvisors vs DIY! It has help me reach the decision of sticking to a roboadvisor since my monthly investment capital is low as a student. After some calculations, the total fees paid in a year is definitely more cost effective on a robo as compared to a DIY approach where each ticker could cost USD 4-10 depending on the broker!

    Just a quick question, how do you track and rebalance your portfolio to maintain your asset allocation of 10% local funds (STI) and 90% to IWDA+EIMI? WIll you be adding any bonds in the future for some capital protection?

    • Hey Matthew! Thanks for reading and glad that this post helped you!

      In terms of rebalancing, since I am continuously adding to my portfolio over time, I just look at the current portfolio allocation based on percentage and top up on any of the components that are lower than my target allocation. This means that I don’t have to sell anything to rebalance and if I go a bit over or under it’s fine. So if developed market is going up, I add to emerging markets. If Singapore is low, I add there. I don’t keep too strict to the exact percent, as long as it’s roughly there. I hope that makes sense!

      As for bonds, since I am 35, my investment horizon is basically until I’m dead – let’s assume 100 because we’re optimistic – and that means I have almost 65 years of investment runway, so I am comfortable holding no bonds (especially since we already have CPF) maybe up until I turn 50 or even older. Yes stocks are a lot more volatile but it also has a much higher growth rate. Which means, if I don’t need the majority of this money in the short term (like in the next 1-5 years) then I am better off leaving it in stocks. Keeping your funds in bonds limits the returns of the portfolio even though it does bring more stability. But stability is not what I need if I don’t need the funds – I’d rather optimise for growth. Now, in order to do this, you’ll need to make sure you can stomach huge market drops of 50% or more! Being able to see your money go from $1 million down to $500,000 is something that you must be prepared for, or else you’ll panic and sell when the market drops and lock in the loss.

      In the end, it really depends on your risk tolerance and what makes you sleep better at night. If you’re the type of person that can’t see your portfolio lose money – then best play it safer!

      I hope I helped answer the questions!

      • In that sense how do you spread out your investment capital to maintain the asset allocation? I’ve taken a look at the spreadsheet you’ve shared (which is really in depth!). There is varying amount each month which I assume is to maintain the asset allocation?

        On the note of capital preservation, will you be looking into safer assets once you hit your FIRE number and/or quit your job? I’ve read a few other blogs where typically an investor will move into income producing assets like reits/bonds/income stocks as they age and reach retirement, while still maintaining some of the portfolio into growth stock which in this case will be IWDA + EIMI.

        • The varying amounts are based on how much I have to invest during that time haha, rather than adjusting based on allocation. I simply add into the asset that is low to bring it up, if it is still low then next time I add onto it until it comes up to roughly the right allocation.

          On preservation, I will likely not shift towards income producing assets because I only care about total returns, not just dividend income. As long as the total return (which could be through capital appreciation or dividend payout) is high, I don’t specifically focus on the income – because I can sell my holdings that has appreciated for the income.

          Overall dividend stocks and bonds have high dividends, but they also often have low growth compared to stocks that don’t pay dividends. Overall I will likely to continue to be globally diversified and try to stay in equities as much as possible.

          Based on the trinity study, portfolios that do best over the long term has more equity and less bonds. The more bonds you have, the lower success rate you get for longer time horizon.

          • Haha I do feel thats the benefit of DIY investing over robos where you can choose how much to invest periodically into which asset allocation while keeping fees low.

            Yeah I do hear you mentioning the trinity study on Endowus webinar as well! I’ve read alittle on the bogleheads forum and there seem to be an emphasis for investors with longer time horizon to invest aggressively into equities. Thank you for your in depth article and replies! I’ve gotten more clarity on the steps I can take.

          • Yes, that’s the benefit of DIY! But if you are using Robo in theory it should be even easier! You don’t have to worry at all and they should keep your allocation exactly at the level you select automatically!

