Nutmeg investment – an awesome new platform

nutmeg investment

When one is in the fortunate position to be able to put some money aside regularly and have the ambition to make it work for them, one thing they need is a good place to store funds before investing in something big. For example, we may want to invest in property and this generally takes a large chunk of money yet our income comes in dribs and drabs.  But we don’t want to leave it in the bank earning only 1% or so of interest.  It may be that we want to have a number of investments for different purposes entirely – perhaps for our son’s education.

Today, we introduce Nutmeg investment: our latest experiment. And before you ask Nutmeg UK is the cousin of Betterment in the US.

Clearly investments need to be within a tax-efficient ‘vehicle’ like an ISA or SIPP as appropriate.  For our transatlantic readers, an ISA is an Individual Savings Account and there is a maximum you can put into it every year but no restriction on when you draw out.  A SIPP is a Self Investment Personal Pension which is similar but while there are a wider variety of things you can put in, there are also restrictions of when you can withdraw funds – it is mainly meant for pensions; very tax-efficient though.

There are three main problems about how to invest money in the market, as we have found from bitter experience.  The first is that there is a 0.5% transaction tax to be paid on shares for transactions over £1000; second there is always the charge by the stockbroker – maybe £10 minimum; and lastly but most importantly, you really need to keep a close eye on your portfolio.

To get round these problems, we need a platform that works in Exchange Traded Funds (ETFs) to avoid the transaction tax, that has low management charges and that looks after our investments so that we can sleep easily, look for the big opportunities and get on with our lives.  We really don’t want to be hanging onto too many computer screens 24/7.

We were very happy therefore to find Nutmeg and I went about trying their site for size.  I was very pleasantly surprised – the site is clean, you don’t actually need any money to get into it and it doesn’t hit you with a preset ‘Monthly Newsletter’ checkbox!  You can have limitless individual savings pots, each with its own characteristics and there is an ISA wrapper already installed so you can ensure your savings are tax-efficient.  Joint accounts are being worked on – this is important as we intend to save as a couple not individually.  Execution-only facilities are under consideration.

I registered and went through the simple procedure of setting up a fund.  The first thing it asks you is to for your aim.  Do you want more from your savings, save for a rainy day, holiday, wishlist, home, retirememt, education, a big purchase or something else. It then asks you to define the target, a timeframe, the initial and monthly savings and a risk level.  There are 10 risk levels from “Avoiding loss” to “I’ll risk large losses for higher gains”.  The very neat thing is that you can change this risk profile in a fund during its lifetime.

A graph appears of the expected value over your time scale.  Looking at a simple case, I worked out that the most cautious level would give a return on investment of about 7.85% while the most risky would have a 5-95%ile range of from 3.75% to 16.87%; all figures after costs and of course they cannot be guaranteed.  But any of these are a lot better than the high street these days, particularly since the Funding for Lending government scheme has made the banks less reliant on savings deposits (savings interest rates have dropped recently in the UK to less than 2.5%).

Magic and witchcraft, you may be thinking. But here is how they do it.  First of all these are discretionary investments where Nutmeg’s teams scour the markets and trade ETFs twice monthly.  They pool all investments at the same risk and select sectors, countries, continents etc. and invest with Pershing Securities, part of the Bank of New York  Mellon.  The fund is re-balanced every month.  Most important of all, the funds are liquid which means that you can withdraw at any time.  There may be a short wait for this – free withdrawl is done at the normal fortnightly time but for a fee it can be done instantly and once settlement has taken place, you will get a same-day deposit in your bank.

The ETFs may include index-following funds but no esoteric products are traded, nor is foreign exchange.  So you are completely free of worry;   unless of course you want to worry about having nothing to worry about but then perhaps your therapist would be a better investment.

So what are the catches, what doesn’t Nutmeg do?  Well to start with, I’m afraid it is for UK residents only.  It is specifically not for US citizens even with dual nationality, even if they are UK residents.   Sorry about that folks but US tax reporting requirements are apparently quite onerous.

Secondly there is a minimum investment of £1000 per fund that you set up – if you have three funds then to get on the Nutmeg financial train requires £3k.  Since the current maximum in an ISA is £11,280 a year that means that you can start 11 funds a year!   It is currently set up for retail customers only.  I did wonder about corporate investment as a useful way for a small company to store its money but this is not (yet) available.

