Investing Product Review

Using RoboAdvisers to Buy in Gloom

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Investment markets are driven by people and people tend to herd together (like a flock of sheep), particularly during uncertain times.

Here’s how you can use the herding mentality to your advantage with low cost robo-adviser platforms.

This is NOT a product endorsement, this blog is a factual investment strategy review based on the facts that are available at the time of writing, intended to inform and entertain

Buy in Gloom Strategy

Buy in gloom is one part of the larger strategy, buy in gloom, sell in boom.

This is a strategy that Warren Buffett recommends:

‘Be Fearful When Others Are Greedy and Greedy When Others Are Fearful’

Warren Buffett

The buy in gloom strategy works because you are buying investments during a period when prices are low, and history has shown that asset prices eventually recover.

CHART: US Magazine Business Week Claiming the Death of Equities

Magazine Covers - The Death of Equities

You should also be ready to follow the other part of the strategy, which is to sell in boom. If you get a feeling that investment markets have become too heated it may be a good time to take some profits.

CHART: Books Released During the Tech Boom in the 1990’s

Magazine Covers - Dow 40,000

Low cost investment platforms, that allow you to regularly invest (even with small amounts) are best used in conjunction with the buy in gloom strategy (think robo-advisers like Acorns, Stockspot etc).

Using Buy in Gloom with Regular Invesment

A good way to use a low cost robo adviser is to setup to a regular monthly contribution from your savings account.

If the market starts to look shaky and the media is getting gloomy, then consider increasing your monthly savings amount to take advantage of the panic (which causes a sell off in the markets).

On the flipside, if the market looks too heated, perhaps you want to reduce your monthly contribution, or even take some profits off the top of your portfolio.

A Gloomy Time

In recent history, there was no gloomier time than when Lehman Brothers, the US financial services firm, filed for bankruptcy and threatened to collapse the global financial system.

 

lehman-brothers

 

Of course, fast found to today and the world didn’t end on the 15 September 2008 as many predicted.

So what would have happened if you followed the buy in gloom strategy?

The Strategy in Action

To demonstrate this strategy in action with real returns, we will commit to a regular investment plan starting 1 month after Lehman Brothers collapsed

The investment plan is to commence from a standing start by contributing $1,000 each month from 15 October 2008 for a total of 12 months – making a total contribution of $12,000.

RoboAdvisers such as Stockspot & Acorns weren’t around in 2008, so we have used the Vanguard Growth Index Fund as a proxy of a low cost diversified index portfolio to show how this strategy could work.

vanguard-growth

 

The Vanguard Growth Index fund has a 70% growth / 30% defensive asset allocation.

vanguard-growth-2

Asset Allocation

The Vanguard Growth Index Fund asset allocation would match the Moderately Aggressive portfolio option offered by Acorns (72.7% allocation to shares / property, 27.3% allocation to cash and fixed interest):

acorns-moderate-1

Dividends Re-Invested

We will also elect to re-invest all the dividends, which is the same as what would happen with Acorns.

The investment transaction history will look like this:

dividends

Source: sharesight

Returns

So where would your portfolio stand at different times since you first invested $1,000 on 15 October 2008?

+ Portfolio Value at 15 October 2009

Your $12,000 invested in worth over $13,800.

2009

Source: sharesight

+ Portfolio Value at 15 October 2010

Your $12,000 invested in worth over $14,596.

2010

Source: sharesight

+ Portfolio Value at 15 October 2011

Your $12,000 invested in worth over $14,545.

2011

Source: sharesight

+ Portfolio Value at 15 October 2012

Your $12,000 invested in worth over $16,525.

2012

Source: sharesight

+ Portfolio Value at 15 October 2013

Your $12,000 invested in worth over $19,397.

2013

Source: sharesight

+ Portfolio Value at 15 October 2014

Your $12,000 invested in worth over $21,092.

2014

Source: sharesight

+ Portfolio Value at 15 October 2015

Your $12,000 invested in worth over $23,781.

2015

Source: sharesight

+ Portfolio Value at 15 October 2016

Your $12,000 invested in worth over $25,237.

2016

Source: sharesight

What is the Portfolio Worth Today?

Your portfolio is worth almost $25,500 at the time of writing this blog (29 November 2016).

  • You have beaten the market by over 184% since 15 October 2008.
  • Your portfolio has returned 12.34% p.a.
  • Your portfolio is worth 212% more than what you originally invested.

 

2016-nov

Source: sharesight

Summary

  • Consider the buy in gloom, sell in boom strategy
  • Be prepared to take advantage of gloom using your robo-investment platform
  • Even small amounts invested intelligently can have a huge long term impact on your wealth

 

READER OFFER: Want $2.50 from Acorns to Get Started?

acorns-logo-2

If my review helped you out and you want $2.50 to kick off your Acorns account, click above (*I will also get $2.50 for sharing) 

This blog provides links to third party sites, aimed at helping you gather the information required to make an informed decision – we may receive payment of a commission or other fee for these referrals.

 

The Wealth Guy Signature

Joshua Stega

The Wealth Guy

Joshua Stega is an expert financial adviser and founder of JAS Wealth in Sydney. He specialises in the habits and behaviours of wealth. Joshua has a Masters in Taxation and Financial Planning and is regularly featured in the media

M.TaxFP, LLB(Hons), B.Bus(Acc), FTI, Adv.DipFP, Dip.FP, SMSF Specialist
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you with this. This blog provides links to third party sites, aimed at helping you gather the information required to make an informed decision – we may receive payment of a commission or other fee for these referrals.

 

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