            If you want to read up more about the safe withdrawal rate as well as portfolio allocation and how it impacts your likelihood of success then you can check out the Safe Withdrawal Rate articles from Early Retirement Now, it’s super detailed: https://earlyretirementnow.com/safe-withdrawal-rate-series/

  9. Hi FPL, I recently chanced upon this blog and just wanna say thanks for doing all the analysis for us!

    Just a quick question. In your article you mentioned the cost effectiveness of a DIY portfolio will outperform the robo-advisor in roughly 4 years, in terms of portfolio size, that that would happen when the annual fees of a robo-advisor greater than the DIY portfolio correct?

    In that case, what are your thoughts on a hybrid robo/DIY portfolio? By withdrawing returns from the robo to be reinvested into the DIY, such that the robo-portfolio size doesn’t grow too big and keeps the fees at a reasonable rate.

    This could be effective for investors who are unable to fork out 6-8k every 4-6 months to hit the minimum commission fees (and the upkeep of inactivity fees and custody fees) , the returns from the robo-advisors can help accumulate that amount.

    Of course having both robo and DIY portfolio up at the same time might mean slightly more annual fees compared to a pure DIY portfolio (haven’t done the math), but the investor could potentially convert fully to DIY to reduce some of the fees if they wish to.

    Also just to add-on as a side note on some benefits of using a robo-advisor. There a some robo-portfolios (such as OCBC’s) that offer investments into individual stocks instead of ETFs, for those with a larger risk tolerance (altho it comes a at 0.88% pa and a slightly larger initial investment). Rebalancing these portfolios becomes more important, complex and difficult (US stock trading hours could be inconvenient), which could justify the higher annual fees. What are your thoughts on this?

    Sorry for the long windedness haha. I currently plan on doing the above, but I’m relatively new and not sure if this strategy is sound, or maybe in actual practise things might work out very differently.

    • Hi Ven!

      Thanks for reading and commenting. I think that your idea of starting with robo-advisors to take advantage of much lower costs in the beginning is a good one. As you’ve mentioned, you can always transition to the DIY portfolio once you’ve accumulated enough funds in the robo-advisor to effectively lower the cost on the DIY side. So it does make sense to build up your portfolio within a robo for low fees, then once you hit a certain amount, move it to DIY, then repeat the same process again. I think that would minimize your costs overall.

      However, as for the robo-portfolios that help you invest in individual stocks with higher fees seems like they are offering active management to me – as rarely do active management outperform passive management when you take into account the fees in the long term – so I would personally stay away from those. So do your own due diligence before jumping in!

      Hope that helps!

  10. Hi FPL!

    Firstly, thank you so much for all your articles. As someone who has just decided to take charge of my finances at the age of 21, your clarity has made everything in the confusing world that much simpler to understand. I am collating a few questions/problems here after reading through many of your articles, I do hope that’s okay!

    I am currently in university, taking a course that would take about 3 more years to complete, and does not leave much room for me to earn actively while studying, so I just have a small sum of money that my parents occasionally contribute to, and from some part-time stuff I’ve done during some holidays. While I occasionally use it to eat out, one of the biggest drains is an insurance linked investment policy that I agreed to when I was naively agreed to when I was younger and my dad was somehow convinced by a friend. I know (from reading your article, once again) that this is a terrible idea but I have no idea how to stop the trainwreck. Should I try to stop it or just let it flow, since my dad has agreed to cover the cost himself?

    Secondly, I want to put in a small amount into some hands-off investment, which is why I’m mainly commenting under this article. I’m still wrapping my head around the various jargons used here, but from what I understand is that for someone like me, who definitely does not have $8000 per 4 months to get lower fees in the DIY Boggleheads Portfolio, I should use Robo-advisors. My 2 biggest concerns here are risk and minimum-amount. I notice you’ve mentioned minimum balance as $0 and no minimum investment for Robo-advisors in one of your tables, so I’m slightly confused on that point. Do these values depend on the robo-advisors? I will probably not be continually adding money every month, and at the same time I will probably not touch the money invested and hope that the robo-advisor will continually re-invest any dividends. Do you think this is viable, or should I just wait till I start earning to do any form of investment?

