I’ve no doubt they’re doing nothing wrong in isolation. But are you comparing them to other ways of investing your money? Surely “they gave me a terrible return on my investment, compared to the alternatives” counts as a fault?
Shouldn’t the effectiveness of the investment be your primary concern, above how nice the app is? This could be your future life savings, house deposit or retirement we’re talking about. Do you want 20 years of a nice app, or tens of thousands more £?
Moneyfarm don’t have stats and full details for all their portfolios, but the highest performing fund they do have info on (albeit only figures for the last 12 months, not 18) gained 5.55%. For comparison, a less risky investment in a global index tracker did 9.31% in the same time period.
It’s not just the much more expensive ISA fee (maybe a ~0.5% difference depending on the alternative platform you could use) that’s a potential issue, but the much lower fund performance and increased risk.
What kind of research did you do, and what were your conclusions?
Again, for comparison, the global stock market averaged 10.31% over the past 18 months.
Nutmeg being another robo-advisor, your risk profile is similar, the fees may be similar, and the app will be equally modern, just a little different in terms of interface. The primary thing you would achieve by switching to Nutmeg is to essentially switch who is actively managing your portfolio.
So in terms of “how good are they at actively managing portfolios”, Moneyfarm did 3.76% worse than the stock market average in the past 12 months, while Nutmeg did 12.51% worse than the stock market average (with their highest overall performing fund).
Of course the thing about active managers is that their performance relative to each other and to the average will vary every year. Next year, it might be Nutmeg doing well and Moneyfarm with a negative growth.
The only reliable prediction you can make is that over the long term, both of these active managers will under-perform the average due to fees.
My objectives were to invest in pre-created portfolios on a monthly basis until such time that I had a built up a decent lump sum. I’m not saving for anything specific and my term of investment is long term but open ended.
Robo investing piqued my interest due to the portfolios being fairly diversified whilst having reasonable fees.
At this stage I do not want to pick my own funds or stocks as I do not have the time to monitor the investment that often.
I may look into passive/tracker funds in the future as I don’t think active managers can out perform the market to a degree that warrants the additional fees but I do believe that money farm were the best option for what I wanted when I set the ISA up in early 2018.
There is certainly an up-front cost in terms of your time to do research about the stock market, but once you’ve done that and come to the conclusion that your best way forward is to seek the average market return, logic dictates the best way to do that is pick the cheapest index tracker that covers the most companies. There are only 2 main indexes that cover the global stock market, and a small handful of funds that track them. As long as it’s tracking the broadest index and has the cheapest fees, you don’t really need to do much further research beyond that.
Having picked it, you don’t need to monitor it. In fact, with long term investing, it’s usually a good idea to not check it
Yes, the vast majority of active managers under-perform the market, and as noted above, all the robo-advisors definitely do.
As the Freetrade article linked above (great timing!) notes, the 2 main companies providing global indexes are MSCI and FTSE. Each have variants on their global trackers, but the comparable ones are
MSCI World vs FTSE Developed World: these lack most “EM” countries
MSCI All-Country World vs FTSE All-World: these contain EM countries
JustETF have a really good article comparing the 2 companies, but basically they are trying to do the same thing in slightly different ways, and their performance has historically been pretty similar, as expected.
If following the maximal stance of “I want to invest in everything to get the true average and benefit from gains in currently smaller/newer regions”, you definitely want the EM variants.
However, both JustETF and Freetrade only consider indexes for which an ETF exists. Neither cover OEIC funds, which is a shame because the broadest index out there is the FTSE Global All-cap, which includes EM and also small-cap companies. One might tend to expect EM and small-cap to produce outsize-gains in the future, and if not, you’re still getting closer to the average by going this route.
Vanguard offer a OEIC tracker of this index, and it’s the one that I personally invest in, and is widely recommended by others. Their FTSE Global All-cap fund actually has a lower cost than their FTSE All-World ETF.
Freetrade and other new stocks-and-shares only platforms don’t offer OEIC funds, but “traditional” brokers do. Some of them are cheaper than the likes of Freetrade, so you’re not missing out on the fees front anyway.
For automated rebalancing with bonds, Vanguard offer their very popular lifestrategy series.
If doing it manually, you’d typically only rebalance once per year. And if you’re firm and stick with your rebalance and do nothing else once per year, you should do great.
Rebalancing 1 index tracker with 1 bond fund would take a matter of minutes; I’m not sure what “work” you’re referring to?
The roboadvisors ostensibly take you through how much to invest, how long you intend to invest, what your level of risk is, etc.
