Hi Robert,

You have been investing in a hairy old time - January tested everyone’s nerves!

This is a warning. My answer is going to be boring!

9 months is not a long time, and honestly it is true that this is all about time in the markets, not ‘market timing’.

If you constantly feel the need for action and want to see dramatic spikes, you will end up ‘investing’ in get rich quick schemes which ‘can’t fail’, and ultimately risk losing your money as you chase your tail. Good investing is dull, because human nature doesn’t want to ‘get rich slow’.

I think you are confusing two questions

A) is Moneyfarm right for me

B) am I invested in the right sort of stuff?

Moneyfarm blends a bunch of low-cost ‘passive’ investments together into a portfolio which they manage for you. Vanguard does a similar thing but blends the investments into a slightly different administrative box, called a fund - their LifeStrategy range.

We do track performance on our robo advisers pages, but the trouble is that these robos are new, and track records of a year or two mean very little. My cat could have a good one year track record and you wouldn’t want to back her. So it’s super hard to make a call that Vanguard is proven to be superior or not.

My sense is that starting a habit of moving stuff around every year will see you lose money in trading fees, and being out of the markets for maybe that one stellar week which makes a difference! I’d tend to err on the side of staying put unless you have good reason to move.

Over the 12 months to September 2018 in a balanced/medium risk portfolio Moneyfarm returned 4.72% after charges, compared to Vanguard LifeStrategy 60% making 6.62%. But this is a very short timeframe and doesn’t answer the question about who is the best.

Now, are you in the right risk profile?

Depends on your timeframes. If you don’t need this money for say 10 years and you can stomach ups and downs, then maybe you should amend your risk profile for subsequent contributions, and see what that feels like? But you have to expect greater swings without jumping ship in the downturns.

The fee differential will make a small difference, yes - Moneyfarm charge 1.09% all in, and Vanguard LifeStrategy in an ISA would be 0.48%. But Moneyfarm has a better app and communications and is probably easier to manage and check in with.

But I honestly believe that it’s a damn hard job with the small history of Moneyfarm, to make clear assessments about performance.

The biggest thing we can do to invest successfully is to stay invested (as long as you’re not in something dodgy or rip-off, which you’re not), leave it alone and keep chipping in. So my tendency would be to leave it alone. Being in the market is the single most important thing. Give it a chance to do its long-term job?

If you really want to tinker...

Maybe set up a low-cost trading account with someone like Freetrade, and limit yourself to tiny amounts on a ‘play’ shares account - which you’re willing to lose. And discipline yourself to selling half if the value ever doubles. I would personally avoid this like the plague - but if it stops you trying to roll the dice with your big pot, then maybe it’s worth thinking about?

I don’t mean to sound patronising. There is a thrill in seeing a 10p stock soar to £5. Trouble is that this works the other way too, so it’s no different to gambling.

Hope that is helpful food for thought.

As always this isn’t regulated advice, I don’t know your circumstances and I’m not a financial adviser!

So this is meant as general facts and observations. You’ll ultimately need to make the call yourself.

Good luck.

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

This is a question that a lot of people ask when they decide that they'd like to begin investing.

Traditional platform or robo adviser?

If you don't have much time to spare but you want to get into DIY investing, both a robo adviser and an online investment platform offer some great simple options.

Robo advisers are currently very popular, and have recently been gaining new customers faster that the bigger online investment platforms. We found out that in the online DIY investment market almost 1 in 3 new DIY investment accounts is now opened with a robo adviser.

The robos first came about as a nice in-between product which wasn't full-blown advice, but which also wasn't so go-it-alone as DIY investing.

As a bit of quick background, a robo adviser is an online investment service which asks you around 10-15 simple questions, and then puts together a suggested suitable basket of investments from your answers. Once you've got your basket, your robo adviser will then manage this for you on an ongoing basis, rather like a portfolio manager of a traditional investment platform.

A huge benefit for new investors is that by asking you 10-15 questions and essentially providing digital advice, robo advisers are able to choose all the individual investments for you, meaning you don't need to make any of these confusing decisions yourself.

If you're looking for a newbie-friendly DIY investing option from a traditional investment platform, which won't require too much involvement - then we'd suggest you take a look at Vanguard Lifestrategy. This is a low-cost ready-made product offering investors 5 ‘multi-asset’ passive index funds to choose from. These options include differing proportions of assets such as equities and bonds, to cater to the investor's risk appetite. All investors need to do is pick the risk level they'd like.

Some of the jargon surrounding this product can sound a bit bewildering, but this is what they mean for Vanguard LifeStrategy;

• Multi-asset: This refers to Vanguard LifeStrategy's offering of five different levels of risk and potential return. They do this by using differing blends of equities and bonds across their five portfolio options.
• Passive Index Funds: An 'index fund' is a fund where, rather than a fund manager picking shares in the fund, the fund simply replicates an index such as the FTSE 100. So if HSBC makes up 2% of the FTSE 100 today, then 2% of the passive UK stocks in your portfolio will be made up of HSBC. Just be aware that index funds can masquerade under many names, including 'passive', 'exchange traded funds (ETFs)', and 'trackers'. But they all mean the same thing.

