Investment Options for Britons

Achel Reeves and her team seem eager to encourage more Britons to step into the stock market. She recently mentioned that investing in stocks can yield better returns, especially when there’s a significant amount sitting in cash savings accounts.

Thankfully, the growth of DIY investment tools and mobile apps has made it simpler for individuals to invest. Still, with so many choices available, figuring out where to begin can feel overwhelming.

For those just starting who might lack the time or expertise to manage their investments, a “robo-advisor” could be a solid choice. Though the term may sound high-tech, these are just online platforms that automate investment processes for users. Most of them are app-based, offering pre-built portfolios based on personal preferences.

Typically, you’d start by completing a brief questionnaire to outline your financial goals, available time for investment, and your risk tolerance. Generally, the longer you plan to invest, the more risk you might be able to handle. However, it’s crucial to think about your own comfort with risk. Historically, stocks have outperformed savings accounts, but they come with the potential for losses and fluctuations along the way.

A standard portfolio usually consists of a mix of exchange-traded funds (ETFs). These funds are generally low-cost and track particular indices, such as the UK or US stock markets, along with government bonds or commodities like gold.

This app-based system assembles these funds into a well-rounded portfolio that diversifies investments across various assets. So, how do you decide which app might be the right fit for you? We took a look at some popular options and compared their offerings.

Nutmeg

Who? Nutmeg, one of the pioneers in the robo-advisor market, began in 2012 and was acquired by JPMorgan Chase in 2021. The app has more than 200,000 users in the UK, managing over £4.5 billion in investments.

Minimum investment: £500 for ISAs and pensions; £100 for lifetime ISAs and junior ISAs.

Investment Options: Nutmeg provides various service tiers, which impacts costs. For fully managed portfolios, investors can select from 1 to 10 different risk levels. The portfolio is continuously monitored and adjusted. For fixed allocations, five risk levels are available, with the investment team setting the portfolio once a year.

Fee: The fully managed option costs 0.98%, meaning if you invested £3,000, your annual fee would be approximately £29.40. The fixed allocation fees are somewhat lower at 0.65%, roughly £19.60 per year for the same investment amount.

What we like: Nutmeg is transparent about its performance and provides users with historical returns. For instance, a 6/10 risk portfolio yielded 43.4% over the past decade, while similar funds averaged 36.7%. The 5/10 portfolio saw a growth of 31.9%, trails behind at 36.7%.

Additional Support: Nutmeg provides free guidance for general inquiries and offers comprehensive financial advice starting at £900.

MoneyBox

Who? Launched in 2016, MoneyBox focuses on savings and investments, serving over 1.5 million customers and managing assets exceeding £10 billion.

Minimum investment: Just £1 to start an account.

Investment Choice: There are three core options: cautious, balanced, and adventurous. The cautious choice limits risk, with just 15% in stocks, 40% in bonds, and 40% in cash. The adventurous option allocates 80% to stocks, 15% to fortunes, and 5% to bonds.

Fee: A monthly subscription covers transaction expenses, along with a platform fee of 0.45% and an investment cost of 0.17% for core funds. Thus, for a balanced fund investment of £3,000, total costs would be around £25.60 a year.

What we like: The roundup feature allows users to link their bank accounts, where spending is rounded to the nearest pound, automatically investing the difference. So, if you spend £1.87, an extra 13p goes into investment. It makes contributing easier.

Other Features: For those more confident, MoneyBox offers the option to choose specific ETFs instead of ready-made portfolios, though currently limited mainly to US stocks.

Doddle

Who? DODL is a newcomer that launched in 2022, associated with wealth management company AJ Bell, which has been in the industry since 1995. DODL offers a simplified process with lower minimum investments and a limited selection of investment options.

Minimum investment: You can start direct debits at £100 or £25 monthly.

Fee: An annual fee of 0.15% plus £1 a month and 0.31% for core investments, which totals around £19.30 yearly for a £3,000 investment.

Investment Choices: AJ Bell’s range of funds is categorized by risk level, spanning from cautious to global growth. Investors can also select individual stocks from specific regions (UK or US) and sectors.

What we like: Thematic investing options allow users to find relevant ETFs guided by trends. For example, the “Above the World” theme invests in the HSBC FTSE All-World index, charging 0.13%. Other themes focus on UK-centric investments or robotics companies.

Additional Perks: You can earn a variable 4.25% on any uninvested cash.

Wealthify

Who? Founded in 2014 and currently part of Aviva, Wealthify emphasizes simplicity and user-friendliness, with around 100,000 customers.

Minimum investment: For now, ISAs start at £1 while pensions require £50, but from Wednesday, June 25, junior ISAs will also begin at £1.

Investment Options: There are five risk categories—cautious, tentative, confident, ambitious, and adventurous. The cautious option consists of 85% government debt and just 5% in stocks, while the adventurous blend offers 74% in stocks and some investments in property and infrastructure.

Fee: Platform fees are at 0.6%, including management costs. Typical portfolios incur an additional 0.16%, while ethical investments run at 0.7%. For a £3,000 investment, this could total £22.80 or £39 for ethical options annually, without a minimum fee.

What we like: The Outlook page provides a snapshot of various investment outlooks, helping investors gain insight without extensive research.

Other Considerations: Wealthify highlights numerous customer service awards, reminding users to consider factors like reviews and service quality alongside fees and investment choices.

MoneyFarm

Who? Initially launched in Italy, MoneyFarm made its way to the UK in 2016 and currently has about 160,000 active users, managing over £5 billion in assets. It benefits from backing from major investment firms like M&G and Allianz.

Minimum investment: £500.

Investment Choice: MoneyFarm offers managed funds with seven risk levels, regularly adjusted by investment teams. For example, the 6/7 risk option mostly comprises developed market stocks, while the 2/7 focuses on bonds.

Fee: For a proactive managed investment of £3,000, the fees are 0.3% combined with a 0.75% management fee, totaling approximately £31.56 annually. Fixed allocation options have lower management fees, usually around 0.62% or about £18.60 yearly.

What we like: Users can effortlessly see how their portfolio is structured on the website, breaking down investments by asset type, region, and sector with brief explanations.

Additional Features: As with most platforms, you can apply ESG standards to your investments, ensuring alignment with your values, although this might raise costs.

What You Need to Know

• Before selecting a robo-advisor app or service, check that it’s regulated by the Financial Conduct Authority (FCA).
• Make sure the provider is part of the Financial Services Compensation Scheme (FSCS), protecting up to £85,000 in case of provider failure.
• Most apps provide different account types, but ISAs are often recommended for stocks and shares, allowing you to invest up to £20,000 annually with tax-free interest and growth.
• Typically, you’ll pay a percentage fee on your investments, so if you invest £1,000 at a 1% fee, expect to pay around £10 per year. However, be diligent in understanding all the associated costs.