Lastly there are fees but these are quite low.  They start at 1% and go down as you collect “nutmegs”.  You get up to 30,000 nutmegs for your first fund, 15,000 for each extra fund, 10,000 for each friend you introduce, 20,000 every 6 months and 2 nutmegs per £1 invested.  Collecting 100,000 nutmegs reduces your fees to 0.9%, 300,000 reduces to 0.6% and a million reduces it to 0.3%.  These all include VAT.

Finally, if I have to summarise my impression of Nutmeg I would say that I ‘played around’ with a very clean and clear system, spoke to some really competent and helpful people and functionality that matches our new goal to make that £2.5 million we have decided we need (so that Maria can leave employment if she so wishes). We expect that by the end of March we will not only ‘play’ on Nutmeg but will be collecting some serious “nutmegs”.

Yes, Nutmeg may be a ‘new kid on the block’ but it is a useful and user friendly system worth trying; after all, the future belongs to investors and this system gives even small investors a chance.

photo credit: IMG_1601 via photopin (license)

12 thoughts on “Nutmeg investment – an awesome new platform”

  1. Great review and it sounds like something that will allow you to expand your investment options to something that would better suite you. I like ETFs and they’re becoming exceptionally popular; the fees are phenomenal and as long as you can stay diversified between a number of them then I think it’s a decent solution.

    1. Yup @WSL – it seems to tick the hands-off boxes approach.  I am sure that will be attractive to a lot of people.

    1. We will see @WaF – we have been looking at a number of platforms but this one seems to be the best I’ve found so far.  There are other areas of investment but being able to leave it on autopilot is a definite plus!

  2. Great review of Nutmeg! It sounds like a pretty nice setup and I am all for anything that will make investments easier and lower expenses. ETFs are increasingly becoming popular with their generally lower fees. I like how it seems like you can tailor something that fits your needs without being too difficult.

  3. Having  correct investment management advice proves helpful to an investor to make real good and beneficial investments. Wealth management is usually not easy for many and that does require lots of efforts on individual basis to have proper management of the assets and various investment options.

  4. Hi John, nice review for Nutmeg and it’s prompted me to have a play around myself as they are targeting exactly the same market with the same easy, inclusive, low-cost ideals as EZ ISA.

    I agree with a lot of what’s said and love the usability and graphical interface, although I’d argue that the investments available through EZ ISA are a lot more thoughtful with very little more cost- horses for courses. I am extremely envious of their PR and marketing machine though- I guess that’s what £3 mil seed investment gets you!

    When I first read your post, before playing myself, the performance figures you mention made me despair- they seemed way too high to me and not to ‘manage your expectations’ at all. Having run projections myself I think they look fine to me (much lower/more realistic), but you’re giving the impression (to me at least) that the 7.85% or 3.75-16% was return per year, rather than over the time period (which you haven’t mentioned).

    It might be worth editing the post to clarify this, otherwise they’re likely to have some pretty disappointed customers!

    All the best,

    Mark

    (ps- just to let you know your ‘Post Comment’ button below is very hard to see on my Google Chrome)

    1. Mark – Thanks for dropping by. The rates are per year.

      The initial investment is for the full time, the next one for one month less etc. A savings calculator such as the one on the This is Money will confirm this.

      When I did the original calculations, the Nutmeg site conveniently displayed the expected totals when I hovered over the graph but it doesn’t do so now! But if you play with the system, try a fund where you start with £1k (you have to start with that) then add £1k per month in arrears for 60 months (making £61k in total). At 7.85%pa, you will find it comes to something like £74,200 from a calculator and a similar amount for a Nutmeg fund. Clearly if you had invested £61k over the whole 5 years, it would do rather better at about £90,200!

      I did this sum because that is the way the investments work – eg £1k a month – and compared like with like for a savings plan. I used an online savings calculator but it would be easy to write a single line function and solve it with R’s uniroot. The formula is Ix^N+M*Sum(n=0:N-1)[x^n] where I is the initial investment and M is invested for N months, x=1+r/100 and r is the monthly %age interest rate, annualised %age R=100*(1+r/100)^12-1). Solve for x to see what you get and if I=M, remove the first term but change the upper limit from N-1 to N. Assume the investment is at the end of the month so the last investment doesn’t actually earn anything!

