That’s quite good - so much better than cash interest! I assume it includes fees?
However we’ve had a bit of a bull run the last 10 years, but there was a significant dip in 2016 so if you measure from there things look particularly good. Just to pick the first world ETF I found on Hargreaves Lansdown, the return over the last 3 years was 38%, and over the last 5 years was 64%, over 10 years you’d have doubled your money at about 100% return.
Of course you can cherry pick time periods and this is very much abnormal (usually there are some decent down periods too, you might invest at just the wrong time, etc), the point of mentioning this is just to show that it’s hard to measure returns unless you compare to something else, and returns from a simple world tracker with 0.25% total fees are actually really really good, much better than most managed products even over such a short time period, and better without question over decades.
You don’t need a roboadvisor or managed fund to achieve good returns like those you’ve seen, and you don’t need to pay the extra fees or take the risk of picking a fund that goes bad.
The best thing roboadvisors (or some putative S&S ISA product for beginners) could add in my opinion is to reassure customers, stop them taking money out, stop them trying to calculate short term returns, and show them how much their money can grow in the long run if they’ll just leave it alone and leave it invested with low fees. Investors don’t need their funds managed, they need their emotions managed!
i don’t disagree that there are better returns to be had, and someone with more knowledge can have them.
Look at what the Robo-advisers are targeting however. People that have built up some cash savings, and are looking for better returns but do not know about funds or shares how to go about it. You can easily get a half price fee’s over (mine was £15k free for a year) when i signed up, and then a few referrals since then have kept it free). I am now getting far better returns than what my cash savings, with minimal effort.
Sure as i monitor it and become more knowledgable, I may decide to move away to managing it myself. However as it stand I am very happy with what moneyfarm provides me at what i believe to be a very reasonable cost.
There’s a lot of free resources out there and you don’t have to spend hours learning how the market works. I use a passive investment strategy as I am not an expert by any means. You don’t need a robo-advisor if you want something you can set and forget.
Again, you can get free, better advice and follow it with no understanding. If you’re going to blindly trust someone, should it be a company out to make money off your lack of knowledge, selling you an under-performing product, or should it be a collective of fellow investors with your best interests at heart?
I asked about this above, but didn’t get a reply. Do the roboadvisors actually do any of these things? Or if not, how would they go about doing it?
My investing experience started with a robo-advisor. I would say that their only value is introducing, through their marketing efforts, the idea that investing is possible with small amounts. Before I signed up with my robo-advisor, I’d never even thought about the stock market.
After a while, of course, I wised up, did my free research, and am now getting greater returns for less fees.
So I don’t think the likes of Freetrade and Vanguard need to offer robo-like products. They just need better advertising and new-investor “journeys” (mini guides as to what to invest in) that can open up the world of investing to more people.
I agree they don’t need robo-like products, but brokers could take a lesson from roboadvisors in approachable UI and onboarding, emphasis on a single monthly payment, not asking users to pick stocks (very intimidating), let them see the future if they leave their money in, not showing them day to day movements in value. Perhaps even lock in money for a year at a time? All while keeping low fees and the other things which make brokers like freetrade or Vanguard great. This could easily be layered on top of their current offering as a separate ISA product.
It seems to me there’s a huge audience of customers who use roboadvisors who would be better served by simply saving in a global tracker. Many people don’t want to think about stock picking, they just want a better return on long term saving.
This is inaccurate and in fact you are making a prediction that it’s the safest place for your money when it very likely is not.
Putting your money into the global stock market isn’t the safest and has as many risks as other options. And in fact putting all your money in the global stock market could see you losing it all for a significant period of time.
Putting al your money in the stock market is a prediction that it isn’t going to crash and burn while your money is there, it’s just as much a prediction as people putting their money into specific sectors or companies.
Indexed funds, with their generally lower fees (current Japan fund I’ve invested in is 0.18%) are definitely the way forward. Active managers are often riding on luck and struggle to beat the market.
However, I probably wouldn’t put everything into a ‘global’ fund. It would only take an earthquake in Japan, Brexit in the UK or some other catastrophe to drag the whole lot down. I’d split my portfolio between a number or different index funds. A mix of equity funds from different territories, plus a bond/gilt index fund. How much you put in bonds depends on your appetite for risk. I’m going for a 70/30 split between equities & bonds.
Yes, there’s a chance a global downturn will happen, but otherwise you are protected. Better to have one fund making up maybe 20% of your portfolio under perform than the whole lot go down.
I meant “that’s your safest way of investing in the stock market”. And it is. You eliminate your non-systematic risk entirely, and as you note, you gain and lose with the market as a whole.
The only bet you have to make, the only prediction you have to live by, is that, on a long time scale, the market as a whole will rise in value.
Your only practical consideration is that you must be prepared to not need the money in the event of a market crash: you must be able to wait until market recovery, which could take months, or might take a decade.
But if you can wait, and given the truism that the stock market always rises, investing in the entire stock market “guarantees” your investment will recover, and that you will see gains.
