Pre-Packed Investment Portfolios on the Rise but Who Are They For?
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The investment market has tended to assume that off-the-shelf investment portfolios are for beginner investors. Those who have been DIY investing since before the rise of the robots are used to choosing and monitoring a basket of shares, funds and possibly bonds themselves. Most probably continue to do so under the feeling that their level of experience places them beyond the ‘beginner’ target market of ready-made portfolios.
MacKay asks the pertinent question if having some experience and knowledge in choosing your own investment portfolio means you should. Is the assumption the easier option of off-the-shelf portfolios provided by robo-advisors only for beginners? She challenges hobbyist investors to be really honest with a self-appraisal on how their performance matches up against professionally constructed portfolios. A crucial element to this is to consider how much risk they took to achieve returns, if superior. The past couple of years have been particularly kind to equity investors but how will you do in a bear market if considerable risks were taken to achieve returns? MacKay believes that the trend of investors tinkering and stock pick themselves rising proportionally with their experience and knowledge is behaviour that should be challenged. Is it really to the advantage of your portfolio’s eventual returns?
Robo-advisors could also be a good choice for more experienced investors. If they deliver good returns why risk doing it yourself? Not to mention the time involved. The biggest hurdle to being able to make a good judgement on if a ready-made portfolio is a pertinent investment choice is the lack of history providers can show. Even the oldest robo-advisors only have a few years track record and are yet to face a real bear market.
Comparing ‘mid-risk’ portfolios with equities weightings of between 50% and 60% between ready-made portfolio providers shows average 2017 returns of 7%. However, there was divergence between 4% and 9.2%. Last year’s three best performers are highlighted by MacKay as the evestor Portfolio 2, the Santander Multi Index Fund 3 and Vanguard Life Strategy 60pc, which returned between 8.4% and 9.2%.
With robo-advisor platform charging relatively low minimum investment levels, the suggestion is made to keen DIY investors to put some of their capital into a ready-made portfolio and the rest into their own. Run a competition against the easy option for a few years and if you don’t do considerably better yourself, is it really worth the trouble?
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