Evaluating my 4-year old AutoWealth portfolio and why I’m selling

2 weeks ago, I have sold off my AutoWealth investment portfolio that occupied 80% of my Growth Portfolio to reinvest all the money into a DIY portfolio using Interactive Brokers (I’ll share more on that in a later post).

I want to first clarify that there’s nothing wrong with AutoWealth and its recommended portfolios and you should read on to find out more about why I’m closing my portfolio.

Why I started my investing with robo advisors

When I first started my investment journey 4 years ago, I wanted a simple and automated way to invest in a diversified investment portfolio of low-cost funds. AutoWealth checked all my checkboxes so I signed up with them and started a small investment portfolio consisting of 80% equities and 20% bonds with $5,000.

I funded this investment portfolio regularly every month after my salary comes and coupled with the years of incremental growth in the bull market, that portfolio has grown into a sizeable 6-figure portfolio.

As an investment rookie at that time, I felt that if the portfolio could generate a time-weighted return of 6%. Did my AutoWealth match up to my expectations? Read on to find out.

By the way, if you want to find out more about my AutoWealth portfolio, check out my previous AutoWealth article to find out more about my AutoWealth portfolio

Let’s talk about the portfolio performance

I could simply tell you how the AutoWealth performed on its own but I felt that it doesn’t really provide readers with much context on whether it is good or bad. So I picked a 80/20 Target Allocation Fund by BlackRock (ticker symbol: BAAPX) for comparison.

In case you are thinking whether you should be investing in BAAPX instead, the answer is no. This ETF is a feeder fund that invests all your money into a number of its own funds (BlackRock and iShares) to build up the portfolio and charges a high expense ratio of 0.68% for not doing a lot of work.

I use Stocks Cafe (referral link) to track all my investment portfolios including all my AutoWealth portfolios, so I will use it to present all the comparisons in this article. I have set BAAPX as the baseline stock to compare it with my AutoWealth portfolio.

As I started the portfolio in late 2017, I would ignore the portfolio data from 2017 for this article.

If you may recall, 2018 was a bad year for investors as a whole. The S&P 500 fell 6.2%, the Dow dropped 5.6% and the Nasdaq Composite shed 3.9%, marking the worst annual performance for all three since 2008. After the bad year of 2018, the time-weighted returns between my AutoWealth portfolio mirrors closely with BAAPX and has generated double digit returns from 2019-2021.

Why I’m closing this portfolio

Now you’re probably thinking, if AutoWealth is so good, why am I closing this portfolio and withdrawing all my money?

Let’s talk about that.

AutoWealth will invest their client’s money in a portfolio of ETFs domiciled in US (you can read more about them here). These ETFs are very liquid and have some of the lowest expense ratios in the market. That’s great for young investors who are starting with a small campital, have a long runway and a much lower risk of dying early.

As I get older, the cons of this portfolio starts to become more prominent – estate taxes.

U.S. imposes a 40% estate tax rate on U.S. assets above a $60,000 exemption threshold on assets of the deceased non-residents. That’s a lot of estate tax to think about when your investment portfolio crosses $100,000 where the estate tax would amount to ~$16,000.

You could say that when you pass away, your spouse or children could simply log into your account and sell off your entire portfolio. But that would make them accomplices to tax evasion. I’m not too sure if you would want them to take on the risk of running afoul of the law when you could have done something to your portfolio while you are alive.

That’s the main reason why I am choosing to close this portfolio and reinvest everything in a similar portfolio setup on my own, with some tweaks to not invest in certain countries and asset classes.

So what’s my final verdict on AutoWealth

In a multi-year bull market, almost everyone is making a double (triple for some) digit return year on year with their investment portfolio, regardless of whether they are investing in individual stocks or funds. If we were to base our expectations on investment returns alone, we would probably consider the returns from my AutoWealth 80/20 portfolio to be mediocre, at best.

But if I look back at the me in 2017, a rookie investor (probably still am) who didn’t know enough (probably still doesn’t) about investing to make profitable investment decisions on my own, the returns from my AutoWealth portfolio have greatly exceeded my initial expectation of generating 6% returns each year.

So for rookie investors who are just starting out on their investment journey with a small amount of capital, I would highly recommend that AutoWealth is a good robo advisor to consider building a diversified portfolio with. Their portfolio recommendations are simple and easy to understand, and I love how they don’t try to muck around with your portfolio and errode your portfolio performance like other more well-advertised robo advisors.

So that’s all the update I have for you in this article and please look forward to my later article to find out more about my new portfolio.

Photo by Joshua Mayo on Unsplash