Ready-made portfolios: who are the top performers since Jan 2020?
22 July, 2022
AJ Bell, HSBC and Moneybox had the best-performing ready-made portfolios in the 30-month period January 1st, 2020 to June 30th, 2022. To see the full data as one table, click here. Or stay put for some analysis and a breakdown of ready-made portfolio performance by different risk categories.
What are ready-made portfolios?
In case you're not familiar with the term 'robo' or 'ready-made', these are investment providers that ask you a series of questions and select a portfolio on your behalf, based on the answers you give. So, for example, if you don't want your portfolio to be exposed to too much volatility, your ready-made portfolio provider might choose a lower or medium-risk portfolios that is less exposed the big ups and downs of the market.
Ready-made portfolio performance (Jan 2020 – Jun 2022)
Key takeaways:
Overall ready-made portfolio performance was down compared to our last survey three months ago.
But if you had put money in the best-performing ready-made portfolio - AJ Bell's Adventurous Fund - £10,000 invested on January 1st, 2020 would have been worth £11,604 by June 30th, 2022.
High-risk ready-made portfolios
These portfolios generated average (mean) net returns of 14% between January 2020 and June 2022.
How do I know what a high-risk ready-made portfolio is?
You'll often hear this type of portfolio being described as 'aggressive' or 'adventurous', or scored by its share allocation (e.g. 8/10 or 80% equity).
Normally, at least 75% of your investments will be in shares, although some high-risk portfolios can have 100% share allocation.
High-risk ready-made portfolios are the most volatile because they have more exposure to the big ups and downs of the market.
Medium-risk ready-made portfolios
These portfolios generated average (mean) net returns of 6.9% between January 2020 and June 2022.
How do I know what a medium-risk portfolio is?
This type of portfolio will often be described as 'balanced' or 'medium', or scored it by its share allocation (e.g. 5/10 or 50% equity).
Expect roughly 40% to 75% of a medium-risk portfolio to be in shares.
Medium-risk ready-made portfolios, particularly those with higher share allocations, can still be quite volatile, but not usually to the same degree as high-risk portfolios.
Low-risk ready-made portfolios
These portfolios generated average (mean) net losses of 2% between January 2020 and June 2022.
How do I know what a low-risk portfolio is?
Words like 'defensive' or 'cautious' are often used to describe low-risk portfolios, or you might just see the share allocation (e.g. 2/10 or 20%.
As a general rule, if at least 70% of a portfolio is held in cash and bonds, it is low-risk.
As you might expect, these portfolios are generally much less volatile than the medium- and high-risk categories.
How to choose a ready-made portfolio
When choosing a risk level, it's common for people to pick the middle option (like ordering the third cheapest wine in a restaurant!) because they think it's the safest bet. However, that may not always be the right choice for you.
For more guidance, read this article on how to pick a ready-made portfolio, or check out this summary below:
1. Choose your timeframe and risk level
For short-term investing, you may find that it's safer to keep your money in a low-risk portfolio. But if you're happy to keep it hidden away for a longer period of time, you may get better returns by investing it in a high-risk portfolio with greater exposure to the stock market.
2. Choose your risk preference
Timeframes aside, you also need to select a risk profile that you’re comfortable with. For instance, if stock markets plummet by 20% in one day, will you have a meltdown and sell up in a panic? If so, you may want to stick to a low-risk fund that invests mainly in cash and bonds. If not, you could consider a medium or high-risk fund that invests mainly in shares.
3. Still a bit unsure?
Find out more about in our ready-made portfolio guide.
How do I know which risk category is right for my financial goals?
High or medium-risk portfolios may be a better option for the following:
Saving for your pension
If you're not planning to retire for 10, 20 or 30 years, you're more likely to get better returns from a higher risk portfolio. Investing over very long time periods also allows your money to do what is known as compounding. This is when your money earns interest over time. For example, if you paid £100 at the beginning of every month for the next 30 years, with annual returns of 5%, your pension would be worth just over £84k - almost £50k of which would be interest earned. But with annual returns of 10%, it would be worth almost £230k (about of £194k of which would be interest).
Saving for your children when they are still very young
If you have younger children who aren't going to have access to their Junior ISA for at least 10 years, that gives you plenty of time to ride the stock market waves - so you can take a bit more risk. If your child is older - say, 12 or 13 - you may feel more comfortable with a low- or medium-risk portfolio which is less exposed to market volatility.
Lower risk portfolios may be a better option for the following:
Saving for a mortgage within 3-5 years
If you're lucky enough to still be under 40, and have a Lifetime ISA (LISA), keeping your money in a low-risk portfolio may be wise if you plan to use all or most of your investments to fund a mortgage deposit in the next few years. We usually say cash gives you a bad deal, but the 25% LISA bonus still comfortably beats 9.4% inflation! And if you plan to continue topping up your LISA until you’re 50 to fund your retirement, you could consider switching to a medium or high-risk portfolio instead, as you'll have more time to offset any losses on the stock market.
Saving for your pension if you plan to retire within 3-5 years
If you are closer to retirement age, it might be safer to stick to a lower risk portfolio. If markets are down when you start drawing an income from your retirement (drawdown), the value of your investments may fall more steeply in a high-risk portfolio (even though high-risk portfolios tend to perform better in the long term).
Whether you're opening your first ready-made portfolio or considering switching to another one, a financial adviser is best placed to assist you here. Use our Adviser Directory to find one suited to your unique needs!
What are the benefits of using a ready-made portfolio when markets are volatile?
You may have noticed that the past couple of years have seen some very volatile market movements! So why might you be better off choosing a ready-made portfolio instead of picking your investments yourself?
Most ready-made portfolios do what is known in financial circles as 'modern portfolio theory', which means they monitor and adjust your portfolios to reflect the long-run relationships between different investments.
This also helps fund managers maximise the overall returns for any given risk category, or minimise short-term losses when markets take a bad turn.
A ready-made portfolio eliminates the need for you to 'rebalance' your investments manually. This allows you to benefit from portfolio diversification in the long-run (in layman's terms, portfolio diversification means putting your investments in lots of different companies and sectors, so that you're less exposed to any negative events that affect a smaller number of companies or sectors).
