Just under three months ago I set up a Nutmeg ISA account with the express plan of bringing you a review of their services. After such a short time how has the system and investments fared?
Can Nutmeg Solve All Your Investing Problems?
What is Nutmeg?
Nutmeg is an online investment management service founded in 2011 in London by Nick Hungerford, a former stockbroker and William Todd. Six years after their founding the company has grown a customer base around 40000 strong.
The company is a discretionary investment management style company making all of the investment decisions for the customer. The customer answers a series of questions enabling Nutmeg to determine the level of risk suitable for each individual investor. The company offer both a fully managed portfolio and a fixed allocation portfolio.
Nutmeg Fully Managed Portfolio.
The nutmeg fully managed portfolio is mostly made up of ETF’s (exchange traded funds). As the investment progresses, changes are made based upon changing world events. Recent examples of world events causing portfolio remodelling include 2016’s Brexit and also the US Presidential election.
Nutmeg Fixed Allocation Portfolio
The fixed allocation portfolio is again made up of ETF’s but this time once they are in place there is no management provided by staff. Any re-balancing due to growth and decline of the investments is automatically handled. Investments of the dividends are also handled automatically.
Costs Of A Nutmeg Portfolio
Fully Managed Portfolio
Up to £100,000 0.75%
Over £100,00 0.35%
Investment funds cost 0.19% (avg)
Fixed Allocation Portfolio
Up to £100,000 0.45%
Over £100,00 0.25%
Investment funds cost 0.17% (avg)
Who Is Nutmeg Designed For?
Nutmeg is primarily designed for people who have limited or no interest in the process of investing but want some of the benefits. It would also be quite useful for people who are very time limited and are not able to dedicate time researching funds or individual shares.
This doesn’t really describe me so I thought I’d bring an alternative point of view to the rest of this article. This will be based on my wife who has absolutely zero interest in stocks, shares, bonds or investments.
Setting Up A Nutmeg Individual Savings Account
The first question you are asked is to choose between an ISA a LISA or a pension. For the purposes of the review we have chosen an ISA as this is the most flexible. You are given some small details about the differences between these categories. My wife understands what the major differences are between an ISA and a LISA are but she doesn’t yet fully understand the costs and benefits.
You are then asked to decide on your investing goal. This is fairly self-explanatory and can be seen below.
You are then asked to select a timeline with 10 years set up as the standard pre-populated answer. We decided to run with this based on the fact many people may leave this untouched.
As this is just an example we opted for the minimum opening investment into the ISA of £500 with £100 per month the minimum regular investment. You can if you choose, invest up to £5000 per month.
At this point you are asked to make the big decision regarding the “fully managed” or the ”fixed allocation”.
To keep costs down we stuck with the fixed allocation. One of the most significant factors on investment returns is the long-term costs. Over 30 years costs can have an effect running into hundreds of thousands pounds.
Nutmeg Risk Questionnaire
Another major factor in investment returns is risk, this is not something that should be avoided. On the contrary in fact, risk in many circumstances should be sought out.
This leads us onto the aforementioned risk questionnaire which will give Nutmeg some insight into your tolerance of risk. As with all questionnaires if you know what they are trying to achieve the results can be “gamed”.
For the benefit of this review I wanted to have the most high risk portfolio, this was easily achieved by answering the questions with that in mind.
For those of you planning to use this as your sole investment tool you should think long and hard about the answers you give to these questions. Answering honestly could ensure your investments are worth thousands of pounds more or less in the future.
If you get to the end of the risk assessment and you aren’t happy with the rating (measured in chillies) you can opt to retake the test.
You can now select your risk reward balance, selecting between options of Cautious, Steady, Balanced, Growth and Aggressive.
For this example we have selected the account to be as aggressive as possible. If you attempt to select a risk rating more aggressive than your questionnaire results shows you have to select the reasons why you want to do this from a series of options.
After this the rest is simply plain sailing, just setting up direct debits and dates for the regular investments
Additional Nutmeg Features
Once you have one pot setup you have the option to set up a number of additional pots.
You could have one setup to save for a child’s college education with a time frame of 18 years and another set up looking towards your own retirement in 35 years.
Nutmeg Tracker App
The app enables you to keep a constant eye on your investments. Whilst this could be considered quite useful, constant monitoring long-term investments is not something to be recommended.
The app is quite basic but does allow you to add additional funds into the pot, it also allows you to track the funds progress on a graph over various time scales.
Nutmeg Investments: A Real Life Example
Our test fund has been set up for a few months, we can now take a look at the performance so far.
Firstly the “asset” type, due to selecting an aggressive portfolio we are almost completely invested in stocks with 92% in developed markets, 7% in emerging markets and 1% in “other” things. For the most aggressive portfolio available a larger percentage of emerging markets may have been preferable.
The next two options are to filter by continent and country as shown below. Due to the sheer value of the US economy and stock markets it is always going to make up a large proportion of the investment. Surprisingly 21% of the fund is invested into the UK market which is a larger percentage than the whole of Europe actually makes up of the world markets.
Even when creating your own portfolio it is very easy to become too preoccupied with your home markets and avoiding other worldwide opportunities. If we were building our own portfolio from scratch we may choose to reduce the UK investments and look to invest more globally.
Lastly you can look at the investment on a sector by sector basis. Currently over 40% of the fund is split between just two sectors “consumer” and “financials”. This could leave the fund open to some interesting dips if we experience another 2008 style banking crisis. That being said if we see another one of those almost all markets end up dropping anyway!
Today makes just the 12th week of the investment with £700 tied up. In the grand scheme of investing this is very a very short time scale and very little capital. Over the course of a ten-year investment that works out at a mere 2% of the overall time scale. Based on that we shouldn’t be expecting too much.
Drum roll please………
So far the fund has achieved a 2.46% total return.
As always past performance is not a true indicator of future trends but if we took the results from the last 30 day’s returns; 1.56% and annualised them we would be sitting on a fantastic but highly unrealistic 18.74%
Quite simply so far so good.
- The website is easy to access and navigate.
- The investments have started off well.
- The risk assessment is easy to complete and makes you think about your tolerance to risk.
Nutmeg probably won’t solve all your investment puzzles. For the serious investor it probably won’t offer enough for you to leave your Hargreaves Lansdown account, but for the first time investor this is a great place to start. I have already recommended Nutmeg to a number of friends to start them off on the investing journey.
Currently website Topcashback are offering a very appealing incentive to sign up for a Nutmeg ISA in the form of £110 cashback. If you click-through the link here you will be taken through to the page required.
I signed up using one of these offers just before the start of the financial year and have absolutely no qualms in pointing you in the exact same direction. Why not give it a go.