When it comes to investing, many people tend to shy away from actually doing it. The world of investing can seem daunting at times, but it doesn’t have to be that way.
Thanks to the advent of the internet and other technologies, all the information, and the tools you need to start making the most out of your money are at your disposal. This, however, also works against us. The sheer amount of financial products out there can easily induce a choice paralysis.
When you have all of the world’s markets at your disposal, tones of stocks, penny stocks, ETFs, options, and even derivatives, where does one begin?
Some companies have identified this market need and created tools to make investing available to everyone in a more simple way. Investing is no longer a rich man’s game, and you can start investing with as little as £1 in just a matter of hours. Making your money work for you is vital if you wish to retire comfortably and provide your family with the best opportunities.
As I said, you don’t need to be an expert or even the help of one, to invest your money wisely and effectively.
Not only is the information out there for you to make the right choices for your future, but there is also incredibly powerful technology available too, that will aid you on your journey to wealth and financial independence.
This will be the topic of today, as we will be reviewing Moneyfarm, an incredibly powerful investment and wealth management tool that will help you simplify your finances and spare you a lot of headaches.
Today we will be looking at some of the advantages and disadvantages of Moneyfarm and putting this into perspective when comparing it to its main competitors.
Having said this, we encourage you to do your own research to determine what is best for you. Let’s get started.
What is Moneyfarm?
Moneyfarm is often referred to as a roboadvisor. It is essentially a software that can give you a personalized investment plan and helps you put it into action.
In short, Moneyfarm does what a traditional financial advisor would. It determines your investor profile and decides on a course of action. It then allows you to implement this advice from the comfort of your own home.
Moneyfarm will invest your money for you in what it deems is the best way for you personally. You can start a general investment account, or even transfer your existing ISA account to the platform. All you have to do afterward is sit back and watch your money work.
You don’t need to worry about picking stocks or keep track of markets on a daily basis. Which is truly great.(Unless, like me, this is something you enjoy doing).
Furthermore, with Moneyfarm you are benefiting from the combined investment knowledge of a knowledgeable team. And we all know two heads are better than one.
Robo-Advisors Vs Personal Advisors
One of the things I personally love about Moneyfarm, is the fact that it’s a machine doing all the work.
Having worked in the Financial services industry I can say with a lot of certainty that there are many Financial Advisors out there who are NOT looking out for your best interest. They are simply looking at ways of making a quick buck and do not actually care that much about offering you the best options out there and will instead offer the products with they get the most commission from.
Don’t get me wrong, there are a lot of people out there who do look out for their clients, but unfortunately, the majority are simply trained salespeople who have aptly earned the nickname of “sharks”
Conversely, Moneyfarm offers a simple service, with lower fees and no incentive to themselves to offer anything other than what they consider will keep the customer satisfied.
Not only are the fees low, but they are also easy to understand and you will get no hidden surprises.
And, at the same time, you have some tremendous human support too, thanks to their advice center and customer support team. In this sense, you really do get the best of both worlds with Moneyfarm.
How Does Moneyfarm work?
Investing in Stocks and Shares should in theory provide better returns than other places, such as savings accounts and bonds, but with the opportunity for better returns comes more risk.
If the market was to drop significantly or even enter a bear market, would you be able to wait months or even years for your investments to go back up? If not, then the stock market probably isn’t for you.
When you sign-up to Moneyfarm, you will be asked to answer a form.
The questions on this form are to determine your investor profile. This profile will determine what recommendations Moneyfarm will give you when it’s time to create your portfolio.
Investing is not a one-size fit all solution. Different people have different preferences and aversion to risk.
Here are some examples of the type of questions you will encounter:
- Why are you investing?
- How much are you investing?
- How much can you save on a monthly/yearly basis?
- What is your main source of income?
This form is what makes it possible for Moneyfarm to narrow down from all the possible options out there what is best for you.
Moneyfarm will then assign you one of 6 different risk profile. However, it’s important to understand that ultimately the decision lies with you. Moneyfarm asks you a set of questions, complying with the FCA regulations,, but it is up to you to accept their advice
Once you have completed the form you can then open one of three accounts with Moneyfarm; ISA, pension or general.
All that’s left then is to fund your account, which you can do through credit card or bank transfer.
Congratulations, you are now an investor.
Moneyfarm Signup
Moneyfarm is available for any UK or Italian resident over 18. All you need to sign-up is a valid form of ID and a minimum deposit of £1.
Moneyfarm is a great way for people who are new to investing to get started quickly and easily. Its £1 minimum requirement makes it perfect for those people who are just beginning to accumulate some cash and want to put it to use.
