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Robo-advisors


TheBlueCat
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I've been sceptical of these (stupidly) named products as they seem to be mainly a way for big banks to give you the same shitty service but at an even greater profit margin for themselves. Having said that, the basic concept of picking an asset allocation strategy and having some software do the actual trades via a collection of low cost ETFs or even individual stocks & bonds is a good one and is basically the same as the approach I've taken managing my own investments over the last 20 years or so.

Anyway, to cut a long story short, I bunged 100K or so into a Wealthsimple account (I'm in Canada but I think they operate in the UK too) 6 months back and have been tracking what they do with it very carefully and I've got to say I'm impressed. Overall, including their fees (very simple, 0.5% of AUM) and the fees of the underlyings (all very low cost ETFs, about 0.1% on average) I'm paying at least 1% less than the equivalent service from a full cost wealth management company. It's still more than if I do it myself of course, but it's a lot less hassle and they don't fuck up in the way that I sometimes do. Also, they spot capital loss opportunities and take them in a way I just don't have time to - that alone probably covers all the fees I pay.

I'll post some updates as I go but I'm seriously considering moving all of my non-pension assets based on what I've seen so far.

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4 minutes ago, Inoperational Bumblebee said:

What's the asset allocation and rebalancing period? Or is that 'propietary information'?

I checked them out yesterday. They've not been in the UK long but have published some information. How accurate it is, no idea.

Asset Allocation - https://www.wealthsimple.com/en-gb/details

Further Details - https://help.wealthsimple.com/hc/en-gb/articles/115000328367-What-asset-classes-do-your-funds-represent-

 

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I also saw the DM/Money where pushing another Robo investor yesterday, forget the name now, but their fees were pretty high compared to others. I signed up to Moneyfarm a while a go via quidco, was a pretty good incentive. £200 cashback and no fees on the first £10k or something like that. Performance was pretty poor though for the 6 months i was with them. Circa 2% when the market went up something crazy like 15%. I had my LISA with nutmeg, again performance was poor.

I think the reason for this is at the time of signing up I didn't really know too much about investing. They have you fill these pointless questionares which put me in balanced asset allocations. It's funny though, I recently received an email from nutmeg saying they're moving more into FAANGs, which kind of made me laugh as they're looking very bubbly at the moment and they've missed the huge gains already.

I took alot of WAICO's book and a chart like below really said it all. I'm doing it myself now and if it goes tits up at least I can blame myself rather than some toothless computer.

novelinvestor-Asset-Class-Returns-FY-201

 

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6 hours ago, Inoperational Bumblebee said:

What's the asset allocation and rebalancing period? Or is that 'propietary information'?

All very open - another thing to like about them. Rebalancing works like this:

https://help.wealthsimple.com/hc/en-ca/articles/115000330507-How-does-rebalancing-work-

Asset allocation depends on what you choose in terms of risk, but I went for a medium risk setup which is about 50% fixed income, 50% equities. Currently as follows:

Screenshot from 2018-07-14 14-07-26.png

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6 hours ago, Admiral Pepe said:

I also saw the DM/Money where pushing another Robo investor yesterday, forget the name now, but their fees were pretty high compared to others. I signed up to Moneyfarm a while a go via quidco, was a pretty good incentive. £200 cashback and no fees on the first £10k or something like that. Performance was pretty poor though for the 6 months i was with them. Circa 2% when the market went up something crazy like 15%. I had my LISA with nutmeg, again performance was poor.

I think the reason for this is at the time of signing up I didn't really know too much about investing. They have you fill these pointless questionares which put me in balanced asset allocations. It's funny though, I recently received an email from nutmeg saying they're moving more into FAANGs, which kind of made me laugh as they're looking very bubbly at the moment and they've missed the huge gains already.

I took alot of WAICO's book and a chart like below really said it all. I'm doing it myself now and if it goes tits up at least I can blame myself rather than some toothless computer.

novelinvestor-Asset-Class-Returns-FY-201

 

If you're in a balanced portfolio then not going up with the stock market 1:1 is exactly what I'd expect. Of course, if it goes down 1:1, then that's certainly a problem! 10 years back I was almost 100% in equities of various types but, as I'm gradually approaching retirement, I'm starting to shift to lower risk stuff. I was doing all the management myself but it was eating so much of my spare time I decided it was worth paying someone else to do it. I talked to a couple of full on wealth management companies and they were absolute cunts - first guy tried to sell me a pile of full load mutual funds (5% spread + 2-3% fees) - so I decided to take a look at the robos. 

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I find it amazing how much a lot of people spend on management fees for investment. The long term returns from the British stockmarket is a real return of 5% a year. In the UK Unit Trusts can typically charge 2% a year... Add in other fees for a financial adviser etc and fees can soon be taking away half of your likely returns...

 

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5 hours ago, Great Guy said:

I find it amazing how much a lot of people spend on management fees for investment. The long term returns from the British stockmarket is a real return of 5% a year. In the UK Unit Trusts can typically charge 2% a year... Add in other fees for a financial adviser etc and fees can soon be taking away half of your likely returns...

 

Yep, it's astounding really. Aside from one or two speciality areas of investment (e.g. commercial property) there is no good reason I can think of to buy anything other than low cost index tracking investments. ETFs - so long as they're the type that buy the underlyings and distribute the dividends - and unit trusts with management fees of 0.1% or less are easy to find and do all of the hard work for you.

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  • 1 year later...

Nearly 18 months in and I’m still happy with how it’s going. My returns are at an annualized 7% and volatility has been low. The only minor gripe is that they take more of a broad brush approach with rebalancing than I’d like resulting in some capital gains that could have been deferred.

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  • 3 months later...
On 22/11/2019 at 12:17, JoeDavola said:

I'm maybe being thick here but why would you use this over a low cost index tracker? Higher returns?

More diversification and automatic rebalancing. In principle someone could create a single ETF that covered stocks and bonds across multiple geographies and keep it balanced according to preset parameters but, right now, they don’t. There’s an added piece which is easy access to the money and the ability to handle different account types (cash, pension, tax free savings, etc) in one place - that’s very helpful but not the primary reason for using it.

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An update on this one. From peak to trough over the last couple of weeks, I lost at most 2%. The fall in equities was mostly countered by a rise in fixed income and the fortuitous timing of some dividend and coupon payments. Right now I’m up 2.5% on Jan 1 so, all in, I’m pretty impressed with how well it worked.

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  • 4 weeks later...

Another update. After the crazy girations of the last few weeks I now seem to have settled on around 7% down peak to trough. Things could certainly go south again but, overall, I’m really happy with that result. I took a much bigger, albeit temporary, hit during the 2007/2008 crash when I was managing my investments directly and was less diversified.

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  • 1 month later...

Ok, in the crazy world in which we now live,  my Wealthsimple portfolio is currently 1% up vs January 1st 2020 (that includes reinvested dividend and interest but no new deposits). The auto rebalancing really came into its own. As shares plunged, they sold bonds and bought more shares to keep the ratios right. When shares bounced back, they sold shares and bought bonds. The even better part is that all of this produced a load of capital losses that I can offset against prior year gains and get some tax back. I continue to be impressed.

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