December 2019 - MoneyUnshackled.com

The Vanguard LifeStrategy Funds are amongst the most popular funds out there, being ultra-diversified, ultra-cheap, and managed by Vanguard – our favourite fund provider.

Vanguard products are great if you know a bit about investing and can make an informed decision about which one to go with. But even the LifeStrategy funds come in multiple forms; accumulating, distributing and at various equity levels – and a beginner and experienced investor alike might want a more tailored product without having to do the research.

That’s where robo-investing comes in. Nutmeg is the most popular robo-investing platform on the market and takes the hard decisions of investing out of your hands, while giving you the investment spread you wanted.

Both LifeStrategy and Nutmeg encourage regular monthly investing, to compound gains over time while avoiding the worst of the market’s dips, keeping costs low, and diversifying your money across a wide range of assets.

Vanguard LifeStrategy – the most popular fund out there – versus Nutmeg, the genius robo-investing all-in-one portfolio solution. Which wins? Let’s check it out!

Editors note: If you like the sound of Nutmeg, feel free to get your platform fees cancelled for the first 6 months when you open your account via our referral link on the Offers Page.

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The Vanguard LifeStrategy Funds

LifeStrategy is a fund of funds, a portfolio in its own right. There are 5 versions of the LifeStrategy fund in the UK. These are split down the lines of proportion of equities to bonds in the fund, with equities being considered higher risk but with greater upside for returns.

Bonds are about as close as you can get to cash savings whilst still being a risk-bearing investment. As the graph shows, shorter term goals are better served by fewer equities, which are more prone to swings in valuation in the short term.

We invest for the long term, so would and have chosen the 100% Equity LifeStrategy fund,

But deciding which is best for you is part of the problem of knowing what to invest in now to bring the results you want in the future.

It might be to your benefit to own some bonds – maybe you don’t know your needs as well as you think you do.

Robo-Investing

Nutmeg is one of the major robo-investing platforms, and the one we’d go to first due to it’s ease of use, range, past record and that you can save yourself the first 6 months of fees when you sign up through our referral link.

A robo-investing platform is a digital wealth manager that offers an extremely low-cost way to build an entire portfolio of stocks and bonds, along with access to basic investment advice from the inbuilt AI.

On signing up, you will be asked a small number of fact-finding questions with risk-profiling to help decide on a suitable investment portfolio.

Most investments require you to make all your own investment decisions and to take responsibility for your own portfolio. Nutmeg is a blessing for novice investors as it will make all those decisions for you based on your answers.

This is the digital equivalent of paying an expert financial advisor to interview you and construct a portfolio of shares and bonds on your behalf – except that rather than costing the earth, it’s ridiculously cheap, with fees being either initially free, or around than half of 1 percent of your pot per year.

Both Vanguard LifeStrategy and Nutmeg build their portfolios from a base of ETFs and index tracking funds, of both equities and bonds, so are both ultra-diversified and ultra-cheap.

We have built our own portfolios from ETFs in the past, and done a pretty good job too – but investing consistently into multiple ETFs can still be problematic on a traditional platform due to transaction fees.

The zero-fee trading platforms Freetrade and Trading212 are great to use to construct your own ETF portfolio without these pesky fees, but the range of choice is limited.

With one monthly investment of say £100 into LifeStrategy or Nutmeg, your money is instantly spread across many ETFs without incurring trading fees – true in the case of LifeStrategy if you purchase it directly through Vanguard’s own trading platform, that is.

Which is Simplest?

Nutmeg is simplest for 2 reasons: the whole package is in one place, i.e. Nutmeg creates and holds your portfolio; and it does all the research for you.

Vanguard LifeStrategy, while a portfolio of funds, is itself a fund that you can buy on a wide range of third-party platforms, meaning you need to work out the platform with the best fee structure for your circumstances, and then buy LifeStrategy through it. And you have to decide for yourself which one of the 5 fund types to invest in for your risk profile.

If you’re only interested in investing in LifeStrategy and perhaps other Vanguard funds, the cheapest and best place to do this is on Vanguard UK’s own online platform.

Which has the Cheapest Fees?

Vanguard LifeStrategy, assuming you buy on Vanguard’s own platform. The funds have an ongoing charges fee of 0.22%, and the platform is amongst the cheapest with an account fee of only 0.15%. This sums to 0.37% in total.

Nutmeg is an all in one package and has 2 standard fees, the main one being an ongoing charges fee of 0.45% for a Fixed Allocation. If you want to go Fully Managed the fee increases to 0.75%.

The Fixed Allocations with a lower fee are probably going to work out better in the longer term because fees usually do matter. There is also a 0.17% fund fee to factor in.

So LifeStrategy is slightly cheaper at 0.37% compared to Nutmeg’s 0.62% including the fund fee – but remember that Nutmeg fees are cancelled for the first 6 months if you use our link.

Which has the Best Returns?

These are stock market investments so we can’t say with certainty what their future returns will be. But we can look at past performance as a guide.

Comparing the highest risk options from each provider, Nutmeg 10 vs LifeStrategy 100% Equity, we see two excellent investment options.

Nutmeg comes in with a historical average annual return of 8.9% since 2013, smashing the stock market average which we might expect to be around 7%. We love to see a graph tick upwards!

While Vanguard has done even better, with historical average annual returns of 10.0% since inception in 2011! If you’d invested £10,000 back then you’d have more than doubled your money by now.