At the same time, Moneyfarm can be used by high net wealth individuals too since it offers a simple way to keep track of all your investments and can also be a great way to further diversify one’s portfolio.
If you are looking for a simple way of controlling your investments and doing so in a tax efficient way, Moneyfarm could definitely be what you are looking for.
What Services does Moneyfarm offer?
With Moneyfarm, you can open three different types of account, each with its own specific features and requirements:
ISA Account
ISA stands for Individual Savings account. It was started as an initiative by the UK government to offer people a tax-free form of saving and investing.
Any citizen from the age of 16 can open an ISA and start saving up to £20.000 free of tax
When this legislation came into being, you had a certain ISA “allowance” to invest in stocks and shares, out of the total of £20.000.
However, thanks to a change in legislation, since 2015 you can use your allowance without limitations. This means you can put all £20.000 into stocks and shares and pay no tax!
Moneyfarm lets you start an ISA or transfer your existing one
Read More:
Pension Account (SSIP)
The Moneyfarm Pension is a fully managed self-invested personal pension. This means that the investments are actively managed by an investment team. Moneyfarm takes into account your financial and retirement goals and builds a fund made for you.
I always recommend starting a personal pension account as early as possible. Relying solely on government pensions is simply not enough these days and can actually be quite risky. Who knows what government finances will be like in 20, 30 or 50 years?
For this reason, it’s important to take charge of your future and start saving as early as possible
General Investment account
The name pretty much says it all. This account can be used for all other investment needs, whether you’re investing for your retirement, a down payment on a new home, looking to grow your wealth, or all of the above
On top of this, Moneyfarm offers a wide array of complementary features to ensure maximum return and customer satisfaction:
Human Support
That’s right. Not only will you be getting the best advice technology has to offer, but you will also have a whole team of people at your disposal to help you along the way.
Moneyfarm doesn’t simply take your money and forget about you like so many other advisors out there. They are committed to providing you with quality and integral service.
Hands-on monitoring
As we mentioned in the previous point, Moneyfarm employs thousands of people to ensure that utmost customer satisfaction. Some of these people are what Moneyfarm calls “portfolio experts”. These people are experienced and knowledgeable investors who da in and day out monitor the performance of the portfolios. These experts will then tweak the composition of the portfolios to achieve the maximum level of returns
Advice Center
The new investment Advice Center simplifies and makes it easier for people to get investment advice on an ongoing basis, periodically prompting customers to update key information to make sure their portfolio continues to meet their financial goals.
How Does Moneyfarm Actually Invest?
While part of the appeal of Moneyfarm is to let someone else invest for you, it wouldn’t be prudent to simply do this without having any idea of how Moneyfarm chooses its investments and what they invest in.
Moneyfarm Uses ETFs to Create its Portfolios
I have already talked extensively about ETFs in this article. ETFs are investment vehicles that are created to recreate the performance of other assets, like for example an index. If you invest in an FTSE 100 ETF your money would grow or diminish at the same rate as the FTSE100. This is because the ETF is actually made up of all the stocks in the FTSE 100.
Of course, it would take a lot of money for an individual to actually buy all these stocks, but by creating a common fund this can easily be achieved.
On this subject, it’s also important to note that there are two different types of ETFs out the in the market.
On the one hand, we have physical ETFs. These are what I would label as “good” or “true” ETFs.
These ETFs are what I described above. They follow the price of an underlying asset or set of assets by actually purchasing said underlying asset. This is why we call them physical ETFs, as they actually have physical ownership of the assets that they track.
These ETFs are the most effective at actually tracking the changes in price in real time.
On the other hand, there are sample ETFs, these ETFs don’t actually contain all the underlying assets of the index they are tracking, but rather, as the name indicates, a sample of them.
So a sample ETF that tracks the FTSE 100 won’t actually hold a stake in every company in every company in the FTSE 100.
It might instead just hold a few of the companies, perhaps one from every industry.
This can lead to certain discrepancies in the price.
Also, this will mean more volatility as the ETF would be less “spread out”. So a big change in any one stock will have a larger effect on the ETFs price.
Read: What is the FTSE 100?
What type of ETFs does Moneyfarm use?
That’s a good question. For the most part, Moneyfarm uses the “good” ETFs, the ones that actually have the underlying assets.
However, in more recent years Moneyfarm has begun to use some of the synthetic ETFs because of some market limitations. I can gladly say, though, that this remains the exception and not the norm.
How Does Moneyfarm Decide Which ETFs are best for you?
They do this by assessing your risk profile, and building portfolios according to volatility.