    Next, the risk. From your analysis, I see that robo-advisors are pretty self-sufficient, and require little input from me. In that sense, it almost seems like a bank account with a higher interest rate, but I understand that is a very simplified way of looking at it. What would you say is the main difference between a bank account and a robo-advisor, other than the higher returns? Is the increased risk that the robo-advisor’s investments may go horribly wrong really that high?

    One small last question (I’m so sorry!): what are something’s I should look out for when comparing robo-advisors? I’m currently thinking of how long they’ve been around (not sure why this matters, maybe experience?) and any rates involved.

    From the outside, this world of finance and investing seemed like a giant casino, with many of my excited friends saying they put money into GME or Apple as though they were all around the roulette. I don’t want to experience any thrills, and I just want a safe yet decent return that is slightly more than what a bank might give me. Thank you for showing me that’s possible, and I hope that with enough interest, one day I’ll be talking about FIRE numbers and have my own DIY boggleheads portfolio!

    • Hey there Laksh!

      Thank you for reading and writing in! I’m happy to hear that my articles and posts have been helpful for you. First I want to congratulate you for starting so young! You are already setting yourself up for success by doing this research at this early stage even before you finish university – I wish I had done the same! Now, I’ll try my best to answer your questions:

      On your insurance-linked investment, I wouldn’t stress too much about it as it’s usually still better than doing nothing with your money – just unlikely that it would be better than simply investing in index funds. The least effort approach, as your father has agreed to cover it, is to keep it and then figure out what to do with your own funds separately. If you’d like to really consider canceling it and move to a “buy term insurance and invest the rest” approach, then you’d have to really assess the cost-benefit between the 2 – like how I did so in my insurance post. You’ll need to look at how much you’re paying, how much coverage you’re getting, what the estimated returns you’ll be getting, and how long you have already sunk into the plan – which will determine when you’ll break even. If the amount that is being paid into this insurance-linked policy isn’t much (like no more than $2,000 a year) and the coverage is low then I wouldn’t worry too much about this and continue with it and view it as a bond / low-risk component. Then once you’re out of university you can top up your coverage with a term plan and invest your own funds into equities.
      Yes the values will depend on the robo that you choose. There are definitely robo-advisors that allow you to park your funds with relatively low costs even if you don’t transact or buy often – though their minimum requirements differ. Do you have some lump sum that you can park into the robo-advisor? I would post your specific situation on Reddit at the singaporefi subreddit (https://www.reddit.com/r/singaporefi) to get some inputs on which robo-advisors fit your situation the best. I am definitely not an expert on specific robo-advisors and each of their specific requirements, but the subreddit always has people who have the knowledge to share – then you just have to do your due diligence to validate that your chosen robo-advisor is the best one for your situation. One suggestion that another reader of my blog has given was to start with robo and continue to add funds until you hit the S$8,000 then move that amount to DIY (since robo does not charge transaction fees.) Then rinse and repeat – using the robo as a low-cost way to consistently invest lower amounts on a monthly basis – then once you hit a large enough sum, move that amount in one shot to DIY to reduce the management fee. That could work well once you’ve found your robo of choice.
      Robos are definitely not like a higher interest bank account. Robos help you invest your money into the stock market which comes with risk. Though the amount of risk depends on how the robo invests your funds. By investing in the stock market you are exposing your money to the volatility of the stock market and that has risks. Stock markets can and will go up and down, sometimes by a lot, as demonstrated by the COVID-19 drop last year. So it’s not like a bank account, because bank accounts – by their definition – are almost no risk. You’re keeping money in cash and the bank is tasked to keep it safe and the funds are insured to a certain amount. Due to this virtually zero risk nature, you’re not going to get much returns – which makes sense. The more risk you are exposing your funds to, the more opportunities for increased returns, but also the chance of making a loss. Before you start investing, I’d suggest you understand what it means to invest – maybe this introductory post I try to write will help get you started (https://www.firepathlion.com/a-bet-on-humanity-why-index-investing-works/) – basically the more companies you hold in your portfolio, the lower your long term risks are – but you need to ensure you are holding for the long term.
      There are lots of things to think about when looking and assessing which robos you should go with, all of them are quite important, but I’ll list them in my order of importance: investment strategy (do the invest in a diversified enough and passive way), management fee (is it low), are your money protected (where are your funds held? how are your accounts maintained with the robo? are the funds insured? If the robo goes out of business, are your money kept separate from the robo’s own money?), how easy is it to withdraw funds and transfer funds in? Though I think going with the more popular and reputable ones should be safe – like Endowus, StashAway, MoneyOwl, Syfe – though they all have different investment approaches, so do look into that in detail.
      It’s definitely wise of you to stay away from the meme stocks and the flavor of the week investments – those are certainly akin to gambling. You can get rich overnight, or lose it all, there isn’t a way of predicting it. If you are looking for a surefire way to build long-term wealth then consistent and diligent long term investing in a diversified portfolio of global equities is the way – whether it be via robo-advisors or DIY.

