{"id":17531,"date":"2021-11-09T19:00:00","date_gmt":"2021-11-09T11:00:00","guid":{"rendered":"https:\/\/www.comparehero.my\/blog\/uncategorized\/should-you-use-robo-advisor-to-invest.html"},"modified":"2026-03-26T16:00:28","modified_gmt":"2026-03-26T08:00:28","slug":"should-you-use-robo-advisor-to-invest","status":"publish","type":"post","link":"https:\/\/www.comparehero.my\/blog\/investments\/should-you-use-robo-advisor-to-invest.html","title":{"rendered":"#InvestInsights: Should You Invest Via Robo Advisors In Today\u2019s COVID-19 World?"},"content":{"rendered":"\n

What exactly is a robo-advisor and how can you benefit from it? Is investing via a robo-advisor really wise especially during this pandemic? In this article, you will learn what robo-advisors are, how they actually work, the list of robo-advisor platforms available in Malaysia, as well as the pros and cons of investing via robo advisors. Read more to find out!<\/strong><\/p> \n

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There\u2019s really no way of escaping robots  \u2013 we see it in complex tasks like precision agriculture with drones to more mundane daily tasks like Alexa or Roomba. In fact, society has progressed so much to the point where robots can even help you with your finances.<\/p> \n

So it wouldn\u2019t be surprising if an image of robots rummaging through your finances was the first thing that sprang to mind when thinking of robo-advisors.<\/p> \n

But robo advisors are not really<\/em> robots.<\/p> \n

Instead, robo-advisors are software products powered by algorithms that allow one\u2019s portfolio management to be automated.<\/p> \n

A by-product of the rise of Artificial Intelligence and automation, robo advisors are a relatively new concept in Malaysia \u2013  they first landed on local soil in November 2018, in contrast to more established robo-advisors like Betterment and Wealthfront in the United States, that have been taking the market by storm since the latter\u2019s launch in 2008.<\/p> \n

The first ever robo-advisor, Betterment, has managed a total of RM92 billion in assets under management (AUM), while Wealthfront is not too far behind with RM83.3 billion in AUM.<\/p> \n

So it\u2019s clear that a lot of people<\/em> are utilising these platforms globally.<\/p> \n

Surprisingly, though the technology behind robo-advisors sound revolutionary, they are not exactly that new as human wealth managers have been using automated portfolio allocation software \u2013 and were the only ones who could buy the technology \u2013 since the early 2000s. It wasn\u2019t until 2008 that the software became more accessible to the masses.<\/p> \n

We spoke to leaders from three robo-advisors (StashAway, MYTHEO and Wahed Invest<\/strong>) in Malaysia to understand how robo-advisors work, and get a better grasp of their platforms and the general landscape in Malaysia.<\/p> \n

Understanding robo-advisors \u2013 what are they?<\/h2> \n

Robo-advisors, according to Investopedia, are digital platforms that provide automated, algorithm-driven financial planning services with little to almost no human supervision.<\/p> \n

In other words, you get to manage your investments digitally without the need to consult a financial advisor because, in a way, they are the digital equivalents of traditional advisors.<\/p> \n

The key difference between robo-advisors and traditional financial advisors is that they utilise data and technology to deliver automated and personalised portfolio management.<\/p> \n

\u201cI would say we\u2019d prefer to be referred to as a digital wealth manager, but we do use technology to deliver automated, personalised portfolio management for each client’s individual portfolios,\u201d Wai Wen Wong, Country Manager of StashAway told CompareHero.my.<\/p> \n

Other accompanying services like asset rebalancing or reporting monthly statements are also delivered digitally through the app, Mohd Izzat Fadhli, Executive Director of Wahed Malaysia, told CompareHero.my.<\/p> \n

\u201cUsually back in the olden days, you would have a person as a financial advisor and that person would understand your needs and risk tolerance, and would then recommend a certain type of investment for you to invest in,\u201d Mohd Izzat said. \u201cNow take everything out of that equation and think of it being done digitally.\u201d<\/p> \n

How is it possible for robo-advisors to recommend certain portfolios over others?<\/h2> \n

Most robo-advisors would recommend portfolios using passive indexing strategies optimised with some variant of the modern portfolio theory (MPT), a mathematical framework of assembling a portfolio. This method allows risk-averse investors to maximise returns based on a given level of market risk.<\/p> \n

The methodology of most robo-advisors follows an index fund or takes a passive investment approach, because research tells<\/a> us that it\u2019s difficult for actively managed funds to beat market indexes anyway. The goal of passive investing isn\u2019t to beat the market but to replicate a specific benchmark or index in order to match its performance.<\/p> \n

