We've done a survey of the cost of UK robo funds. The one which turns out to be the cheapest is MoneyFarm. The reason why is that if you invest less than £10,000 they completely waive the management cost. All you pay for are the exchange traded funds that they buy. If you go above that 10k limit you do start to have to pay some management costs but it's still quite cheap.
How does MoneyFarm work? Well in principle it's very similar to the other robo investors like Nutmeg and Scalable Capital. The first thing you do is fill out a questionnaire that's designed to gauge your risk appetite and then they'll find a matching portfolio. So to give you an idea of what the process is like I'm going to sign up with my own money. Let's see what it's like!
So the first thing we do is to sign up with our email, we create a password and we give them our mobile number. Now the fact that it's secure and FCA authorized gives me some comfort.
Okay so we've now created an account. It's noticed that I haven't created a portfolio so that's the next step and you can also create a preview portfolio before you create the real one. So what I'm going to do is create a General Investment Account, not an ISA, that means that it doesnt sit inside a tax wrapper and I will have to pay tax on any capital gains I make on this investment.
I'm actually quite happy with the defaults here: 3,000 pounds initial investment, zero pounds monthly contribution, a six year investment horizon and a medium level of risk.
And you can see the expected value after six years is 3,800 pounds. You can never predict the future so the shaded region shows the estimate of the future value with a ninety-five percent accuracy.
They also show how well this portfolio has performed historically. You can see that the jump here around June, which was the Brexit referendum, and that would have been boosted by the fact that the fund held foreign assets. When they converted those back to sterling that would have given the fund a boost.
Looking at the asset allocation the first thing you should check is the amount of equity in the portfolio: that will tell you how much risk it's taking. For this portfolio it's about thirty percent which is fairly low risk. The next most risky thing are the high yield and emerging market bonds, they make up twenty one percent of the portfolio but this risk profile looks okay to me so I'll save this portfolio.
So now the portfolio is constructed we can look at it in various ways. We can look at the expected performance, we can look at the asset allocation, and we can look at the past performance. So now we can take the next step which is to create my investor profile.
Well, risk does worry me so I'll disagree with the first statement. "I prefer to make safe investments and limit losses even if that implies low returns": I do agree with that to some extent. "I'm comfortable that in the case of a negative market trend some losses may be incurred": yes, I agree with that. "When I start losing money I tend to sell immediately". Now that's one of the behavioral pitfalls of many investors so I disagree with that. "I generally feel stressed about my investments and frequently check their performance": well, to be honest, I do check them more often when there's a crisis but, for the sake of this, I'll go neutral and I'll continue.
The next section is Knowledge and Experience. I am familiar with exchange-traded funds and mutual funds and similar instruments and they are a good way to diversify investments and reduce risk. I strongly agree with that. I have invested in ETFs before, I don't buy them every few months because I try and avoid trading as much as possible so I'll strongly disagree with that. "What's the highest degree or level of school you've completed?": Well I've gone beyond postdoc so I guess that's the third option. "I know that despite investing in sterling I may be exposed to other currency through an ETF or mutual fund and the value will depend on exchange rates": strongly agree.
So we'll continue to the next section which is the Financial Situation. "What is the value of your total assets excluding your primary residence?" 100 to 350. What's your total annual taxable income well, less than 30k. My age: 40 to 54. "What percentage of your income are you able to save?": let's just say 0%. "What's your main source of income?": I'll say self-employment.
Okay it's a little bit like your stars in the newspaper it classifies your risk appetite according to certain verbal categories so I'm an "Exploring Investor: motivated, diligent and determined". Yes, that's definitely me! How does my profile rank, least risky to most risky? That's a moderate risk appetite, I'm happy with that. Now here they're going to want some more personal details. We'll come back to the recording after that's complete.
Okay, so I entered my personal details and the last step is to look at the terms of service. So they're telling me that they offer a discretionary service. That means I give them my money and they invest it at their discretion. I have no say whatsoever in the assets in which they invest. They say that if it's under 10k, which my investment will be, there's no management cost. If I go above the 10k limit you can see that the management fee goes up to point six percent then it falls slightly above 100k to point four percent and over a million it goes to zero. Then they show their full Terms of Service which of course I will read diligently. And I click on "I accept the Terms of Service" and I "Accept". Now my account's been activated and, in fact, they delete the previous portfolios so that you can create a new one.
So I'll accept the default settings again, "Save Portfolio", and the next step would be to start investing where I actually add funds to this account.
Oh and I've got some help from Will from MoneyFarm! So I can click here to book an appointment and they'll call me whenever I like and if I want to call immediately I can call this number.
So the frequency I'll choose will be "one time", I'll put in three thousand pounds, I'll put it in from my bank account, and I'll put it into portfolio number one. And I'll move it in via bank transfer. So I enter my bank details. Again, you're not going to see this... and there we are. The process is complete and the money should be transferred into this account quite soon.
That was very straightforward. The interface is incredibly clear and you can see exactly which funds they'll be buying on your behalf. So overall I'm very happy with the onboarding process. Despite the fact that this is the cheapest of all the robo investors you certainly can't see that in the interface. MoneyFarm have done a great job.
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