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.
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.