Investing in any subset of the stock market does not offer the same guarantee. Which is why I say it’s the safest way to invest in the stock market.
I would class all of these as short term issues when investing. You’re betting that there’ll be more good times then bad over the next 15-20+ years, not the near future.
… that’s not how it works. The sort of global fund people talk about without having to mention it follows an index of all the publicly traded companies in the world over a certain size, weighted by the size of company. What this means is that different regions effectively and automatically have different weightings within the fund.
So let’s imagine that in a global fund, Japan has a weight of 20% (it doesn’t but just to follow your example), the UK has a weight of 30%, and the US has a weight of 50% (just to keep things simple, we’re also imagining there are only 3 countries in the world!).
If Japan has a catastrophic collapse from which it takes more years to recover than you have years left to live (and Japan has suffered like this in the past), in a global fund you effectively lose 20% of your fund. But the other 80% of the stocks that comprise the fund continue doing well, and the money that would have been invested in Japan will be invested in the UK and US instead, boosting those regions. So you gain if UK and US improves. Or maybe in this example, for some reason the UK gets an outsized performance boost when Japan goes down. Since you hold UK, you enjoy those benefits.
If you’ve been picking regions to invest in separately, and you’re picking 1/3rd of the regions in the world, and so in my 3 country world you only pick 1 country, and your pick was Japan, you’ve lost it all. If you only picked the US, you lost nothing, but didn’t get UK’s extra gains. It’s a gamble on a region that carries massive risk.
If Japan was 20% of your manually picked portfolio, you’re no worse off than the person who invested in the global fund. But again, depending on your luck, you might not have chosen the countries that are doing well following Japan’s crash.
If it works for you, great. I don’t particularly want to put all of my money in one fund.
Funds tend to be priced according to the value of the underlying investments. If you buy into a fund bloated with US equities, that some would argue are overpriced, you’re likely to see a correction hitting a significant part of your portfolio.
If I invest in a US equity index fund that only accounts for a fifth of my entire portfolio, my exposure to that readjustment is limited. It also means that, as I’m manually placing buy orders each month, I can buy into the fund that offers the best deal at that time. If one fund takes a dip, I can buy more shares for my money.
If I was investing a lump sum my strategy may be different, but this makes the most sense to me right now.
At the moment I’m a bit heavy on equities, so need to add some bonds, but I’m aiming for 40% bonds/gilts, 60% equities made up of Japan; US; UK; EU; and emerging markets --roughly 12% each. I may add a Pacific-ex-Japan index fund and knock it down to 10% each, but they’re at around £4 a share and growth is slowing. I may wait and see there.
I wasn’t describing “what works for me”, nor telling you what to invest in. I was merely explaining the least risky way of investing in the stock market. A way which will also give you better returns than the vast majority of actively managed funds or manually picked stocks.
This could happen, I agree. It’s certainly an issue to think about. Avoiding the US can certainly be justified due to it, on average, being overpriced right now. I’m not convinced by your particular implementation though. Picking particular regions and equal weighing them means you think that you should buy more of a stock proportionally in small companies from small regions than larger ones. I’m not sure why you would think that.
An alternative strategy would be to find a global-ex USA fund. Or if one didn’t exist, to pick your regions but weight them in your portfolio the same way they’re weighted relative to each other in the global stock market.
In any case, you’re still making a bet on those P/E ratios for different markets accurately predicting the future. And any time you find yourself making bets on your ability to predict the future, you can be assured you are taking more risk.
Nothing wrong with accepting more risk in the hope of getting more reward. As long as you actually understand the risk you’re taking.
Look at the ETFs used by Wealthify, MoneyFarm, MoneyBox, EXO and simply copy them using Freetrade. If there is no exact ETF match then use a proxy. Not entirely easy for the complete novice, I understand. But not that hard either. In fact let’s make a new product… FreeFolio - an app that scrapes all ‘robos’ and shows you how to replicate it for free using Freetrade. Who’s in? Who’s got decent coding skills? Message me.
Interesting to note that sometimes the risk level and fees you think you’re paying for a fund are incorrect as your platform isn’t keeping their regulatory documentation up to date. Freetrade seems to be on this list too. Very interesting to watch.
I just wanted to thank everyone in this thread - there is some fascinating discussion here and I have learned a lot reading through it. Especially intrigued to see the passionate hatred of roboadvisors! I am sheepisly looking a my Nutmeg S&S ISA, upon opening I thought nothing of the 0.75% fee
They’re a great place to start whilst you learn. Time in the market vs timing the market etc, but you can reduce their fees by 2/3’s just by reading a £20 book beforehand.
Just my 2p as I have been with Moneyfarm for 18 months now.
I cannot fault them. I get communications nearly monthly telling me if my portfolio has been rebalanced and the reasons behind it. The ISA is relatively inexpensive and the app easy to use.
I put away montlhy and hopefully I’ll benefit from pound cost averaging.
