Nutmeg Investment Review – EVERYTHING you need to know in 2017
If you’ve landed on this page then you’ve probably been looking for ways to invest your money and have come across Nutmeg but are now looking for a reliable Nutmeg Investment Review.
You may have already visited Nutmeg’s website, but now you want to know more – minus the spin!
Great, then you came to the right place.
In this Nutmeg investment review, I’ll break down everything you need to know about Nutmeg including its fees and account options.
I’m also going to show you how to pay no fees in your first year!
Before we get into things let’s answer the most commonly asked question about Nutmeg.
- What is Nutmeg exactly?
Nutmeg is an online investment platform that aims to take the pain out of investing. Goodbye complicated graphs and hours of researching stocks. Instead, the guys at Nutmeg take care of everything for you. All you need to do is select the account that’s right for you, let them know about your risk tolerance and how long you want to invest for.
Without further delay – Let’s get stuck in!
Where does Nutmeg invest my money?
Nutmeg invests your money into a product called Exchange Traded Funds (ETF’s for short) that are traded on the stock market.
ETF’s are simply a package of shares from a specific section of the stock market. For example, an ‘Emerging markets ETF’ is a collection of shares from emerging markets.
ETF’s are different to mutual funds (often called just ‘funds’) because they don’t have a manager running them. Instead, ETF’s are run by computers that balance your portfolio to fit the market it tracks.
Wait, a computer is managing my money?
You may think that an unmanaged fund is a bad thing as it has no rational human being behind it making decisions and adapting to the world’s rapidly changing economy but, in fact, ETF’s usually outperform managed funds.
There are two main reasons for this.
- Fund managers often fail to outperform the market enough to justify the fees they charge.
- Constant portfolio tinkering often has a negative impact on returns due to the inability of managers to accurately predict the future trajectory of stocks.
This resource explains ETF’s pretty well if you’re still confused.
What do these options even mean?
Nutmeg offers four account options.
1. General Account.
2. Stocks and shares ISA
3. Lifetime ISA
2. Personal Pension/SIPP
Below you will find the definition of each account along with their advantages/disadvantages.
A General account
You should only open a general account if you have already used up your ISA allowance or already have another stocks and shares ISA for the current tax year. Even then, it may be worth waiting until the new tax year if you’re going to invest a large amount of money.
With a normal account, you won’t get any ISA benefits – that means no tax shelter or government contributions.
Stocks and shares ISA
ISA simply stands for ‘Individual savings account’. This is a tax-free account that will shelter your investment from tax when it’s time to sell (namely capital gains tax).
Usually, any profits you make over £11,000 get taxed by the government but in an ISA account, any gains are tax-free – even those over £11,000.
You can read more about capital gains tax here
So, could this be the account for you?
If you’re going to need access to your money before the age of 55 then this is the best option. Remember, you can split your ISA allowance between a Stocks and Shares ISA (This account) and a normal bank account ISA.
But, if you are willing to lock away your money until 55 then a ‘personal pensions’ account may be a better option.
Opening a lifetime ISA account will allow you to take advantage of a 25% government bonus towards your first house or for use in your retirement.
BUT WATCH OUT – After the first year, you will be charged a 25% penalty fee for exciting the account. Although this sounds sensible since the bonus is paid at 25% you will actually lose out if you exit after the first year.
For example, let’s say you invest £1,000 and get the £250 bonus. That makes £1,250. 25% of £1,250 is £312 and you’d be left with £937, £63 less than your initial investment.
For an indepth explanation of Lifetime ISA’s check out Martin Lewis’ guide here
If you’re willing to lock away your money until you’re 55 years old then the personal pensions option is for you.
Any contributions you make to a personal pensions account are normally eligible for basic rate income tax relief – even if you’re not working (up to a £2880). This means that for every £80 you contribute to your pension the government will pay in an additional £20. Higher or additional rate taxpayers can claim back further income tax relief.
Thanks to new rules you’ll also be able to withdraw 25% of your pot tax-free once you retire!
If the government is offering you a free £20 for every £80 you put away – I say take it!
If you want to learn more about tax and pensions when it comes to investing then HL has a great guide here.
Minimum investment and timescale
After selecting a suitable account, investors are presented with a range of options.
The first is to select ‘what you’re saving for’ and the second is to give their account a name. These decisions have no bearing on the composition of your investments.
The important bit comes next and that is your investment timescale. Here you’ll be presented with the following slider;
All you need to do is to slide the bar in order to select how long you want to invest for. Remember, the longer in the market the better. Time in the market reduces risk significantly.
Next, you’ll be asked how much money you’d like to invest.
Here’s where we encounter the first downside to Nutmeg.
Unlike rival platforms such as Moneybox, you’ll need to invest at least £500 as a lump sum and then £100 a month in order to open a Nutmeg investment account.
The only way to pay in less than £100 a month is to start with a lump sum of £5,000. This will then allow you to make no monthly contributions.
This makes Nutmeg a poor option for people who’ll only have spare cash to invest now and again.
Obviously, if you have the cash, the more you can invest the better. Monthly investments are super important in order to reduce risk because they even out the bumps in the market.
This is called ‘dollar cost averaging’ or ‘pound cost averaging’ here in the UK. The theory here is that monthly contributions help smooth out the spikes and dips in the stock market. You can check out this concept in depth here.
Fees & charges
Now we move on to probably the most complex choice.
The choice between a ‘fully managed’ or ‘fixed allocation’ investment style.
A fully managed account will have a team making slight changes here and there.
A fixed allocation account will never adjusted your investments.
A fully managed account charges a fee of 0.75% a year up to £100k. The fixed allocation charges just 0.45%.