      I am sure that if you did the same thing with EZ-ISA, you would get much the same result. I did ask Nutmeg what was their underlying algorithm but their reply was rather gobbledygook investment-speak I am afraid. Their Java program must have some correlations built in but that is server-side so I couldn’t see them.:-(

      These ROIs are substantially better than bank savings rate but it is possible to end up with a fund that has not grown at all so it is a risk the investor needs to consider. They only quote a 5-95% confidence interval! I appreciate that EZ-ISA and a number of other providers do much the same thing. The nice bit about Nutmeg was the platform!

      I will have a look at the css for the comment button. It looks OK on my Windows Chrome though but these things can be graphics-dependent.

      1. Hi John,

        So sorry not to have replied back to yours all this time! I’ve just seen this post by Googling EZ ISA just now.

        Working out growth rates where you’re adding money monthly is very tricky (for me at least!) but I’m pretty sure Nutmeg can let you assume an initial lump sum investment and time period which allows you to see very easily what their assumed growth rates will be (which seemed sensible and reasonable to me).

        I’m afraid I’m not 100% clear on how you or Nutmeg arrived at the 7%ish pa growth figure for anything like a low risk investment- it certainly doesn’t match my investment experience and, to be fair to Nutmeg, I doubt they’d intentionally lead anyone to expect that kind of pa growth on their lower risk investments.

        And it’s worth pointing out that all these are just assumptions, and may not bear much relation to what actually happens. ETFs (like most investments to a greater or lesser degree) will go up and down in value like a fiddler’s elbow- which is absolutely fine if you’re comfortable with that and in it for the long haul because over enough time almost all well-managed investments do better than cash and inflation.

        What’s a disaster though is if people expect unrealistic growth and a smooth ride because when reality strikes they will probably get worried, disappointed and put off investments altogether and are likely far worse off in the long run because of that.

        I try to set this out as simply as possible in the investment section http://ez-isa.com/about-us/the-investments/

        If I can get investors a bit better than inflation returns over a year in the lower risk fund, 5-7%pa returns over 5 yrs in the medium risk one and anything over 7%pa returns over 10 yrs in the higher risk fund I’m happy with that. 7% is the ‘magic number’ for me in investment as this growth compounded doubles money every 10 years- which is good enough to make us all rich enough.

        £10k gifted to a new born achieving 7%pa growth will give them circa £1 million by the time they retire- it’s all about a reasonable growth rate (which 7% is) and a long enough time horizon.

        Anyway, I hope all is well with you and Maria- it’s been a good first year to be invested in main markets/ETFs and hopefully it’s given your finances a good boost and you a taste for investment possibilities!

        1. Hi Mark – thanks for keeping us in mind!

          It isn’t that tricky and I have a spreadsheet that does it. All I am calculating is an answer to the question – for every day, what single annual percentage growth over the period of time will give rise to the current value? It’s in the formulation in my earlier reply – the algrebra is much simpler than trying to get Excel to do the sums!

          Don’t get too hung up on this value – I use it purely so I can compare like with like. Nutmeg just shows the crude calculation of total gain over total investment which is fairly meaningless particularly when the investments are made at various stages. My calculation takes account of this and turns it into an annual figure.

          FWIW the current value (latest value dated 5th December) is down to 3.96%. The current value reported on my account is 2.6% but that is over an incomplete year (I started in April) and also when contributions were made at various times.

          It does appear to have a 2 month cycle, during which recent period it has been up to almost 9%. I don’t know why this is – Nutmeg invests twice per month I think and rebalances the portfolio once per month. Clearly I would need to think carefully if ever I needed to withdraw funds!

          I have suggested to Nutmeg that they do report an annualised figure but they haven’t done that yet. To do the calculations I copy and paste the raw data from the page source (it includes the Unix time stamp) into an editor and clean it up. The calculator is under our tools on the navigation bar of this site so you can see the coding.

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