App based investment portfolios now offer anybody with a smartphone the opportunity to invest in the stock market with no knowledge of how the market works or how to make investment decisions themselves. Moneyfarm, Nutmeg, Wealthwise and others are becoming household names. But do these funds perform? And if so, how well?
After a friend of mine opened a Moneyfarm account and was then bragging about how well it was performing, I thought I’d try one of these managed portfolios for myself.
Being an IG customer already, I signed up to their Stocks & Shares Smart ISA with 50% of my annual ISA allowance, putting the other half of the allowance in a self-managed stocks and shares ISA in order to answer the question: Could I outperform a professionally managed investment portfolio?
Before you invest in an IG Smart Portfolio, they ask you a bunch of questions about your approach to risk and what kind of loss would upset you. Then, it goes to work.
IG’s SmartPortfolio instantly invested all of the money in what appear to be indexes and bonds. They don’t buy any actual stock but instead track various indexes around the world. This is a fairly low risk investment strategy.
While it resisted downturn at first, the balance did eventually turn negative – like just about everything else at the time.
The highly diversified approach would make it unlikely to see any major movement on a daily basis – and of course that all depends on how you answered the initial questions.
It is our belief that if you have large amounts of capital to invest and you also do another unrelated job, getting more heads to manage your money is not a bad idea. Diversifying your investments can mean diversifying the brains that make decisions about them.
As such, smart portfolios is one fairly inexpensive way to go.
Things To Be Aware Of
We don’t really want to say anything bad about the IG Smart Portfolio, though do be aware that when you take money out, according to IG’s customer services, you cannot transfer that money to another ISA. It has to come out of the wrapper first (which means if it’s worth more than you put in, you won’t be able to get the profit back inside the wrapper).
This, we feel, sort of defeats the object of ISA investment, since one of the pros of doing stocks and shares inside and ISA is that you can reinvest your profits inside the ISA wrapper without tax eroding your growth.