For instance, StashAway uses the proprietary investment strategy, ERAA\u00ae (Economic Regime-based Asset Allocation), an enhanced version of MPT, Wai Ken said, as it also addresses external economic forces, which ultimately drive asset class\u2019 returns, volatility, and correlations.<\/p> \n

When combined, Wai Ken said, ERAA\u00ae\u2019s three pillars: Economic Regimes Determine Asset Allocation, Risk Shield, and Valuation Gaps, can deliver a macroeconomic portfolio management strategy that minimises risk and maximises returns for personalised portfolios across any economic environment.<\/p> \n

Wahed Invest uses MPT and optimises the investor’s portfolio with Shariah-compliant investments while MYTHEO uses a proprietary algorithm to analyse the investment needs of each customer.<\/p> \n

Most robo-advisors stay away from engaging in securities selection, and refrain from using actively-managed funds as several long-term studies<\/a> conclude that asset allocation is responsible for between 80% and 96% of a portfolio\u2019s return profile.<\/p> \n

The opposite of passive management is active management which involves frequent buying and selling of stocks in an effort to outperform a specific benchmark or index \u2013 these portfolios tend to target superior returns but take greater risks and incur larger fees.<\/p> \n

\u201cThe way traditional investment managers work \u2013 and even current \u2013 is by offering active funds to investors, and they then try to beat a certain benchmark. Active management means the fund managers would always try to pick the best stocks,\u201d Mohd Izzat said.<\/p> \n

\u201cBut safe investment simply means you\u2019re growing your wealth according to the market and not trying to beat it because \u2013 beating the market isn\u2019t easy. Studies have shown that only 20% of active managers beat the benchmark, and they are not consistent about it. So what this is telling you is that it\u2019s probably better to invest alongside the benchmark,\u201d he added.<\/p> \n

The latest SPIVA U.S. Scorecard<\/a> shows that 70% of domestic equity funds lagged the S&P Composite 1500\u00ae<\/a> over the one-year period, the fourth-worst performance since 2001, this clearly shows us that active management is difficult because it\u2019s hard to beat the market.<\/p> \n

Robo-advisor landscape in Malaysia and its potential<\/h2> \n

What sparked the birth of robo-advisors in 2008 was the global financial crisis, and the plunging of the stock market \u2013 this prompted investors to consider passive investment vehicles, and it was the bull run of 2009 that led to the birth of the first ever robo-advisor, Betterment, a year later.<\/p> \n

Today, there are around 200 robo-advisors in the established and mature United States market \u2013 compare that to the burgeoning market in Malaysia, there are only a handful of licensed robo-advisors.<\/p> \n

\u201cWe definitely have seen many Malaysians become more aware of robo advisors. In most APAC countries, people with less than US$1 million have no cost-effective solution to invest intelligently,\u201d Wai Ken said. \u201cOne of the outcomes of this situation is that Asian households have unbalanced portfolios with too much cash.\u201d Robo-advisors like StashAway, he said, solves these issues and makes it simple and cost-effective to invest intelligently.<\/p> \n

\u201cWith a direct B2C approach, we empower our customers to reach their financial goals sooner by making investing more accessible and enjoyable,\u201d he added.<\/p> \n

The robo-advisor market is expected to grow even further \u2013 a report by Infosys predicts that assets managed by robo-advisors are projected to increase to US$16 trillion by 2025 from US$0.3 trillion in 2016.<\/p> \n

In terms of the Malaysian market, Wai Ken said they do foresee more players entering the market, especially as more Malaysians start becoming more accustomed to the various offerings. \u201cWe will continue to focus on improving our clients\u2019 experience with us. It is natural that the industry will consolidate in the coming years and we think we are well placed to lead the push for the industry to evolve,\u201d he said.<\/p> \n

The growth of robo-advisors in Malaysia, Mohd Izzat of Wahed Invest said, is also expected to grow in tandem with the shift towards digital alternatives.<\/p> \n

\u201cThis shift (to digital) is not just happening on the investment side. Bank Negara, for instance, released a framework for digital banks, so you\u2019ll see a convergence in financial institutions, a hybrid between digital and traditional, especially in terms of onboarding and getting clients, it will shift more towards digital,\u201d he said.<\/p> \n

But more importantly, the growth of robo-advisors in Malaysia is part of the country\u2019s overarching aim to promote financial inclusivity among its citizens, and to allow investing to be more accessible to the masses through digitisation, particularly to those who can\u2019t afford traditional investors because of the high fees, Ronnie Tan Tai Ngee, CEO and Managing Director of MYTHEO told CompareHero.my.<\/p> \n

