Robo Investing - too good to be true?

fiisch

I'm 30, a new dad, and hate my job/career. I'm a contractor and extremely well paid, to the point where a career change would represent a significant drop in salary.

I've been investigating ways of putting my income to good use, after I've paid off a couple of smallish debts by the end of the year. I've opened a Moneyfarm account to see how it works with a modest sum, and am getting the investor buzz.

However, it seems too good to be true. 20-28% returns depending on your risk profile, which by my calculations could replace my income after 10 or so years if I continue to deposit £250/month. Obviously there is the risk of a drop in the stock market, and ultimately I'd look to diversify with a P2P and second S&S ISA in my wife's name but.....

What am I missing? Surely those returns aren't consistently possible, and if it's that easy why does anyone invest themselves?

I may have got carried away after my first £1.24 in interest and drooling over the possibilities with the help of a compound interest calculator , but before I get carried away - what these robot investors are offering simply doesn't seem feasible, yet reviews I've read seem to support 20%+ returns...?!

What are your thoughts on these new boys? Would I be better off placing my money in P2P (Bond Mason).

Plan to save around £750/month in addition to overpaying mortgage and being otherwise debt free (except car payments, my one vice...!!)

dunstonh

robo Investing - too good to be true?

you mean a fudge between full advice and DIY?

However, it seems too good to be true. 20-28% returns depending on your risk profile,

This is where no-advice from robo-advice fails. You are not going to get that on an annual basis.

jimjames

fiisch wrote: »

However, it seems too good to be true. 20-28% returns depending on your risk profile, which by my calculations could replace my income after 10 or so years if I continue to deposit £250/month.

Using those numbers it is too good to be true but you are right it makes sense to invest. You just need to remember that you could have a 50% drop as well as a rise if 28%

JohnRo

Moneyfarm is not robo-advice imho.

Robo-advice implies fully automated processes and non-human responses to customer/client input.

Moneyfarm is just a bunch of folks marketing a menu of pre-existing ETFs as something else at a much higher cost than needs to be paid for the same elsewhere.

Their comparison with other 'costs' is a disgrace, disingenuous at best.

AnotherJoe

fiisch wrote: »

I've been investigating ways of putting my income to good use, after I've paid off a couple of smallish debts by the end of the year. I've opened a Moneyfarm account to see how it works with a modest sum, and am getting the investor buzz.

However, it seems too good to be true. 20-28% returns depending on your risk profile, which by my calculations could replace my income after 10 or so years if I continue to deposit £250/month. Obviously there is the risk of a drop in the stock market, and ultimately I'd look to diversify with a P2P and second S&S ISA in my wife's name but.....

What am I missing? Surely those returns aren't consistently possible, and if it's that easy why does anyone invest themselves?

You'll have to give some context to that number range. Where's it from? Its possible, sure.
And so is minus 20 to 28%.

jimjames

AnotherJoe wrote: »

You'll have to give some context to that number range. Where's it from? Its possible, sure.
And so is minus 20 to 28%.

It's roughly the return many got last year. That was exceptional mainly due to our currency devaluation.

Bravepants

If you hate your job/career, you might be better saving your cash to pay for some courses that will provide you with the training for a job you will enjoy. If you could do any job in the world what would it be?

Money isn't everything, especialy if you spend a third (or more) of your life doing something you hate (even if the money is great), and a third of your life asleep getting the rest you need to get up in the morning to go back to the job you hate!

Remember the saying "Desperate times call for desperate measures!"...don't be desperate with your money!

ARandomMiser

I have money invested for me through an IFA and money I put into one of those Robo advisors. I am slightly above medium risk profile. Overall there is very little difference but the Robo comes out very slightly ahead once all costs have been taken into account.

That is one, of several, reasons as to why I am considering getting rid of my IFA and doing things myself.

Linton

ARandomMiser wrote: »

I have money invested for me through an IFA and money I put into one of those Robo advisors. I am slightly above medium risk profile. Overall there is very little difference but the Robo comes out very slightly ahead once all costs have been taken into account.

That is one, of several, reasons as to why I am considering getting rid of my IFA and doing things myself.

Over what time period? You can't judge a portfolio until you have experienced a wide range of market conditions. Coming slightly ahead in the good times doesn't mean very much.

DragonQ

The way I see it is that I've always been meaning to get into stocks and shares but never wanted the risk due to saving for a house deposit. Now I've done that, losing money in the short term isn't an issue, but I want to start small and don't want to bother with an IFA just yet.

Interest rates have dropped again due to the lowered base rate and even maximising all the 5% regular savers and 3% bank accounts out there, my average interest over the next year will be less than 4%. With the £500 cashback offer that I took advantage of yesterday, the fund would have to lose more than ~10% over a year for it to return less than my cash savings do right now. Seems worth it to me.

jamesd

fiisch wrote: »

it seems too good to be true. 20-28% returns depending on your risk profile, which by my calculations could replace my income after 10 or so years if I continue to deposit £250/month. Obviously there is the risk of a drop in the stock market, and ultimately I'd look to diversify with a P2P and second S&S ISA in my wife's name but.....

What am I missing? Surely those returns aren't consistently possible, and if it's that easy why does anyone invest themselves?

It is too good to be true. Their portfolio 4 example would long term be expected to grow at about 3% plus inflation because it's only about half invested in equities.

One with a higher equity mixture could easily have done more than twenty percent in the last year, helped by the devaluation of the pound. But that's only one year and an unusual one.

fiisch wrote: »

What are your thoughts on these new boys? Would I be better off placing my money in P2P (Bond Mason).

Plan to save around £750/month in addition to overpaying mortgage and being otherwise debt free (except car payments, my one vice...!!)

You might consider waiting until the Ablrate P2P ISA is open, hoped to be by the end of May or soon after but not certain yet. Ablrate are one of the P2P firms I normally recommend. They genuinely offer deals typically paying about 12% before bad debt and compounding, about ten percent after allowing for bad debt.

Bond Mason anticipates paying about 7-7.5% with their new charges so you can beat them if you're willing to do more loan picking work. They are a potentially good choice for pension money for those who want a hands-off option and for hands-off in general but don't have an ISA option.

So far as mortgage overpaying goes, why, when you can probably make two or three times as much as the mortgage interest cost at the moment? You could invest the money, take enough out to pay the mortgage interest on the amount invested and leave the rest invested to carry on growing.

The interesting P2P deals might well not last long term but that's OK, you can switch to something else when they become less attractive. A really interesting time to switch would be into equities after a big equity drop of say 40%. A good chance to switch in at relatively low prices, unlike the current above average ones in most places.