Now I’m not commenting on the effectiveness of their systems, but you do have to make all those choices yourself if you do it completely in your own.
Plus Lifestrategy has more than 1 equity and 1 bond fund in the portfolio, so strictly speaking you’d need to do a bit more to replicate exactly. Of course, you could argue it’s not worth copying anyway…
So some work for everyone and maybe a lot of work if you can be bothered!
All those questions probably boil down to selecting a fund with a certain percentage of bonds. Vanguard have a similar questionnaire that anyone can fill out right now and it will suggest a percentage for you. Or you can just use a rule of thumb (your age minus 20 == bond percentage).
I think the only thing the robo investors contribute on this front is turn a 1 page online questionnaire in to a multi-page app questionnaire.
Not sure what you mean here. You wouldn’t try to replicate Lifestrategy. You’d just buy it if you wanted robo-style hands-off ease of use with automatic re-balancing.
Filling out the questionnaire and buying the corresponding Lifestrategy fund is precisely as easy and no-brainer as using any robo-investor.
Of if you go for your own global index tracker and a bond fund, you just sell some of one and buy more of the other once per year. This involves some basic math on a calculator and clicking a few buttons on a website or app. Would take a few minutes.
So I’m currently with Nutmeg - whilst I like their app and how they’ve introduced me to Stocks/ Shares and was recommended for the LISA - I’m looking to move away to HL’s LISA - this is purely because I think for the same fees (around about with my current portfolio size) I think my portfolio could probably do better.
But what I can’t seem to find much consensus on is whether I would dump all of my LISA into one tracker fund - for example on HL I’m looking at the Vanguard FTSE Global All Cap Index.
Do you need to mitigate your exposure for example by putting some investment into bonds for instance or are you appropriately hedged by going into an All Cap? (these may come across as very inexperienced ignorant questions but I cant seem to find the exact answer I’m looking for).
EDIT: as a follow on question, one of the pros for Nutmeg is that I can keep adding bit by bit to the S&S LISA every month for instance (up to £4,000 a tax year) and I have no extra charge for doing so1. Say I moved to HL and invested my current portfolio amount into one tracker fund and then in a months time I want to put more into my S&S LISA - would I get charged the dealing charges? The website doesn’t seem to be very clear
1 - other than the overarching % fee taken
Thanks for your help!
The Global All Cap is maximally diversified as far as equities go, but if you wanted to reduce risk you’d invest in an uncorrelated asset such as bonds. (These aren’t always uncorrelated, but it ought to help.)
You don’t ‘need’ to do anything, but try answering the questionnaire I linked above and it will suggest an equity % for you. The rest of your investment could be in bonds directly or a bond fund, or right now you’d actually get a better return in a cash savings account.
With HL, they don’t have dealing charges for funds (they do for shares, ETFs and bonds), so while HL are normally considered pretty expensive, amongst the limited competition of LISA providers, they end up being probably the cheapest for your anticipated usage pattern (assuming 100% equity in funds).
(My LISA is with AJBell YouInvest because I’m doing a single buy per year, so the lower yearly platform charge results in a lower overall cost.)
Okay thanks just needed it spelt out a bit more as I wasn’t 100% sure on how a portfolio could/would look like!
I’ve just had a look at AJ Bell and they do look cheaper overall so may be swayed to go there - both allow transfers so not too much of a headache to swap.
Happy to help. By the way, I should note that if your LISA is for a house deposit and you’re buying within the next 5 years or so, it would be advisable to go for a cash LISA instead of an S&S LISA.
A maximally diversified equity portfolio still has “time” risk. If the whole market crashes just when you need to buy your house, you’re screwed.
(My LISA is for retirement, as an adjunct to my very good pension.)
My target time frame from initially opening my LISA was 7 odd years - that was around a year and a half ago - hence knowing the circa 5 year rule I’d like to reassess now.
Currently paying a small amount into my pension, but naturally have the goal of getting on the property market currently.
I have my Private pensions with Pensionbee (getting close to £18,000) I add roughly £60 a month to it, I am on the taliored plan, so wondering would be better to transter to say Vanguard?
I also have 2 kids ISA in Vanguard
My boy’s is split between LifeStrategy® 100% Equity Fund - Accumulation, LifeStrategy® 80% Equity Fund - Accumulation & SRI European Stock Fund - Accumulation, Total of about £1400 with £25 a month being split between the 2 x LifeStrategy.
My Daughters is split between LifeStrategy® 100% Equity Fund - Accumulation, LifeStrategy® 80% Equity Fund - Accumulation, Total of about £240 with £25 a month being split between the 2 x LifeStrategy.