Volatility is not exactly the same as risk. Volatility measures how quickly assets change in relative to the market.
Though volatility and risk are different, they are correlated. If volatility is high, this means more risk.
So according to your risk tolerance, which they have determined by your answers to the initial form, you will be given a portfolio with matching volatility.
I find this to be a great way of assessing risk and matching a portfolio to clients because this means that the assets on your portfolio will change if they become too risky.
If an ETF in your portfolio is deemed to have increased in volatility and has, therefore, become “riskier” its weighting will be reduced in your portfolio, or it may be changed for another more suitable one.
Unlike other roboadvisors, Moneyfarm does not limit itself to copying its peers, but actually conducts its own research and invests in what they believe is best, not simply what seems to be popular at the time.
I also like this, because it means that Moneyfarm is actually looking at the fundamental value of its investments, not simply at things like past performance.
This has worked both in favor and against Moneyfarm in the past. For example, Moneyfarm chose not to chase performance in the equity rally of 2017 by unnecessarily increasing its investment risk. This meant they had a lot less exposure after the correction in 2018.
These times of sell-off are crucial points for any money manager. That’s when they are put to the test. Do you limit your exposure and take some losses? Or do you stick to your guns and try to ride out the storm?
Moneyfarm’s investment committee did review the situation and they finally decided not to act rashly and wait. This proved to be the right decision.
My point is that, although they may not communicate this as openly as they should, Moneyfarm, and other robo-advisors, actually put a lot of work in behind the scenes.
To this extent, I do think it would be good if Moneyfarm communicated more openly with their clients regarding their actions, whether it involves changing a portfolio or conversely, leaving it as it is.
So what would an actual Moneyfarm portfolio look like?
Here’s an example of a “Medium risk” portfolio
- Cash and short term gov bonds 16.88%
- Developed markets gov bonds 5.51%
- Investment grade corporate bonds 5.05%
- Inflation-linked bonds 6.99%
- High-yield and emerging market bonds 13.42%
- Developed markets equity 49.68%
- Emerging markets equity 4.44%
- Cash 3.98%
As we can see, this is a well-diversified portfolio with investments in quite a varied number of assets.
We see the biggest part, almost 50%, is dedicated to “developed markets equity”. What does this mean exactly?
We don’t have an exact answer of what they are investing in, but my guess what be some kind of combination of indexes among developed markets such as U.S, U.K Europe and maybe some Asian countries like Japan.
This means Moneyfarm has probably purchased ETFs tracking the SNP 500, the FTSE 100 and perhaps a form of the Eurostoxx and Nikkei
Moneyfarm Portfolio Performance
Moneyfarm has been investing money over Europe for some time and has done so for the past two and a half years in the UK.
Since their launch, the 1st of January 2016 Moneyfarm has achieved a return of 28%
To put this into perspective, similar actively managed funds with the same risk exposure managed to achieve around 26%
Moneyfarm, on the whole, has quite an impressive track record when compared to similar robadvisors and other managed funds like Vanguard.
Moneyfarm Fees and Pricing
That all sounds great doesn’t it but we all know nothing in life is free, so let’s get to the nitty gritty and see how much these services are going to actually cost us.
Moneyfarm fees, like many other brokers and investment software, are calculated as a percentage of the total capital invested.
This percentage becomes smaller as the capital invested increases:
- Up to £20.000: Moneyfarm will charge 0.7% of your investment
- From £20.001-£100.000: Moneyfarm will charge 0.6% of your investment
- From £100.001-£500.000: Moneyfarm will charge 0.5% of your investment
- Over £500.000 Moneyfarm will charge 0.4% of your investment
Advantages of Moneyfarm
The real question is, why would I use Moneyfarm instead of a traditional advisor?
Now that we have a good idea of how Moneyfarm works and all it has to offer, it is easy to see all the advantages that you will receive when you invest with them:
- Low fees: When comparing Moneyfarm to the investment industry as a whole, we can safely say that they offer much much lower operatingg and maintanance costs.
Traditional financial advisors take substantial commisions, while hedge funds typically take at least 1% as well as charging fees when entering and exiting them.
However, as we will see later, as far as Roboadvisors go, Moneyfarm is not the cheapest option. (Though this is not surprising considering the number of extra features and support the offer) - Low minimum requirement: This is one of the most attractive features, as you can start investing with as little as 1 pound. 10 years ago, an individual would have needed at least 10.000 pounds to gain exposure to the financial products( funds, ETFs…) that Moneyfarm offers today.
- Human support: You truly do get the best of both worlds with Moneyfarm. On one hand, you get the effectiveness of a sophisticated A.I.
