My thoughts on robo-advisors are these:
- They charge you (much) more than do-it-yourself investment platforms.
- In return, they offer to take responsibility away from you and let you invest in the stock market without knowing anything about it.
That could be reasonable, right?
But the issue with them is that the returns they offer are truly abysmal. It costs less than a tenner to buy a good book that explains the stock market.
It costs nothing to read r/ukpersonalfinace to get a summary and direct advice on what to invest in, if you don’t have time to read a book.
A supposed benefit of a robo advisor should be the quality of the “advice”, ie. you might hope that their professionally managed portfolios could beat the average return from the stock market as a whole.
But once you understand how the stock market works, you’ll realise the best you can really hope for long term is to try and capture the market average.
The cheapest and safest way to do that would be to invest in a passively managed global index tracking fund. Ie. You buy stock in virtually every single publicly traded company in the world. You end up maximally diversified in terms of equities, and your investment rises and falls with the stock market as a whole.
An example of such a fund would be Vanguard’s VWRL ETF. It’s as easy to open a vanguard direct account online and pick VWRL as it is to open any robo-advisor account and pick one of their funds.
The difference in your gains will partly be down to fees (Vanguard being much cheaper), but mainly down to the overly complicated portfolios the robo-advisors put together, which perform much worse than the market average.
It’s really difficult to say why the robos don’t just do the right thing by their customers and seek the market average. In their attempt to perhaps differentiate or make copying their portfolios more difficult (perhaps they are trying to make investment seem really complex to their customers?), they end up doing worse than monkeys randomly picking stocks by throwing darts at a board.
Let’s look at how bad they really are:
Nutmeg’s highest performing risk “10” portfolio has a 6.5% 5 year annualised performance.
VWRL’s 5 year annualised performance is 12.52%.
Wealthify don’t have 5 year figures, but their best portfolio gained a total of 25.5% over 3 years.
VWRL gained 45.9% in the same time period.
Wealthsimple has the worst fund performance reporting and the best I could find was their 1 year performance on their 90% growth fund: 5.52%.
It’s not especially meaningful to compare funds over 1 year, and of course VWRL is 100% equity so that’s not a fair comparison, but none-the-less, VWRL gained 11.69% in the same time period.
Have no doubt that the robo-advisors do you an active disservice and charge you through the nose for the privilege.