What's the difference between Vanguard's LifeStrategy and a robo adviser like Nutmeg?

19 July 2021

Question by Jordan

I have just bought a house; got 3 months income in my current account and now will be earning about £1000 per month after bills and normal spending. I’ve been investing in Nutmeg’s Risk 10 profile for three years which helped my deposit for my house. I also contribute to the Teacher's Pension scheme. I am now wondering whether to use Nutmeg again, or should I use LifeStrategy for my £1000 per month? Is there a difference between Vanguard's LifeStrategy option and let’s say a well known robo adviser like Nutmeg? Or do I now push the boat out and start investing in a few funds? I am still a beginner and would like to keep things simple, but happy to take risk and prepared to leave my investments for a long time. Please do you have any advice for me? Thank you.

Answered by Boring Money

Great to see that you are already investing with a robo adviser like Nutmeg!

Robo advisers are currently a very popular option, and they have recently been gaining new customers faster that the bigger online investment platforms. We found out that in the online DIY investment market (which is worth £223.85 billion), almost 1 in 3 new DIY investment accounts is now opened with a robo adviser - so you're in good company!

As you know from your use of Nutmeg - a robo adviser is simply an online investment service which suggests a suitable basket of investments by asking you around 10-15 simple questions. Once picked, your robo adviser will then manage these for you on an ongoing basis.

The biggest benefit of robos for the less confident or beginner investors out there, is that they take the confusion out of picking all the individual investments. Instead they just do it for you.

You can take a look at our recent performance comparison of the major robo advisers.

Vanguard, meanwhile, are one of the world’s biggest fund managers.

In terms of their LifeStrategy range - this is a low-cost product which offers 5 ‘multi-asset’ passive index funds which investors can choose from, depending on their risk appetite.

While all those buzzwords can sound complicated, on a basic level this is what they mean for Vanguard LifeStrategy;

Multi-asset: You can choose your level of risk and potential return - LifeStrategy offers five portfolio options which split the blend of equities and bonds differently (depending on how ‘spicy’ you want your investment to be).
Passive Index Funds: 'Index fund' is a fancy name for a simple idea which goes by a number of fancy names (passive, exchange traded funds (ETFs), trackers). Basically, all these names describe a fund where, instead of someone picking the shares that go into the fund, the fund simply replicates an index (e.g. the FTSE). So if HSBC is 7% of the FTSE100, then 7% of your passive UK stocks fund will be HSBC. There’s no value call made to be made by the fund managers.
LifeStrategy's 5 choices range from the blandest most cash-like one, which won't make you rich overnight but will keep your investment safe from any nasty surprises. To the 100% equity one, which is the most likely to quickly rise and fall - though this volatility could result in some great returns!

The pros and cons of Nutmeg vs Vanguard LifeStrategy are that;
Vanguard LifeStrategy fund managers will choose the different markets to invest in - alternatives to LifeStrategy such as other passive funds or ETFs often require you to decide where you want to invest – country, sector, etc.
Nutmeg guides you to a portfolio option, while Vanguard relies on you to choose your own option depending on your risk appetite.
Vanguard LifeStrategy lets you quickly choose how much risk you'd like. Their 5 diversified portfolios offer a quick and simple choice – some other passive funds require you to be more involved in choosing the specific weightings within your blend.
Nutmeg offers a pension, unlike Vanguard who don’t.
Vanguard LifeStrategy offers a little more simplicity. There can be a lot of decisions involved in using passive funds or ETFs, however Vanguard LifeStrategy takes some of these decisions off your hands.
Both are relatively low cost – however all-in, Vanguard is cheaper.
What's the best option for you?
Both an established robo adviser like Nutmeg and a bigger online investment platform like Vanguard, offer some great investment options if you'd like to keep things simple.

Cost may be something which you want to consider, as Vanguard’s LifeStrategy is renowned for being a cheap option. In comparison, Nutmeg can be a little pricier when all the fees and additional costs are factored in. So this could be worth keeping in mind if you’re looking for the cheapest option.

If you already have a high risk profile with Nutmeg and want to stay high risk with Vanguard, then I'd maybe think about LifeStrategy's 100% equity option.

If you have a shorter timeframe, then you might want to consider their lower equity options. These will probably make less than the 100% equity choice over the very long-term, but they should protect you better when markets fall.

As with many investment choices, the most important question to ask yourself is how long you plan to invest for.

Answered by

Boring Money