It seems almost customary for bloggers to do a blog post every time the market is in distress. The “flash dip” over the past two days spooked some investors.
The grapevine was that some folks initiated withdrawals from robo-advisors, which caused them enough concern to make Facebook posts and videos. I don’t know how true that is. To me, it is a sad reflection of their thought process, or lack of it, when they decided to invest.
Crash Strategy For Robos : Less Than 25% Drop
I think it is the first time I’ve written on the crash strategy specifically for robo-advisors given that they are so new. Hypothetically, if the market crashes tomorrow, and STI or S&P 500 experienced a 25% or more drop, what would I do?
Within the first few days of initial impact (assuming a sustained 5% drop per day for entire week of five days) robo-advisors equities and bonds rebalancing thresholds would most likely be breached.
The first round(s) of automated portfolio rebalancing would have taken place assuming that there is no issue with underlying ETFs liquidity. No activity on my part is required initially.
Crash Strategy For Robos : More Than 25% Drop
If the situation escalates to the stage whereby the STI is around the 2,000 to 2,500 range (more than 25% drop, and this implies that the global market would be in bad shape too), I would adjust my robo-advisors risk profile to the maximum from its current moderate/high settings.
This means a portion of safer assets like bonds would immediately be divested by my robo-advisors to purchase even more equities. For future monthly or quarterly injections, a higher percentage would therefore be used to purchase equities in comparison to bonds. If the poor market conditions persist and I can afford it, I may increase the amount of my monthly/quarterly funds injection.
Robo-advisors, perhaps with the exception of investors who have set their risk profile to the lowest, would be routed during market crashes. This should be obvious.
Investors have to understand that robo-advisors are a long term play. For most, their best move is to simply do nothing and keep making scheduled funds injection. This will ensure that they keep investing at low prices.
Easier said than done? Perhaps. Whether a person have it in him or her, we’ll know when the time comes.
P/S : No need for guessing. I picked up a tiny bit of REIT, a certain telco and a bunch of coins over the past few days. Maybe I should hope for a larger sale in time to come.