Both funds average returns are since inception, so slightly different time periods, but Vanguard on the face of it wins the best historical returns test – but it’s so close as to not make much difference for future expected performance.

Your investment is looking like it’s in safe hands with either of these legendary providers.

Conclusion

Both options are excellent for diversification and returns. If you’re looking for simplicity as a new investor, choose Nutmeg.

If you are already set up on a premium stocks and funds trading platform, consider simply buying LifeStrategy through it and – boom! – you’re all set.

If your objective is to reduce fees, both are very cheap and therefore both are great choices, and Nutmeg has no fees whatsoever for the first 6 months when you use the link on the Offers Page.

Stock Market

Robinhood! The app that changed the investment landscape for ordinary investors in the US is finally coming to the UK. It’s been talked about for some time, but it’s just been announced that its going to land in early 2020. It really is exciting times in the investment world right now.

Being based in the UK we’ve not had the pleasure of using the app ourselves but have heard endless stories from those across the pond about how revolutionary Robinhood has been.

For those wondering what these two guys are babbling on about – Robinhood is of course the pioneer of commission-free investing.

This is not just a claim. They’ve got over 6 million customers in the US and changed how investing is done forever; essentially forcing all the major US investment platforms to follow suit and laying to rest those much-loathed trading fees.

Here in the UK we’re always a little behind the pace but we’ve already seen a few investment apps bring commission free trading to the UK including Freetrade and Trading 212.

When it comes to the UK market is Robinhood too late to the game? And what can they do differently that the likes of Freetrade aren’t already doing?

Here we’re going to look some of the cool things we can expect from a Robinhood UK Investment app.

Editors note: For those who can’t wait, check the MU Offers page and grab your free shares worth up to £200 when you open an account with Freetrade, the current king of free investment apps in the UK.

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What Can We Expect?

Looking at an article from Techcrunch, Robinhood are claiming,

“It starts with our core platform: unlimited commission free trades, no account minimums, and access to a huge range of equities from both the US and from across the world,”

“Secondly, we will enable instant deposit, instant trading, without any foreign exchange fees. Users can fund very easily from any U.K. bank using a phone or debit card and withdraw just as easily”.

That all sounds great but doesn’t appear to be much more than what we currently have. Freetrade and Trading 212 are already offering most of this after all, and are very good Free-Trading apps.

Nevertheless, we welcome Robinhood with open arms as the increased competition can only be good for us investors.

The current free apps in the UK are lacking additional features, so it will be interesting to see what Robinhood offer. Although it is still very early days and improvements are being made all the time.

According to Techcrunch, Robinhood will also include information to help with trading, including videos from the Wall Street Journal, CNN and Reuters, along with features to help users keep track of their investments, such as price movement alerts, analyst ratings, earnings, and being able to dial into earnings reports.

This sounds awesome and we think the current assembly of free apps is not yet excelling in this area.

However, we doubt that even Robinhood will be able to deliver as much as a fee-based platform but we’re eager to find out.

We might be wrong here and let’s hope we are. How great would it to have an all singing and dancing investment platforms that doesn’t charge?

According to CNBC, Robinhood have a valuation of $7.6 billion, so they certainly have the financial backing to make this a possibility.

New Investors

Here at Money Unshackled we’re on a mission to get more people thinking and talking about money… actually not just talking – we want people taking action with their money.

Young people in UK don’t invest, which is a travesty. It is so easy to make a fortune in the markets over the years, but nobody is doing it.

Apps like Robinhood and Freetrade are not just stealing customers from the existing platforms but they are democratising investing and opening it up to new and young investors, which otherwise may have felt that investing was inaccessible.

The ability to buy shares in exciting companies like Apple and Google using your mobile without being charged is so incredible.

Join the Waitlist?

At the moment you can join their waiting list. We think the idea here is to pretend that there’s some sort of urgency to join up in order to get more people to rush to their app.

We remember Freetrade doing something similar when they launched but we’re confident that when the app becomes available, they will let everyone use it pretty much straight away.

We are even tempted to say that you shouldn’t rush to the app because they could even offer you a free share to join because of the tough competition.

Almost all the apps and platforms are trying to entice you to join and so are giving away free money. You can check the offers page to see what offers we’ve managed to find for you.

We would expect that Robinhood will initially be giving nothing away but once the initial early adopters have signed up, we would then expect them to join the ‘refer a friend’ revolution.

We’ll certainly be getting in touch with them to see if they can offer anything to our viewers, so look out for this.

FSCS Protection?

Normally UK citizens are protected against platform failure by the Financial Service Compensation Scheme, which is a UK protection scheme.

However, according to Robinhood UK’s own website it seems that protection will instead come from a US scheme. This does seem unusual as all the investment platforms we’ve dealt with previously were either UK protected or occasionally European protected via the EU passporting laws.

Is it just US Stocks?

Again, according to Robinhood you can trade 3,500 US stocks plus over 1,000 global stocks listed on NYSE and Nasdaq. This isn’t clear on which stocks will be available, but it seems that it is only US listed stocks.

Let’s hope that this is just for the launch and UK listed stocks and ETFs are just around the corner.

If not, then we think this would put them at a massive disadvantage when compared to Freetrade and Trading 212.

Do you think Robinhood is the gamechanger we’ve all been waiting for or is Freetrade and Trading 212 already doing way more? Let us know in the comments section.