Note: This review is totally independent as I'm not paid anything by Nutmeg. Also this is not a recommendation, seek independent financial advice if you want a professional to judge whether robo advisers are suitable for you.
Robo funds are massive in the United States and they're starting to take off here in the UK as well. The way they work it to replace an expensive human fund manager with a computer which does the same task. However a computer never sleeps, it doesn't need a flat in South Kensington or a Lamborghini so it could be quite a lot cheaper than a human. But how does robo investing actually work?
Well, the best way to find out is to try it yourself so that's exactly what I've done. I've invested my own money into one of these funds. I've tried out Nutmeg which is one of the biggest robo funds in the United Kingdom and here I go through the onboarding process. When you sign up you also take a questionnaire that matches your risk appetite with an appropriate portfolio. I was impressed with the user interface, which is very slick. Their support was fantastic: they answered my question about ISAs quickly and accurately and simply. I wanted to know if it's possible to split your stocks and shares ISA between providers in one financial year - it turns out that you can't.
I hope you find this article useful to find out more about the basics of robo investing.
Setting up my Nutmeg pot
The setup is in four stages: investment timeframe, amount invested, investment style and risk assessment. We start off by choosing the account type.
Ok so here we go with Nutmeg! I'm going for a stocks and shares ISA to use my allowance for this tax year (2016/2017).
The site asks "What are you saving for?" I'll just invest. Oh and I have to give my pot a name. "My Nutmeg Pot".
How many years do you plan to invest for? Well, let's say 10 years.
So let's say I put half of my ISA into Nutmeg and I make no monthly contributions.
Now I've got two choices: fully managed, where I pay 0.75% per year or fixed allocation with a much lower fee of 0.45% so I think I'll go for the fixed allocation.
So I'll start off with the default risk-reward balance.
And the expected value after 10 years is 13,000 pounds which is roughly a doubling over that period and that's an annual return of just under six percent which sounds quite reasonable. So I'll go ahead and create a Nutmeg account. I generate a password and here's my account.
Now I'm only going to put half of my ISA into Nutmeg because I want to try out two different robo accounts. And I don't want to auto renew so now it's asking me to start my risk assessment.
I have investments.
I'm not too keen on adventurous investments so I disagree.
I know that investment is volatile so I won't be put off future investments if I made a big loss.
Yes, I agree to having ups and downs because that's part of investing!
I am prepared to take an investment risk but I would like to know the volatility.
I'm not too keen on growth because they'll be pushing me towards equity and emerging markets so I disagree that I'm willing to accept large losses in return for growth.
I am comfortable with uncertainty.
I am willing to take financial risks.
I am prepared to risk a portion of my wealth: that's what investment is.
Predictable investment probably means fixed income or bonds so I don't want to all bonds so I'll go neutral on this question.
Would I be anxious if I saw my investments had gone down in value? Well, a little bit.
So I have a medium-high risk tolerance. Yep, I can live with that.
Yes, this assessment seems about right. It seems to be nudging me up slightly in the risk profile but I think I'll stay for balanced for the time being. It says I can change my risk level at any time. Am I all set? Yes I am. Confirm.
Okay, so they're double checking I'm going to have enough emergency funds after making these contributions. Yes, I will. What's interesting is they give a projection after three years and ten years of the expected performance but also what can go wrong, which is great! Bad performance, according to them, would be that I'd lose £1,400 after three years which is about a 14% loss and the probability of that is one in 20. I think that's acceptable. So now I'm going to enter some personal details which you are not going to see and then we'll come back once that's all set up.
A new feature that may appeal to nervous investors is that Nutmeg allows you to put your money into the ISA as cash. This will be immune to market crashes and volatility. Then you can drip-feed your cash into investments gradually. To see why this is a good idea during periods of market instability see our article about drip-feed versus lump sum investing.
If you want to find the latest updates on Nutmeg's ISA offerings this is where to look:
Okay so it turns out that you can't set up two investment ISAs in the same year so you have to put your fifteen thousand two hundred and forty into just one stocks and shares ISA. You can split it between investment ISA and a cash ISA but you can't split it between investment ISAs. I asked Nutmeg support this question and this was their reply:
I've been Nutmegged
So here we are, this is my setup screen, we're just waiting for the funds to be transferred from my bank. That was very easy to do and I've got to say the interface was fantastic, the help desk was flawless, they responded almost instantly they could answer my question. So far I'm very impressed with the experience: 9 out of 10 for Nutmeg!
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