Weighing up whether to invest in a robo adviser like Nutmeg or Wealthify, or use Vanguard’s LifeStrategy funds?
Here’s my experience over the last three years.
Fair to say, when I opened my assorted accounts back in 2018, I wasn’t expecting such a screaming roller-coaster ride, whipped up by a global pandemic.
Back then, I was just frustrated by the lack of performance figures from this new breed of websites, which make life easy for newbie investors. I wanted to find out if the slick websites and reasonably low fees actually delivered.
So I bunged £1,000 into three different robo advisers. – Nutmeg, Wealthify and Moola (RIP) – to see what happened. As a comparison, I also put £1,000 in a Vanguard LifeStrategy fund. Vanguard isn’t a robo adviser, but I reckon the LifeStrategy range offer a similar low cost one-stop-shop for new investors.
Investing dangles the tempting potential for chunkier returns than the rubbish interest rates on savings accounts.
Over the last 18 years, global stockmarkets have grown by a hefty 10% a year on average (that’s based on the MSCI world index, with dividends reinvested, fact fans).
10% a year!!! I struggle to find even a tenth of that stuck in savings.
But saying ‘10% a year on average” glosses over the reality, papering over mountainous peaks and steep chasms.
Unlike the grudging but steady growth in a savings account, stock markets don’t actually grow by 10% each and every year.
Instead, they can shoot up, down and sideways, although long term, historically, they do tend to trend upwards. My own experience has been a textbook example of how riskier investments can show great growth one year, fall off a cliff the next, bounce back or stutter along.
It’s almost as if the investment gods said ‘Test accounts? Hahahahaha. Hold my beer, let’s have fun with this one”.
Read on to find out what on earth happened during year 3.
Starting out in March 2018
Rewind to 2018, and here’s where I started out.
These comparisons would be much simpler if I’d just bunged £1,000 in each account.
But no, I took advantage of cashback offers when opening accounts with Nutmeg, Wealthify and the now defunct Moola.
Do I recommend investing large amounts just for cashback? NO
Could a cashback bribe get eaten up in poor performance and expensive charges? YES
But as I was investing anyway, did I grab free money with both hands? YOU BETCHA
The cashback offers each had different small print. To get Nutmeg’s free money, I also had to set up a direct debit paying in £100 a month.
Since then I’ve raked in a decent chunk of free money: £600 in cashback and ‘refer a friend’ bonuses:
- £100 from Moola, added within a week
- £50 cashback from Wealthify, due after six months but only added (after prodding) after 10 months, plus £150 in ‘refer a friend’ bonuses
- £200 from Nutmeg, due after thirteen months but only added (after prodding) after 14 months, plus a £100 MentionMe giftcard
Everything apart from the Nutmeg giftcard has been reinvested in my accounts.
As for the accounts themselves, I went for general investment accounts (GIAs) as I had already paid into an investment individual savings account (ISA) for 2017/18.
I also went all in with racy options, as I’m investing for a good 10 years. I picked the highest risk ‘Adventurous’ options for Moola and Wealthify and level 9 of 10 for Nutmeg. For comparison, I picked the Vanguard LifeStrategy 80% fund, as the nearest split of shares and bonds.
My approach won’t be right for everyone.
I went for higher risk choices in the hope of higher returns. I’ve certainly seen my balances bounce around all over the place since. If that would freak you out, then absolutely go for a more measured, less risky approach. Or just sob into a savings account instead.
Comparing robo adviser options
This year’s comparison table has a couple of tweaks.
The charges for Nutmeg and Wealthify ticked down slightly (down from 1% to 0.99% for Nutmeg’s fully managed approach, and from 0.82% to 0.76% for Wealthify).
Meanwhile the proportion of equities (aka shares in companies, the risky bit that drives growth) in my Nutmeg portfolio ticked up – from 90% in equities last year, to 92.55%. That is distinctly higher than the 80% equities with Vanguard LifeStrategy 80% and nearly 17 percentage points higher than the 76% equities in Wealthify’s Adventurous choice.
