DIY investor

Every now and then, thank goodness, I run into someone who reads this column. They’re usually very knowledgeable about investment but despite this the conversation often goes the same way: they enjoy reading about DIY investing but don’t have the time or inclination to do it.

There are many people that DIY investing does not suit, and why should it? If fitting your own kitchen or fixing the car is a minority pursuit, there’s no reason why managing your money should be any different. But what if you want to invest and don’t fancy the DIY route?

What most people are really looking for is a way of investing that lets them focus on the things they know about—how much money they have available, what their long-term plans and hopes are, how cautious or bold they feel—and does not require them to have an opinion on subjects they are not interested in, such as whether this strategic bond fund is better than that equity income fund.

For the less well-off, the traditional answer has been to visit a financial advisor and be told what to do, while the better off tend to hand their money to a “discretionary manager” who will take the decisions on their behalf and report back periodically. The trouble is that if you’re not rich enough to be interesting to a wealth manager (meaning at least £200,000 to play with) it’s hard to get someone to make the decisions for you. So you end up trusting an advisor to suggest a portfolio that is suitably diversified and then to revisit it every six months to make sure nothing horrible has happened while you were getting on with life.

This has obvious drawbacks, one being that you are relying on your advisor to be an expert in asset allocation—deciding what mix of shares, bonds and other investments is right for you. This is a very big ask. Second, there are several layers of fees: your advisor needs to eat, the electronic platform he or she uses to invest will take a bite and the managers who run the funds claim their share. It’s not uncommon for that to add up to 3 per cent a year or more—a lot to be handing out.

This is why I’ve been watching the progress of Nutmeg, a relatively new service, with great interest. The name has cropped up a lot recently in conversations with financial advisors and fund managers, who universally seem to think it is giving people what they want. It’s a rather unusual service, and likely to attract competitors, although I haven’t come across any yet.

Nutmeg is a discretionary investment manager that is open to all. You tell them some details about yourself and they put your money into one of 10 portfolios to reflect the particular balance of risk, return and time horizon that you’re comfortable with. The portfolios they manage contain different blends of shares and bonds from around the world (the racier ones can also contain property and commodities) and each is revisited every month to make sure your money remains divided between the different assets in the agreed proportions.

This will cost you at most 1 per cent a year in fees to Nutmeg, plus the charges of the underlying funds it puts your money into and the cost involved in buying and selling those funds—just under another 0.5 per cent a year.

Some critics have argued that’s too much but I disagree. For a start, Nutmeg’s fee falls the more you have invested with them, so that by the time you’re up to £50,000 you’re paying 0.75 per cent plus the extras. By comparison, you’d need to have more than £1m with Brewin Dolphin before your annual management charge dropped below 0.75 per cent and there would be transaction fees on top.

Nutmeg recently put out its first one-year performance figures for the 10 portfolios it runs—one year might not be a lot to go on, but they were impressive. If I weren’t so keen on tinkering under the bonnet, I know which garage I’d be heading for.