How Automation prevents you from opportunities to make questionable decisions

I share with everyone yesterday my experience from why I decide to replace my more expensive term policy with a cheaper one.

A lesson that wasn’t so obvious was what initiated the change.

Notice that I was paying my premium for 10 years when the bill came annually.

I reflected during this last session whether I am doing the right thing.

Think about this. If you are regularly buying into a low cost exchange traded fund such as the STI ETF, you will need to login to your brokerage account and key in a buy transaction monthly, quarterly or semi annually.

This seems OK if the market is doing well or doing nothing. When the market is down, every time you want to systematically buy, you go through that round of reflection or rationalization (depending on what you call it) of whether you are doing the right thing.

You start thinking “the market is going down more, let’s wait for it to go lower and then buy”.

When the market is up a lot you start thinking ” prices are getting frothy, perhaps I should scale back”

When human needs to make these decisions, every round becomes a trial and tribulation. The benefits of systematic dollar cost averaging fails to happen because our fear overrides that.

Automation perhaps helps a lot because it allows the investor to by pass the chances of us needing to go through these trials.

If my insurance premium were paid in GIRO, I might not have a chance to take the hard action to cancel.

This is where unit trust is somewhat better in that you can have a regular savings plan to automatically deduct your money and channel into the fund. You can also do that with your insurance endowments.

The POSB Invest saver let’s you automate and invest in a basket Singapore’s blue chips via the STI ETF via GIRO but its cost is 1%. The costs are much higher compare to the 0.5% of brokerages. (Read Why you should build wealth passively with POSB Invest Saver)

Cost matters in the long run (think of it as paying 2.6% on your HDB mortgage versus paying 3.6% and how your interest loss compounds over time) but sometimes I felt staying on the program is better than that.

Automation perhaps help you continue to channel money away from expenses and into wealth building, which otherwise you would not have done, had you pulled out halfway. You earn ‘returns’ from not spending it on frivolous things and although you won’t know if your returns are big small or negative, you end up at a better place than you would had you spend it.

Automation isn’t always the magic pill, you have to make sure that what you automate is fundamentally sound.

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Kyith

Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.

Readers also follow Kyith to learn how to plan well for Financial Security and Financial Independence.

Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.

You can view Kyith's current portfolio here, which uses his Free Google Stock Portfolio Tracker.

His investment broker of choice is Interactive Brokers, which allows him to invest in securities from different exchanges all over the world, at very low commission rates, without custodian fees, near spot currency rates.

You can read more about Kyith here.

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