When I originally opened the accounts, the percentage of equities was much more similar, within three percentage points of each other: the same 80% for Vanguard, but 81% for Nutmeg and 83% for Wealthify.
Here’s how my choices now stack up when investing £1000 in an Isa or general investment account:
*Minimum investments may vary for other products
**Total annual fees includes fees for the account, for the funds and for transaction costs/market spread
Note: All companies offer ethical or socially responsible investment alternatives, typically with higher fees, but I just went for standard versions.
After one year in March 2019: bright!
By the end of the first year, I’d invested £5,200 across four different companies, including the £100 a month payments to Nutmeg.
I ended up with £241.77 in investment growth and another £150 in cashback, just by opening the accounts and staying invested.
Growth did vary between the different accounts. I focus on ‘time weighted return’. That just means the percentage growth shows how much the investments actually grew, regardless of any money added or withdrawn, such as the cashback and Nutmeg monthly payments.
My Vanguard LifeStrategy 80% investment grew the most (7.39%), higher than Moola (6.25%), a chunk more than Wealthify (4.14%) and more than twice as much as Nutmeg (3.4%).
The growth rates weren’t mind blowing, but then markets as a whole hadn’t performed amazingly either.
What could possibly go wrong??
After two years in March 2020: bleak!
Up until February 2020, everything was ticking over nicely during the second year.
Moola closed in February 2020, but when transferring out on 21 January, I’d gained £100 cashback and £203.46 investment growth.
Then coronavirus hit, slashing global stockmarkets, wiping out any gains from the first year and dragging my investments into the dustbin.
When I checked my balances after two years, on 21 March 2020, my Nutmeg and Vanguard balances were both worth less than the money I’d paid in. The only reason my Wealthify balance was still positive was because the losses hadn’t entirely consumed my cashback and refer a friend bonus.
The harsh reality was that during the second year, my Vanguard LifeStrategy 80% investment dropped -11.9%, Wealthify plunged -12.7% and Nutmeg plummeted -17.9%.
All the investment caveats about ‘capital at risk’ were staring me in the face.
Interesting post over on Monevator about what to do during stock market crashes
After three years in March 2021: bounced back!
My previous update wasn’t great for my blood pressure.
Quite by accident, my second year ended at pretty much the lowest possible point for global stock markets.
If I had panicked and sold then, I’d have lost money and slunk off with my tail between my legs.
Instead, I gritted my teeth and hung on, hoping stockmarkets would eventually pick up. The only change I made was cancelling my Nutmeg direct debit, so I could divert the payments into a pension elsewhere. The biggest change for the companies themselves was that big insurer Aviva finally acquired the whole of Wealthify in June 2020. Previously it owned a partial stake.
Thank goodness I stuck with my own investments. Since then, markets have wobbled upwards, with only minor dips, and I’ve seen stunning growth.
The net result? During year three, rising from the bottom of the barrel in March 2020, my investments with Vanguard and Wealthify are both up 33%, while Nutmeg has outstripped both by growing 44%. WOWSERS.
Total robo adviser results after three years
In total, looking back over all three years, Wealthify has grown 22%, Nutmeg has edged ahead with 23% and Vanguard topped the table with 28%.
Here are the results after three years, focusing on the investments rather than any cashback or referral malarkey:
|Risk level I chose||9||Adventurous||LifeStrategy 80%|
|Year 1 18/19|
|Year 1 18/19|
|Year 2 19/20|
|Year 2 19/20|
|Year 3 20/21|
|Year 3 20/21|
|All Time 18/21|
|All Time 18/21|
Note: As mentioned above, the percentage growth is time weighted return. That just means it shows how much the investments actually grew, regardless of any cash added or withdrawn, in my case the cashback and referral bonuses from Wealthify, and the cashback and extra £100 a month paid into Nutmeg until February 2020.
That’s why Nutmeg shows such large changes in pounds – they are generated from a much bigger amount of money.
