Robo adviser performance: are investment bots still on top?

By Mike Narouei, Content Producer at Boring Money

28 Mar, 2019

The Mary Poppins of the investing world, robo advisers take care of what’s important when you’re too busy, confused or disinterested to do it yourself. But are the magical investment minders still singing ‘Chim chim cher-ee’, with portfolios as lucky as lucky can be? Or do we need a spoonful of sugar to help dwindling returns go down? Our latest performance report has the answers.

The following article is a summary of our Robo Adviser Performance Report, which analyses and compares low, medium and high-risk portfolios of 9 leading robo advisers.
Read the full Robo Adviser Performance Report here.

Let’s not beat around the bush… 2018 was a bad year

Robos were not immune to last year’s market mayhem. Around the world share values were down, and the FTSE 100 – one of the UK’s main measures of how well the market is doing – dropped in value by about 10% in the last three months of the year. But despite the wobble, in many cases robos still did better than the benchmark.

(It’s worth mentioning that the FTSE’s 10% drop has already almost evened out. As of this week, it’s up 8% again since the start of the year.)

How did robo advisers perform over 2018 with a £5,000 investment?

• Low-risk robo portfolios did worse than cash: You’d have lost £103 (-2.1%) on average with a robo, but gained £64 (1.3%) with a leading easy-access cash ISA.

• Medium-risk portfolios only just beat the market: You would still have lost £258 (-5.2%) on average with a robo, but would have lost £267 (-5.3%) with a 50% Global Index fund (half cash, half shares).

• High-risk portfolios beat the market: You’d have lost £363 (-7.3%) on average with a robo, but £597 (-11.9%) with a Global Index fund (which tracks the entire global market).

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This may sound like cash came out on top. And it did in this timeframe. But looking at one year’s performance alone isn’t a good measure of the stock market, as it inevitably goes up and down. So let’s broaden our view…

Over three years, robo advisers have brought home the bacon

Investing should always be a long-term gig – we tend to recommend five years as a minimum. This way you have time to let share values rise, fall, even out and hopefully rise again before you sell. With that in mind, let’s see how robo advisers have done over a slightly longer timeframe.

What would have happened to £5,000 from the start of 2016 to the end of 2018?

• Low-risk robo portfolios beat cash: You’d have gained £294 (5.9%) on average with a robo adviser, but only £184 (3.7%) with a leading easy-access cash ISA.

• Medium-risk robo portfolios beat the market: You’d have gained £760 (15.2%) on average with a robo adviser, but only £436 (8.7%) with a 50% Global Index fund.

• High-risk robo portfolios seriously beat the market: You’d have gained £1,130 (22.6%) on average with a robo adviser, but only £653 (13.1%) with a Global Index fund. That’s almost double the returns.

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So what can we take from this?

Robo advisers had a poor year in 2018, but no poorer than the rest of the stock market. And although the temptation may be to cut your losses, withdraw your cash and go fly a kite, the point is that you have to hold your nerve when the going gets tough. Look at your results as part of a wider, long-term view instead of in isolation.

At the end of the day, there is always an element of risk and uncertainty to the stock market, but you do get to choose how much risk to take on. Really, low-risk is just walking up an undulating hillside, while high-risk is scaling a mountain range. Both generally have an upward trajectory, but the highs and lows become more extreme as your level of risk increases. This does mean that if you can’t afford to ride out the lows and leave your money untouched for years at a time, investing may not be the best option for you. But if you can afford the risk, the reward is usually worth it.

In all, we still think robo advisers are a great way to get started on the stock market, without being as financially savvy as Mr Banks or as keen and adventurous as Bert the chimney sweep. To compare reviews and ratings of the best robos, check out our independent Best Buys.

If you’d like to take a closer look at recent robo adviser performance, our full update details individual providers, the makeup of funds, and more.

Read the full robo performance report