Nutmeg - £200 sign-up bonus - vs. Vanguard?

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  • george4064
    george4064 Posts: 2,811 Forumite
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    Do Nutmeg usually do a sign up bonus around every tax year end?
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  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    george4064 wrote: »
    Do Nutmeg usually do a sign up bonus around every tax year end?
    They have done sign up bonuses before but they have not been going many years; the investment in marketing and freebies is inevitably going to be strong at the beginning but you can't assume that if there's an offer this year there would also be an offer next year.

    Sometimes there can be more than one offer to choose between, for example last year there was a hread running on what you can can get from Nutmeg by going through Quidco or Topcashback. (http://forums.moneysavingexpert.com/showthread.php?t=5603564)

    A friend of mine is doing the offer for him and partner (he does lots of cashback stuff) and I pointed out that Nutmeg are not the best or cheapest investment house in town - but at the end of the day the rate of return on the cashback (assuming you are doing the bare minimum to qualify and are not 'locking up' your ISA allowance that you could put to better use elsewhere) is pretty good.
  • stphnstevey
    stphnstevey Posts: 3,224 Forumite
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    Surely, with fees as well, there is a potential for the investment to go down in value, which could wipe out the gain and not make this very worthwhile
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    edited 15 March 2018 at 5:15PM
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    stphnstevey wrote: »
    Surely, with fees as well, there is a potential for the investment to go down in value, which could wipe out the gain and not make this very worthwhile

    Yes of course there is potential for the investment to go down in value but the "free money" enhances the returns you get for the risk you take; as such, you get the potential of higher returns on the upside while cushioning your downside.

    Effectively if you compare it with investing in a portfolio of underlying assets elsewhere with equivalent risks, this would be delivering an extra x% return per y unit of risk because there is someone on the outside throwing in extra cash to your pot as a boost.

    Where that money comes from is the marketing team's budget, which is in turn funded by a combination of money from the backers of the Nutmeg business and the fee revenue they take from the punters (including the punters who didn't participate in the promotion).

    The fees at nutmeg might be a bit over the odds and so if you're investing tens of thousands in a mediocre product and locking yourself into it for just £200 free cash, it's not a no-brainer at all. That's what they hope you'll do in an ideal (for them) world. However if you are just sitting on the fringes of the promotion putting the bare minimum cash into it to qualify - you maximise the percentage enhancement to your returns, which will be substantially higher than the platform and management fees they take and so you are a "winner" even if the fund loses value. Because if you had invested without the boost, then losing the same underlying value is much more painful.

    No real reason to invest in this at a higher risk profile than you would have invested in a similar product elsewhere, just because you're getting the bonus. You don't get a bigger bonus if you choose a higher risk product.
  • LesLittle
    LesLittle Posts: 5 Forumite
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    Not been impressed with gains on my S&S ISA with Nutmeg when compared to others over the same period, however I got a similar £200 (through quidco) which has more than made up the difference - given the small amounts i have invested!
  • stphnstevey
    stphnstevey Posts: 3,224 Forumite
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    LesLittle wrote: »
    Not been impressed with gains on my S&S ISA with Nutmeg when compared to others over the same period, however I got a similar £200 (through quidco) which has more than made up the difference - given the small amounts i have invested!

    Can you quantify your gains?
  • stphnstevey
    stphnstevey Posts: 3,224 Forumite
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    Not discounting the incentive, but looking at what they invest in, seems to be tracker index ETFs

    So their business model seems to be to charge active manager fees of around 1% to provide a fund of diversified index trackers weighted to their "expert" preference

    An expensive Vanguard clone?
  • chockydavid1983
    chockydavid1983 Posts: 713 Forumite
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    Alexland wrote: »

    Nutmeg cost to invest is 0.72% (0.45% platform, 0.17% fixed allocation ETF OCF + 0.10% investment costs) and Vanguard with VLS60 would be 0.48% (0.15% platform, 0.22% fixed allocation ETF OCF + 0.11% ETF investment costs. So Nutmeg are 0.24% more expensive.

    So on £1900 for 2 years that difference would be £9.12 so the bonus is 'only' worth £190.88.

    Alex

    Thanks for posting this OP. I'm considering doing this with a GIA with the minimum invested.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    stphnstevey wrote: »
    Not discounting the incentive, but looking at what they invest in, seems to be tracker index ETFs

    So their business model seems to be to charge active manager fees of around 1% to provide a fund of diversified index trackers weighted to their "expert" preference

    An expensive Vanguard clone?

    They have two offerings. One invests in ETFs in broadly fixed allocations at a few different performance levels which you could say was somewhat similar to what a Vanguard Lifestrategy fund would do.

    Their charge for that - at 0.45% for their fee and under 0.2% for the operating charges of the ETFs themselves - would be not really any more expensive than going to (say) Hargreaves Lansdown and paying a 0.45% platform fee and then buying Vanguard Lifestrategy on that platform and being exposed to the 0.2something percent operating costs of VangLifeStrat. Granted it's more expensive than going direct to Vanguard and paying their platform fee of only 0.15% plus the fund charge. Still, they don't claim to be the absolute cheapest on the market.

    The other offering is the more "active" one where you have a wider choice of risk targeted portfolios and the 0.45% is replaced with 0.75% to cover the active management /robo-advice they do. If you went to a 'conventional' IFA you might pay 0.5% ongoing for the advice (more on a small pot) and would have platform fees as well as the fund operating fees. So their offering is pitched cheaper than that.

    I say "pitched" cheaper than that, but if you have a large pot you could beat the costs with an IFA, and you could certainly beat it if you DIY'd because there wouldn't be any advice fee, and if you did pay for an advisor you would actually get personal advice which you don't get here.

    So the two offerings do have their place within the full gamut of what is available in the UK financial services market, but neither are trying to be the very cheapest DIY thing you can buy, nor the very best advice you can buy.
  • busy_dad
    busy_dad Posts: 63 Forumite
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    Really have been considering this offer. Was about to start investing in VLS on their own platform, which I can still do in an ISA and open a GIA with Nutmeg alongside. The £200 should more than make up for the differences in charges and growth/loss so the only negative I can see is that dunstonh mentioned they have been loss making every year.

    However as there is FSCS cover is there really any risk? (aside from investment risk which I would/will get with Vanguard anyway?).
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