So my Vanguard LifeStrategy 80% investment grew most in the first year, lost the least in the second year, and bounced back enough in year 3 to remain in the lead.
Wealthify did OK in the first year, wasn’t far behind when markets were falling, and picked up in line with Vanguard last year.
However Nutmeg has raced around on the inside. My balance grew less than half as much as Vanguard originally, and over two years had fallen nearly three times further. But over the last year, it’s growth blew the other two out of the water.
Looking at total growth over three years, Nutmeg has edged in front of Wealthify, though Vanguard remains ahead.
Cheerful screen grabs after three years
Here are the screen grabs from my accounts, showing performance over 3 years, since investing in March 2018. After falling off a cliff last March, they have accelerated back (see the Nutmeg graph to spot the dip).I checked on 21 March 2021, but as that was a Sunday when markets are closed, the balances actually reflect the closing value from Friday 19 March.
Vanguard: £279.57 & 27.96% investment growth, £1,000 contribution
Wealthify: £251.15 & 21.86% investment growth, £1,200 contributions & cashback
How do these robo adviser results compare to other wealth managers?
As before, I turned to the Asset Risk Consultants (ARC) indices to find out how everyone else has done.
These indices work out average returns after fees for customers of the big wealth managers, including Barclays Wealth, Coutts & Co, UBS, JP Morgan Private Bank and Rathbones.
There are four ARC indices, and my investments fall in the highest risk category: ARC’s ‘Equity Risk’.
The low cost robo advisers should look good when comparing results after fees, given you’d expect the other ARC companies to be charging an arm and a leg.
In practice, for that range of equities, ARC’s Equity Risk portfolios were up on average between 17.2% and 27% over the three years to 21 March 2021.
So it looks like Vanguard did better than average, growing 28%, while Nutmeg and Wealthify were solidly in the middle of average (up 22.6% and 21.9% respectively).
Compare your own investments here, then click ‘£’ and choose the amount you have invested equities. Tick ‘I have daily data’ if you want to compare specific dates rather than months.
Hallelujah. After the horrors of the coronavirus crash, my investments have battled back to overtake the previous peak in early 2020.
Middling returns in the first year, followed by disaster in year two, was capped by gob-smacking performance in year three.
I’ve invested a total of £5,400 of my own money in Nutmeg, Wealthify and Vanguard. After three years, I’ve ended up with another £1,240 in investment growth, plus £500 in cashback and referral bonuses.
Of course, I chose frisky investments which might be expected to grow faster but fall further. Taking a more cautious approach should see lower losses in troubled times – but also smaller gains when markets are flying.
This three year performance remains a short time in investment terms. Ideal world, you should only invest money you can leave untouched for at least five years and ideally longer, in case the markets repeat the shenanigans we’ve seen recently.
For me, the most interesting part of the last year was Nutmeg’s performance.
Previously it lagged badly in last place. I bemoaned this as a shame, as although Nutmeg has the highest fees, it’s also the biggest, most established robo adviser, with the most informative website, biggest range of products and most efficient payment processing, and the only one regulated to give simplified advice.
Then this year, it ramped up equities and roared back so fast it even managed to edge ahead of Wealthify.
But Vanguard, with the lowest charges, still tops my investment tables with 28% growth over three years.
The website remains less fancy, with no app and no questionnaires to guide your choices. It still doesn’t offer cashback bribes. However, should it help you sleep at night, Vanguard is also one of the biggest investment companies in the world, dwarfing whipper snapper fin tech start ups.
If you are still interested in cash back, here’s what’s available in April 2021.
I will merely note that the company offering zip all cashback or referrals has done best for me.
New Wealthify customers: nothing on offer right now via TopCashback, Quidco or even MoneySavingExpert, but there’s £25 each up for grabs via my referral link.
Now – over to you. What’s your experience with robo advisers? If you’ve never invested, what’s holding you back? Do share in the comments, I’d love to hear!
Disclosure: No-one has paid me to write this post, although I have written collaborative posts with Vanguard in the past.