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Automatic investment – why is it worth using this feature? 2020-12-08

Automatic investment – why is it worth using this feature?

Automatic investing is a convenient and modern investment tool, unfortunately, not everyone is familiar with it yet. We share insights that help you understand the added value of automatic investing and ways to get the most out of this tool.

Benefits that investors lose by not having or not setting up an automatic investment:

  • Time. Manual investment takes up a significant amount of time that can be spent analyzing the results already achieved or optimizing an existing strategy.
  • Possibilities. Without auto-investment proposal, you do not participate in the investment "auction", where investments of the respective rating usually have significantly higher interest rates.
  • Overtaking rankings is tricky. All the criteria people use to create auto-investment proposal are already included in the same credit rating. Thus, investors usually emphasize one criterion and do not evaluate another, which leads to an incorrect assessment of risk.
  • The return indicator XIRR includes only historically employed funds. Therefore, a significant account balance is not included in the overall result. As a result, by employing all the funds, even generating a lower historical result for the XIRR indicator, you can earn more in the amount that an investor usually always seeks.
  • Competition. Other investors get better offers than you, because all offers are "eaten" by auto-investment proposal.

The potential benefits of automatic investing are also clearly outlined in the November investment results. During November, the average interest rate on the A + rating was 7.07%. This means that investors who asked for higher interest rates received significantly less bids and this was likely to have resulted in all funds not being invested. For this reason, interest rates should be renewed and interest rates reduced in order to get better deals. In the graphs below, you can see the automatic investment proposals settings of all NEO Finance investors based on the minimum interest rate - investor expectations and the current market situation, as well as the proportion of auto proposals that do not correspond to current market conditions and miss most investment offers.

Average interest on last month's investment grade A + credit rating: 7.07%

Average interest rate on the A credit rating of the previous month: 9.66%

Average interest rate on last month's investment grade B credit rating: 14.92%

Average interest rate on last month's investment grade C credit rating: 19.39%

How does automatic investing work?

The automatic investment function allows investors to pre-select the criteria on the basis of which they will invest in loans. When a new loan offer appears, the system automatically checks the auto-investment proposal criteria and, if there are funds in the account, invests in the loan based on the selected criteria. Automatic investment proposals are determined by the general circle of investors.

When borrowers choose to receive an instant loan, priority is given to:

  • For investors with an automatic investment proposal with the lowest AIR (annual interest rate);
  • Based on when the automatic investment was created, the priority given to the ones created earlier.

When borrowers choose to place a loan announcement on the stock exchange, priority is given to:

  • If the credit meets the concept / criterion (s) of good credit, priority will be given to proposals that have not yet invested in good credit. Good credit - average AIR (annual interest rate) of loans financed during the last 30 days (according to ratings) + 3%. For example: A-rated interest is 10%, then A-rated good credit would be from 13%. Good credit criteria are updated daily. When investing in good credit, the fact of the investor's investment is taken into account, but not the fact of automatic investment. Multiple automatic investments won’t give investor any superiority to invest into good credit.
  • Based on when the automatic investment was created, priority given to the ones created earlier.

If several automatic investment proposals meet the criterion referred to in the first point, then the second criterion, etc., is additionally assessed.

Common mistakes when creating an auto-investment proposal:

  • Proposal settings are chosen completely different from those you choose for manual investments.
  • Attempting to bypass the ranking by adding additional criteria. All criteria are already rated. The settings that most affect you are: Rating, minimum interest amount, and maximum amount invested. All remaining settings reduce your ability to invest efficiently and distort your risk assessment.
  • Maximum amounts too small. Successful portfolio diversification requires splitting into at least 100 units. This means that with a portfolio of € 10,000, the size of the investment should not exceed € 100. With more than 200 pcs. investment portfolio diversification no longer has a mathematical effect in theory.
  • The amount invested in the previous month according to the established criteria is not taken into account. When creating an automatic investment, you can always see how much of the investment was invested last month based on your criteria. It should also be remembered that these are only historical results, and more than 12,000 thousand active investors claim the amount invested.
  • Automatic proposal results are not being reviewed. The market is constantly changing, so you should review your automatic investment settings and results on a quarterly basis and tighten or loosen your investment rules accordingly.
  • No help requested. Investing is always associated with risk, so having the information and evaluating it properly is very important. Contact NEO Finance's investment specialists and they will explain to you in detail the automatic investment criteria, the possible impact of the relevant criteria, which will allow you to choose the most suitable automatic investment criteria according to your needs.

Please note that all information provided is for informational purposes only and should not be construed as investment advice or recommendations. Before making investment decisions, carefully evaluate all the risks associated with the investment, which may lead to the loss of some or even all of the invested funds.

published:
2021-01-17
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