Drilling further down into the differences, here are the main pros and cons that we think distinguish robos from traditional platforms.

Robo advisers vs passive index funds at traditional investment platforms;

• At traditional investment platforms, fund managers will choose the different markets to invest in - some passive funds or ETFs often require you to decide where you want to invest – country, sector, etc.
• Robos guide you to a portfolio option, while traditional platforms rely on you to choose your own option depending on your risk appetite.
• Traditional platforms can differ in how quickly you can choose how much risk you'd like. Some such as Vanguard LifeStrategy offer a quick and simple choice, while others require you to be more involved in choosing the specific weightings within your passive funds blend.
• If you want to use passive funds or ETFs, beware that some platforms offer more simplicity than others. There can be a lot of decisions involved in using passive funds or ETFs, however offerings such as Vanguard LifeStrategy take some of these decisions off your hands.
• Both traditional passive funds and robo advisers are relatively low cost - however once you pick specific providers, all-in Vanguard LifeStrategy is cheaper than a robo adviser such as Nutmeg.

As for which gives a better rate of return...

This is pretty difficult to say definitively without giving the new robo adviser market a little more time to grow. For example, the most established robo Nutmeg, has only been around since 2011.

However, we have done some early research into this which might help:

In November 2018 we did our quarterly analysis of nine of the UK’s leading robo advisers - which you can read more on here: performance comparison of the major robo advisers. We found that higher risk investment portfolios at seven of these nine robos outperformed the FTSE 100 (and therefore passive index tracker funds) over that past 12-month and 24-month periods.

Over that 24 month period, we found that from a starting £5,000 investment, higher risk portfolios at the average robo adviser returned £5,895 (17.9%) compared to the FTSE 100 which grew to £5,862 (17.2%). However on average, medium risk robo portfolios returned 10.2% over the two years analysed, while low risk portfolios returned 2.3% - the same as a leading easy access cash ISA.

Through this research, we found that the level of risk which investors are exposed to in terms of volatility is significantly reduced in comparison to the FTSE 100,  if assessed in terms of monthly swings in valuations, or monthly drawdowns.

Meanwhile, we've also done a research project for Quilter, about the effect of DIY investors' bad habits.

We found that investors who build their own portfolios can suffer from seven bad habits, which can lead them to miss out on 11.3% of potential gains a year. Our research showed that the typical unadvised investor takes a huge amount of investment risk and gets very little back for it. 

These are the seven habits we identified which can reduce a DIY investors' investment return or increase their risk:

1. Holding too few shares, or being ‘undiversified’.
2. A bias towards the UK, ignoring the opportunities in overseas markets.
3. Lack of asset allocation, using only shares when other assets could help.
4. Overtrading, fiddling around the margins of their portfolios.
5. Panic selling, ditching all their holdings at the first sign of trouble.
6. Not rebalancing, losing out on the proven ‘Rebalancing Bonus’ returns.
7. Lack of pound cost averaging - Pound cost averaging is a technique where you make investments on a regular basis and therefore average the price you pay for the total investment over time.

Ultimately as a new investor, it may be wisest to start out with a robo adviser to get a feel for things.

However if you're sure you know what's what and fancy a bit more control over your investments, we'd suggest starting with a Vanguard LifeStrategy portfolio which should be a good introduction to your DIY investing journey.

Hope this helps!

Phoebe

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Hello Susan,

First, congratulations on opening up a private pension as well as an ISA, both are very healthy financial steps to take!

It's important not to think of risk as a measurement of how likely it is that your investment will disappear in a puff of smoke. In reality, it’s a measurement of how much the investment’s value goes up and down over time. So, your risk level for any investment depends on how long you plan to hold it for.

For your private pension, which you’ll keep for a long time before you need to use it, a managed fund with a higher proportion of shares makes sense. If you want to use the money in your Stocks and Shares ISA for property within the next 5 years, say, you would be best with a lower risk portfolio.

Have a look at some of the robo-adviser options like Nutmeg, Wealthify, Wealthsimple and Moneyfarm for your Stocks and Shares ISA. These companies will run you through a risk questionnaire before you invest and give you a ready-made low cost investment package that you can contribute to regularly if you want. You can learn about them here. Nutmeg is the most well-known of these.

For your private pension, have a look at our top 5 DIY pension options, just updated in July. We break it down depending on your time frame, fees and charges, and how much control you want to have on a day-to-day basis. You shouldn't be paying more than 1% in fees and if you want something low-cost and ready-made, we suggest AJ Bell Youinvest, which won Best Online Pension Provider AND Best Online Investing Platform at the Consumer Investment Awards in June.

Good luck! 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.