\u201cAccording to research, 1 in 3 Malaysians are low in financial knowledge, and there are about eight million millennials in Malaysia \u2013 a lot of them who don’t understand investment yet,\u201d Tan said.<\/p> \n

\u201cOnly the fortunate and rich can afford a wealth manager to guide them \u2013 but how many people can afford such services? And how many financial advisors can actually reach out to all Malaysians to ensure financial inclusiveness? That\u2019s where robo-advisors come into the picture. And the credit goes to the authorities and the Securities Commission (SC) for having this far-sighted vision.\u201d<\/p> \n

One way to achieve financial inclusion, Tan said, is to make investing more affordable and to be convenient for people \u2013 exactly what robo-advisors aim to do.<\/p> \n

So how do robo-advisors work?<\/h2> \n

Well first, you\u2019ll need to download the mobile application either through Google Play or the Apple Store.<\/p> \n

Upon entering the app, the user will be asked a series of questions about their resources and financial goals, then the robo advisor will decide how to invest the client\u2019s money.<\/p> \n

To better understand you as an investor, these questions will usually touch on subjects like investment timeline, risk tolerance, and savings. Then the answers are run through an algorithm-based AI to determine the asset allocation and build a portfolio of diversified investments that are most aligned with the investor\u2019s goals. Different platforms would have different methodologies but most are based on MPT.<\/p> \n

The software can also automatically rebalance a portfolio to ensure that it remains close to the target allocation, regardless of asset performance or if the investor makes tweaks to his or her portfolio.<\/p> \n

Regular contributions in the form of small weekly or monthly deposits are encouraged to make sure the contributions can maintain their target allocation and keep the investor on track to achieve their goals. The portfolio would also be monitored to ensure that the optimal asset class weightings are maintained.<\/p> \n

Unlike traditional advisors, robo-advisors depend on the algorithms to create, diversify and rebalance an investor\u2019s portfolio. The asset allocation will heavily depend on the type of robo-advisor you\u2019re using but most would typically include exchange-traded funds (ETFs), cash and gold.<\/p> \n

\u201cETFs are good instruments (for passive investing) because they are well-diversified \u2013 similar to mutual funds except they are listed on the stock exchange and the liquidity is there so you can get in and out,\u201d Tan of MYTHEO said. \u201cSo you\u2019re investing in a pool of stocks rather than an individual stock.\u201d<\/p> \n

About 6,000 ETFs are currently listed on stock exchanges all over the world and they are widely used by institutional and individual investors, with most ETFs being linked with indexes such as stock price indices and many ETFs correspond to specific asset classes, according to a whitepaper by MYTHEO.<\/p> \n

These features of ETFs make it possible for investors to invest in a diversified range of assets such as stocks, bonds, REITs (real estate investment trusts) and commodities (goods) at low cost.<\/p> \n

\u201cWe build our customers\u2019 portfolios with a carefully selected assortment of highly diversified, liquid and low-cost ETFs,\u201d Wai Ken said. \u201cThese index-tracking investment tools enable our customers to gain diversified, long-term exposure to a variety of asset classes and geographies.\u201d<\/p> \n

Read also: <\/strong>#InvestInsights: Should You Start Investing During A Recession? An Expert Weighs In<\/a><\/p> \n

List of robo-advisors in Malaysia<\/h2> \n

1. StashAway<\/h3> \n

Founded in and based in Singapore, it is the first digital investment advisory platform (or commonly known as robo-advisor) that got a license from the SC in November 2018 to operate in Malaysia. Unlike other platforms, there are no minimum deposits to start investing with StashAway<\/a>.<\/p> \n

Other key features include generated annualised returns ranging from 11.6% for its highest risk portfolio and 4.3% for its lowest risk portfolio since it launched in July 2017, according to Wai Ken.<\/p> \n

He also pointed out that all core growth-oriented portfolios have outperformed their respective same-risk benchmarks.<\/p> \n

They are backed by Eight Roads, the global investment arm of Fidelity, as well as Square Peg,  one of the largest venture capital funds in Australia, in a recent funding round.<\/p> \n

Their products include their flagship global portfolios, income, StashAway Simple (cash management product), and a 50% Shariah version of their global portfolio.<\/p> \n

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Image source: StashAway <\/em><\/p> \n

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Image source: Keflah <\/em><\/p> \n

We tried it out using a 10% risk portfolio, considered relatively conservative, and the assets we were recommended included ETFs from the United States, international ETFs, bonds, commodities (gold) and cash.<\/p> \n