Low-risk robos - what are they and who are the top performers?
27 Jan, 2022
What is a robo?
This is an online investment platform with a ready-made portfolio (a basket of investments) that's managed on your behalf.
How does it work?
You'll answer a series of questions - usually about 10 to 15. Your robo adviser will allocate you a portfolio based on the answers you provided.
If you want to minimise your risks
You're interested in trying out robo because the thought of picking your own investments terrifies you. But you don't want to be exposed to big market swings either.
Your best bet is to choose a ready-made portfolio for low-risk investments.
Just to recap: what exactly is 'low risk'?
The term 'low risk' can mean different things to different people. The financial sector has a rather annoying habit of using these phrases without really explaining what they mean to someone who's new to investing.
So here's a quick summary of what a low-risk robo portfolio should look like and the kind of performance you might expect:
If you invest in low-risk funds, you will be exposed to traditionally 'low risk' assets, like bonds (bonds are basically just IOUs: you buy them and governments or corporates promise to pay back a specified interest rate over time).
Or think of low-risk portfolios like 'souped-up cash' but with a few other riskier assets thrown in the mix.
Only a minority of your investments will be in company shares, whereas some high-risk investments are held almost exclusively in shares.
Low-risk investments generally produce lower returns than medium or high risk, as you might expect.
The good news is that low-risk portfolios are exposed to much less volatility, so you're unlikely to see many big swings in different directions.
Think of a low-risk robo portfolio like a car driving slowly over a few speed bumps (a very high-risk portfolio like crypto is more like an F1 racing circuit).
Common adjectives use to describe low-risk robo portfolios include 'passive', 'defensive' and 'cautious'.
Three reasons to pick a robo adviser if you're a low-risk investor:
You get a diversified portfolio, which improves your chances of getting slightly better returns for the level of risk you have chosen.
You've left it to the experts to choose you portfolio - what a relief!
You just want to put money away and forget about it.
So, here are the top-performing robos in the lower risk category in the last two years:
Figures shown after total returns (after charges) from 01-01-2020 to 31-12-2021.
In first place: Vanguard - LifeStrategy - 20% shares
Two-year returns (after charges): 9.16%
Fund summary: This fund seeks to hold investments that will pay out money and increase in value through a portfolio comprising approximately 20% shares and 80% bonds.
A well-established global player, Vanguard is one of the most popular platforms for passive (low risk) investors. Think of it as low-cost, no-grills investing. But the LifeStrategy fund now has five-ready made portfolios and over 30 million mostly happy customer. Many of those are beginners too.
In our 2021 Best Buys Awards, Vanguard won:
Best Buy ISA
Best Buy Pension
Best for Beginner Investors
Best for Beginner Investors - Pension
Best for Low Cost - Pension
(read the full list of winners here)
Two-year returns (after charges) for Vanguard LifeStrategy 20% share fund: in context
Setting up a robo portfolio with Vanguard:
How does it work?
£500 initial monthly investment, £100 minimum monthly amount
Charges are about 0.41% for a £1,000 investment (figures shown above are after charges)
Vanguard reviews
Runner up: AJ Bell - Cautious fund
Two-year returns: 7.42%
Fund summary: This fund invests mainly in collective investments, such as Funds and ETfs, which mainly hold typically lower risks assets such as cash and bonds, with smaller holdings in company shares. The fund also directly invests in some government bonds.
AJ Bell Youinvest is a popular low-cost option that recently improved its user experience and mobile app.
In our 2021 Best Buy Awards, AJ Bell won:
Best Buy ISA
Best Buy Pension
Best for Beginner Investors - ISA
Best for Beginner Investors - Pension
Best for Sustainable Investors - ISA
Best for Sustainable Investors - Pension
Best for Low Cost - ISA Best for Low Cost - Pension
(read the full list of winners here)
Two-year returns for AJ Bell Cautious fund (after charges) in context:
Figures shown after total returns (after charges) from 01-01-2020 to 31-12-2021.
Setting up a robo portfolio with AJ Bell:
How does it work?
Minimum initial investment of just £1 and a minimum ongoing investment of £25 each month
6-7 funds will appear in your account
Maximum annual charge of 0.25% up to £250k (figures shown above are after charges)
AJ Bell reviews
Second runner up: HSBC My Investment - Cautious - Fund 1
Two-year returns (after charges): 7.11%
About HSBC: Few banks can compete with the brand visibility of this huge global institution. That's why HSBC is a popular choice for less-confident investors who feel more at ease putting their money away with one of the big ones.
Fund summary: The vast majority (74%) of this fund is bonds, followed by shares (19%), cash (5%) and property (2%)
Two-year returns (after charges): in context
Setting up a robo portfolio with HSBC My Investment:
How does it work?
Receive a personalised investment recommendation report
Start from as little as £50 a month or a lump sum of £1,000
Pay a one-off advice fee of 0.5% (figures shown above are after charges)
HSBC reviews
Fourth place - Natwest Invest - Fund 1 - 18% shares
Two-year returns (after charges): 5.46%
About Natwest Invest: Natwest is a big name in finance and offers five ready-made portfolios for its customers only.
Fund overview: At least 70% of this fund is in low-risk assets such as bonds.
Two-year returns for Natwest Invest low risk fund (after charges): in context
Setting up a robo portfolio with Natwest's low-risk portfolio:
How does it work?
Expect total costs of about 0.7%, or £7 per year per £1,000
Remember, you need to be a Natwest customer to invest in their ready-made portfolios.
Natwest reviews
Fifth place - True Potential - Defensive fund
Two-year returns (after charges): 4.96%
About True Potential: This is a mobile-friendly option that will appeal to those who want ready-made ISAs or a pension that looks more like an ISA. True Potential's website is pretty straightforward to get your head around. You'll be asked a series of reasonable questions before they match you with a managed portfolio.
Fund summary: The vast majority (82%) of this portfolio comprises low-risk assets like bonds.
In our Boring Money Best Buy Awards 2012, True Potential won:
Best for Digital - ISA
Two-year returns (after charges): in context
Setting up a robo portfolio with True Potential:
How does it work?
Open your account from just £1
All-in costs are about 1.2%, or £12 per year for each £1,000
True Potential reviews
Other things to bear in mind when picking a robo or ready-made portfolio:
- Will it make your life easier?
- Will you save time?
- What are the fees? This is crucial if you're choosing a low-risk portfolio, as higher fees can eat up into your returns (ideally they should be less than 1%!