On the other, you get the constant support of all the money farm workers who are employed in maintaining and perfecting this system, as well as resolving any issues you have and also assessing and improving your investments on a daily basis.
- Simplicity and ease of use: Both the app and the web browser are easy to navigate and user-friendly. You really don’t need to be tech-savvy at all to quickly get a grasp of all of the features and options Moneyfarm has to offer.
- Tax efficient: With Moneyfarm, you can make the most of your ISA allowance bu either starting an ISA account with them from scratch, or even by transferring your current ISA to them.
Disadvantages of MoneyFarm
- Limited investment opportunities: While Moneyfarm has access to a lot of assets, it’s possible that the more seasoned investors might be discouraged from using this software. More experienced investors might consider building their own portfolios by using an actual brokerage account that simply gives them access to all the other investment opportunities. Moneyfarm does not let you build your own portfolio, not even with the general investment account, but who knows, this feature might be available in the future.
- Only available in UK and Italy: Unfortunately, moneyfarm is only available in the UK. and Italy, which means that for most Europeans this is not a valid option. Hopefully, this will be changing shortly in the future
- Money withdrawal: While I have not personally experienced this issue, some users say that the withdrawal method is not as straight forward as they would like. Don’t get me wrong, the people at Moneyfarm are not crooks, all I’m saying is that there is a big red button to deposit funds, a much smaller one to “decrease investments”
Moneyfarm Competitors
So how does Moneyfarm actually fare against some of its main competitors?
These competitors include SigFig.com, FutureAdvisor.com, and Betterment.com.
In terms of a minimum account balance, Moneyfarm fares quite well. It has a minimum of 1 pound, while other competitors like Betterment and Hedgeable have no minimum deposit, others such as Wealthfront have a 500 pound minimum, and SigFrid 2000 pounds.
Management fees for MoneyFarm start at 0.7% which is a little higher than other Roboadvisors. This then drops to 0.6% for the next tier but requires a balance of over £20,000.
In terms of support, Moneyfarm is definitely light-years ahead from some of the competition. The support team is swift and very helpful.
Plus, on top of the basic customer support, you have the advice center which is simply great.
I know this is a big issue for a lot of people. You don’t want to put your money somewhere and feel like they have forgotten about you.
With Moneyfarm, you certainly feel like you are getting your money’s worth.
And finally, performance.
While it is hard to gather information on all the performances of the various portfolios of all the different advisors we can at least compare Moneyfarm to one other roboadvisor; Nutmeg.
In the same time period, looking at similarly risky portfolios of Moneyfarm and Nutmeg, Moneyfarm outperformed Nutmeg by a whopping 9.5%
From my research and personal experience, it seems like Moneyfarm has one of, if no the most, competent analyst teams out there.
Conclusion
Having said all this, what is our final assessment of Moneyfarm?
Firstly, let me state that this investment software is by no means unique. There are plenty of other options out there, as I mentioned earlier on in the article, and I thoroughly encourage you to go out and do your own research.
Having said this, I do believe that Moneyfarm is one of the best roboadvisors out there for a few simple reasons.
- Moneyfarm has competitive fees; furthermore, with their money to the masses plan, yu can actually invest up to 15.000 pounds free of charge.
- They offer great customer support
- Moneyfarm has a proven track record of above average performance
- Moneyfarm is FCA regulated and approved and has clients money is held separately from their own, and under the Financial Services Compensation Scheme your investments are protected up to 50.000 pounds.
- Moneyfarm’s browser and application are easy to use and simple to understand
Overall, Moneyfarm offers a very complete service, allowing all types of investors to easily gain exposure to the markets.
You should definitely consider using Moneyfarm if you are wanting to invest but don’t know much about investment. If you don’t have much capital saved up yet but want to get started, this is the place for you.
Also, if you have already been looking at ways of investing in ETFs, Moneyfarm is a great way of narrowing down all the options out there.
Furthermore, one of the great things about Moneyfarm is that you don’t have to commit to it long-term. Moneyfarm has no exit costs, unlike investment funds.
Moneyfarm stands for what we believe in here at moneycheck:
Helping people with their personal finance and investment needs through the use of cutting edge technology.
While I will not say Moneyfarm is definitely the best option out there, it certainly seems to be one of the best and overall better rounded roboadvisors out there.
Don’t forget to take a look at some other options in our Roboadvisors guide:
MoneyFarm
Pros
- Competitive Fees
- Great Customer Support
- FCA Regulated
- Easy to Use
- Low minimum requirement
Cons
- Only available in UK and Italy
- Limited investment opportunities
