Suitable for you: Hundreds of thousands of new platform customers are investing for the first time and need help in the beginning
DIY investors looking for a helping hand in their portfolios are faced with an inexplicable whirlwind of ready-made options that risk leaving their hundreds of pounds out of their pockets if they make the wrong choice.
Over the years, investment platforms have operated as simple fund supermarkets, providing investors with many thousands of funds and stocks from which to create a portfolio.
But as the popularity of hands-on investing grows, platforms are rushing to offer solutions that make investing easier.
In the last two years alone, the amount of money invested in the stock market through investment platforms has grown by 20 percent and then by 12.5 percent.
Hundreds of thousands of new platform customers are investing for the first time and need help starting.
Decisions range from ready-made funds, where you buy one fund all-in-one, to model portfolios, where you are recommended several funds that you can buy and manage yourself.
The proposals are very different. Some platforms offer ethical options, others – investing ideas for children. Some make recommendations on their own, while others choose the best from around the market.
Used wisely, these tools can make investments easy, affordable and potentially profitable. But navigating the growing range of options can be surprising and lead to costly mistakes.
Universal fund with a wide range of assets …
Some investors have neither the time nor the desire to build a portfolio and manage it.
For these people, investment platforms develop a number of ready-made funds that do not require maintenance – they are periodically rebalanced and changed on your behalf.
Ready-made fund ranges are offered by vendors including AJ Bell, Aviva, Barclays Smart Investor, Charles Stanley Direct, Chelsea Financial Services, Hargreaves Lansdown and Interactive Investor. You can keep them in an individual savings account or a general investment account.
Unfortunately, on the websites of each investment platform they are found under different names. So you will need to go carefully and ask the platform vendor if you cannot find them.
For example, Hargreaves calls them Portfolio +, Interactive Investor calls Quick Start, and Tilney Bestinvest has Expert and Smart Range. Ready-made fund ranges look deceptively similar.
Helping hand: ready-made funds can make things easier for investors who do not have the time or desire to create a portfolio and manage it
Each platform offers five to nine different funds to choose from, all with low, medium and high risk options. But don’t think they’re the same.
For example, some platforms, such as Barclays Smart Investor, do not have options designed for investors looking for a return on their investment, while others do.
If income is important to you – as is especially important for many retirees – you can choose a range with an income option.
Some platforms offer ready-made funds selected from across the market, while others choose to promote their own funds. For example, Hargreaves’ Portfolio + consists entirely of Hargreaves Lansdown Multi-Manager funds.
Cash flows to these funds rose from £ 20.39 million to £ 197 million last year.
You will need to decide whether you are satisfied with your platform’s assessment that its own funds are best – or whether you prefer to have access to the full market.
Some platforms offer cheap, no extra funds, consisting exclusively of stocks and bonds – the main components of the investment portfolio.
For example, Interactive Investor quick-start funds are built around the Vanguard Life-Strategy range with different stock and bond proportions depending on your appetite for risk.
Other platforms offer ready-made funds diversified across a wider range of assets. This method can prove valuable in times of market turbulence when alternative assets offer a ballast against stocks and bonds.
For example, the Tilney Bestinvest Smart range of five ready-made funds contains six percent gold and 1.5 percent cash.
… or a portfolio based on risk appetite
Some investors are happy to take on a little more work, but need direction. For these people, investment platforms offer model portfolios that are funds designed to work together to achieve your investment goals.
However, you will once again need to act cautiously as they all have different names and are easily confused with ready-made fund ranges of the platform.
In AJ Bell they are called “ready-made portfolios”, in Interactive Investor – “model portfolios”, and in Hargreaves Lansdown – “main portfolios”.
Platforms typically offer five to ten such portfolios. To choose the right one, you will be asked questions about your risk appetite and about whether you want to increase your wealth or use it to generate income.
According to your answers, you will be presented with a model portfolio – a list of recommended funds and how much you should invest in each depending on how much you should invest.
Some – for example, AJ Bell – allow you to buy all the funds in the model portfolio at the touch of a button, while others, such as Interactive Investor, require you to buy each one separately.
When you buy a portfolio model, all is well and good, but the problems run away. If the US stock market takes off and the UK fails, then everything fails
Holly McKay, BoringMoney
Model portfolios are as easy to buy as a ready-made fund. Potential troubles will appear later. When you buy a model portfolio, it should be optimally balanced and diversified. But soon the composition of your portfolio will begin to deteriorate, as some funds work well and others poorly.
You need to rebalance regularly to make sure your portfolio still fits your attitude to risk and reward. This means selling some holdings and buying others, or tilting what you buy in the future, towards areas that have become underrepresented.
Wealth platforms regularly update their model portfolios, removing funds they no longer value and using new ones they are more optimistic about. You will need to keep an eye on these changes and decide if you want to move on as well.
Holly Mackay from the investment site BoringMoney says: “When you buy a model portfolio, everything is fine and good, but the problems disappear.
“If the US stock market takes off and the UK fails, as has been the case in the last three years, then everything fails.
“And so you get a disproportionately high distribution of US shares and less – British shares. You can balance everything, but it’s a little difficult to do. ”
How much will they cost and what will you get?
Ready-made funds and portfolios can relieve a lot of stress from investing. However, their successful use is not as easy as the platforms can convince you. Here are some key questions:
- How much do you pay? Portfolio costs vary. For example, the variant of the adventure fund Interactive Investor costs 0.22 percent, and Hargreaves Lansdown – 1.39 percent. There is a platform fee on top. Make sure you get value for money.
- What do you get for your money? Ready-made options may have similar names, such as “adventurous,” “balanced,” or “cautious,” but core stocks may differ. Look at what you are buying and make sure it fits your investment goals. For example, AJ Bell’s cautious ready-made fund is 26 percent invested in equities and Wealthify is 13.7 percent.
- How much effort does it take? Some ready-made options allow you to choose a fund and forget about it, while others require regular balancing. Make sure you take only what is convenient for you. Remember that any investment requires some work. You should never take your eyes off when it comes to fees and whether your investments meet your goals.
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