      Good luck!

      • Thank you, thank you, thank you so much! This reply cleared up everything I wanted and more. I’ll think about what you’ve said!

  11. Hi FPL,

    Am a little late into the FIRE game(am 30 so my investment horizon is still about 25-35 years to go) but have been reading up here and there. Based on this, it’s evident that the DIY route is the way to go.

    But as I don’t have a large amount to invest every month(maybe 1k?), and it will take quite a long time to hit that minimum 8k to minimize fees, would like to ask what are your thoughts on the following:

    Putting the amount(e.g 1k) inside Endowus under a mix of single fund portfolio(s)(0.3% fees) or advised portfolio(0.6%) monthly, then on a yearly or 1.5 year basis withdraw 10-20k and transfer it to a DIY solution.

    Would it be feasible or would it be better to just suck it up and save for longer periods before putting in large sums each time?

    Really appreciate your efforts into penning these articles to help the average new investors get their feet wet into this.

    • Hi J! Thank you for reading and I’m glad that my blog has been helpful!

      Your strategy is a very valid one in order to reduce your transaction cost and at the same time deploy your funds as soon as you have them. I would choose the most aggressive portfolio for Endowus so that your funds are exposed to the equities market while it sits in Endowus then once you have enough in the portfolio, you can transfer it over to DIY as you planned. Just make sure that if you sell out of Endowus, you are not tempted into waiting to deploy it back into DIY. You’ll likely feel like the portfolio has been doing very well in Endowus and if you sell from Endowus the market will continue to go up (missing some gains) or the market drops (lucky) but then you wonder if it will keep going down (so you want to wait it out – which is basically market timing.) You’ll run into those dilemmas so you should have a strategy that you’d stick to. If you sell, the best action would be to immediately buy in DIY once the funds become available and not overthink the timing too much, cuz it can lead you down the rabbit hole of second-guessing your decisions.

      Good luck!

  12. Hi!

    Your blog has been an immense source of information in my starting journey in DIY investment – thank you for all the time and effort taken to provide information to budding investors.

    I was going through this post where I saw that it was mentioned that robos are more expensive in fees after the 4 year mark and when the portfolio gets large enough. For the latter, I guess it’s because of the management fees for robos. Is it possible to provide a figure for when the portfolio gets large enough – assuming 0.8% management fee? Thank you in advance!

    • Hi A! Sorry it took so long to get back to you! Thank you so much for the kind words, I’m glad that my blog posts have been helpful for you. It has truly made my day.

      As for the roboadvisors, the best approach that I’ve suggested to other readers is that due to their 0 transaction costs, you can invest lower amounts over time to help get you started and once you’ve hit a certain amount within the Robo, transfer that amount over to your brokerage and buy Index ETF. This way you’re able to invest smaller amounts with no transaction costs and also don’t keep too much in the Robo so you minimize the amount that is being charged higher management fee as well.

      The amount you would need to save in Robo before transferring will depend on your brokerage, but I believe the one recommended by the FIRE community here has been IBKR – so you should check them out. They apparently have the lowest fees – but I’ve not used them personally (mainly due to laziness to switch.)

      I hope that is helpful!


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.