There are also ‘hidden’ charges of 0.16-0.19% that the ETF’s themselves charge. This means that choosing the ‘fully managed’ option could cost you close to 1%.
A person with a long investment horizon (over 10 years) should go for the fixed allocation. In my opinion, your best bet in the long run is to keep fees low and let the market do its job of growing your wealth. Higher fees will slow down compounding significantly in the long run.
Think about it like this;
“Investments are like bars of soap, the more you handle them
the smaller they get”
Is paying for all that tinkering worth it?
If you’re looking to invest for a short period of time, say less than five years, then the ‘guiding hand’ of the fully managed option may give you some sense of further security.
TOP TIP: Thanks to the guys over at Money Saving Expert you can avoid these fees for 1 year by clicking here.
The Risk/Reward balance
Selecting the amount of risk to take on is probably the most important decision and you may feel at a loss. But, that’s exactly why I wrote this Nutmeg Investment Review – to guide you, so don’t panic!
The general rule of thumb here is – the longer you’re going to invest for then the more risk you can afford to take. As you’ll see below in the ‘risk options compared’ section, the riskier portfolios tend to return more overall but are more volatile.
The low-risk portfolios will offer more protection in the event of an economic crash but won’t perform as well as high-risk portfolios when the stock market is on the up.
The high-risk portfolios will grow more in times of economic growth but are very likely to lose more money than the low-risk portfolios in years of declines.
The choice here is fully down to you and your risk tolerance.
After selecting the risk setting, Nutmeg will do all the maths and offer a portfolio projection.
Your projection screen shows you when you’ll reach your target.
You can adjust your risk setting to see what effect taking more/fewer risks will have on the time taken to reach your target. Generally, high-risk portfolios will help you reach your goals faster but at the expense of a safety net.
Once you’re done with everything you’ll be able to view cool stats about your portfolio such as where in the world you’re invested.
High-risk portfolios tend to be invested more into emerging markets whilst low-risk portfolios tend to stick to developed economies.
What kind of return can I expect vs rival platforms.
Below I will detail Nutmeg’s investment performance;
In order to benchmark the return investors can expect from Nutmeg, I decided to pitch the platform against its closest rival – Moneybox.
Moneybox doesn’t advertise a ‘projected’ return, it opts instead to advertise the past performance of its fund, so let’s take a close look at these numbers to see what we can find out.
As we can see from the illustration above, an investment period of 9 years would turn £1,000 into £8,662 with a £50 monthly investment.
There’s a lot of spin in that graph with the £50 monthly contribution clouding what a lump sum of just £1,000 at the start of 2007 would return.
I did the maths and here’s what you’d get from a set investment of £1,000 with no monthly contributions.
A set investment of £1,000 at the start of 2007 would have been worth £1,508 at the end of 2015, returning just over a 50% return over 9 years and thus an annual return of around 5.5%.
Nutmeg wouldn’t let me project the performance of a £1,000 investment due to their minimum investment requirements.
But, by entering a £10,000 initial investment followed by no monthly contribution we can see that the expected portfolio value would be £14,699 in 9 years time. A £1,000 investment, therefore (for comparison) would be worth around £1,469 – a 47% increase over 9 years or 5.2% annually – 0.3% less than with Moneybox.
Risk options compared
So how much is Nutmeg’s investment performance affected by the risk setting you select?
On their website, Nutmeg displays historical annual returns for their portfolios from 2012 to December 2016. I took that information and tidied it up into an easily readable graph;
(X – Risk setting, 1 = Lowest risk, 10= highest risk) (Y – Annual return %)
What we can clearly see from this graph is that the higher risk portfolios outperformed the lower risk portfolios.
To make sure this is the case generally, I decided to check out all the risk settings for Moneybox and Nutmeg to see if there’s a correlation between risk and return.
Here’s what I found;
If we take the advertised returns from Moneybox through 2013-2015 and then the same years for Nutmeg we can make direct comparisons between the platforms and risk settings.
(Nutmeg started in 2013 and Moneybox only displays data up to 2015)
As Moneybox only has three risk settings I will match the risk as follows;
Nutmeg risk 1 = MoneyBox ‘Low’
Nutmeg risk 5 = MoneyBox ‘Medium’
Nutmeg risk 10 = MoneyBox ‘High’
Crunching the numbers, here’s what we get;
I know that these comparisons aren’t like for like and crude due to the difficulty of making direct comparisons, but I hope it’s some help to visualize returns between platforms and risk.
Nutmeg Investment Review – conclusion and my opinion.
I think Nutmeg is a great platform.
It’s simple to use and straightforward all round with plenty of options for customization. It also offers a great way for beginners to get into investing without having to learn much about the market and having to make complex decisions.
Taking a look on Trustpilot, we can also see that Nutmeg is a legitimate platform with many happy customers and an average review of 9/10.
The only downsides to the platform are the fees it charges on the managed portfolio and the minimum investment requirement which may be too high for some investors.
This isn’t a platform where you can throw a few quid in here and there – this is a platform for some serious goal driven investment.
But not to worry, if you don’t want to invest a minimum of £100 a month, Nutmeg’s main competitor, Moneybox allows investments from £1 and has no monthly investment requirements. It’s also cheaper for portfolios worth more than £3,000.
Before you pile your money into Nutmeg or Moneybox, you may want to check out the table below and decide which platform is right for you.
Thank you for taking the time to read my Nutmeg Investment Review – If you felt it was of value then please share this article and spread the knowledge! I display no ads on this website and refuse affiliate marketing requests – my readership is my only reward.
For further reading – I have outlined all major UK investment opportunities – here – in simple English including Peer to peer lending, Premium bonds and buying your own funds.