$$$ KPO and CZM $$$: StashAway Clarifications - Reward-to-Risk Ratio

Friday, November 17, 2017

StashAway Clarifications - Reward-to-Risk Ratio

I received an email titled as above from Freddy Lim (Co-Founder & Chief Investment Officer of StashAway) a few days ago regarding my previous blog post - StashAway - October 2017.

In the monthly update, there is a section "StashAway VS STI ETF" where I attempt to track and compare the performance of our StashAway investment with that of either STI ETF through different platforms. The rationale is that I have no way to compare the performance of the different robo-advisors but I can certainly compare it with both the STI ETF. The difference in performance would be the opportunity cost one would be experiencing for choosing any of the 3 investment options.

Below is a screenshot of his email:

Freddy states that a better comparison is to include risk/volatility of the asset using Reward-to-Risk Ratio. In his calculations, he provided the annual volatility for each asset, pro-rated them based on the holding period to arrive at the Holding Period Volatility and divided the returns I have computed (Holding Period Returns) with his figures.

Reward-to-Risk Ratio = Holding Period Returns / Holding Period Volatility

I quote, "For a given dollar of risk taken by investors, StashAway's P28 has produced 1.7 times the amount in returns. This is significantly higher than the two STI tracking ETFs which returned 1.25 and 1.27 times of risk taken". That certainly sounds logical but the question is how do I get/compute the annual volatility of each asset. So I responded to his email and Freddy was kind enough to provide the following explanations:

Unfortunately, KPO is not rich enough to subscribe to Bloomberg to get such information and his Maths is not good. Fortunately, I am a Friend of StocksCafe, so I shall try my luck by submitting a new feature request to Ph.D. Evan. Hahahaha.

Meanwhile, I have updated the spreadsheet - KPO & CZM StashAway Portfolio VS STI ETF to include the Reward-to-Risk Ratio using the above values provided by Freddy.

I would like to emphasize that the returns computed in the spreadsheet are too short (3 months) to be meaningful. I would say the same even 1 year later. 10 years later would be ideal but who knows if I will still be blogging then. lol. We know that in theory asset diversification will provide a higher return in the long run. Even a simple, 60% stocks 40% bonds would beat a 100% stocks allocation in the long run. The question is how long is considered long? We also know that high risk gives a higher return and vice versa but can we have the best of both worlds (minimum risk and maximum return)? This is what I hope StashAway will be able to help us achieve.

At the end of the day, I am doing this for 2 reasons - out of interest/hobby to track and see our investment grows and to report to my boss (CZM) since I am the one that persuaded her to invest our mutual fund (KPO Investment Fund) into StashAway.

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  1. Hi KPO,

    Seems like StashAway is a pretty decent option for passive investing considering the returns and the "lower risk"!

    1. Hi sleepydevil,

      Thanks for dropping by from Japan! I am guessing the Japan traffic is from you. Hahaha. It looks like it for now but we need a longer time to conclude :)

    2. Haha. Bingo :p

      Opps. I forgotten about the 'audience' function under Stats. Gosh. You'd have know that I'm peeping at you !!!!

  2. After reading your blog, i have also ventured into robo-trading as a form of geographical diversification. Only time will tell how SA will yield *finger cross*

    1. Hi stephen,

      Thanks for dropping by. Glad that my blog has helped you in making that decision :) *finger cross* too. Hahaha.

  3. Hi KPO,

    Recently my friend discovered Stashaway so he was asking me, am I interested to invest using StashAway platform. I have totally no knowledge about stock, and I think my friend too. As I had taken a look on his account it only $4 of total deposit, as far as I know $4 are way too small to earn any money, shall I ask him to stop? As I don’t see any potential by investing only $4 as of now...


      Feels like I am providing consulting services. lol. I will say no amount is too small, if your friend earns 50 cents, you may laugh at him but there is a 12.5% return (hypothetically).

      The important thing is to take the first step, start reading up more and make your money grow!