Almost two years ago to the day, I started my investing journey by opening up my first ever stocks and shares account with nutmeg. As a novice investor who knew nothing about the stock market, Nutmeg seemed to be the perfect choice. The platform creates professionally managed portfolios based on your risk profile all for the low cost of 0.95% of your assets under management.
When I initially joined nutmeg, I was optimistic with expectations of receiving returns of about 7% per annum, the market average. Whilst the fee of 0.95% would certainly eat into my returns, I believed the professionals working at Nutmeg would be able to use Tactical Asset Allocation in order to give my portfolio higher returns for a set amount of risk. So with thins in mind, lets see how my medium risk (7) portfolio performed over the past 24 months.
At the beginning of October 2014, I invested £5,700 in my Nutmeg portfolio. Today, this has grown to £6,200 thus giving me a decent, but not brilliant, return of 10% over 2 year or 5% per year.
Whilst most people would be satisfied with a return of 5% per annum, I certainly am not, considering that I have honed my investing skills since opening my Nutmeg account. Regular readers of My Journey know that not long after opening opening my Nutmeg account, I began to take a keen interest in the stock market and the wonderful companies that are listed on them. I soon realised that dividend growth investing would be the best option for me and thus I started to buy stocks such as Royal Dutch Shell (RDSB), AstraZeneca (AZN), Tritax Big Box (BBOX) and BT Group (BT). I have now been buying individual shares for close to 18 month now and my return is 27% over this time frame. On a per year basis, my return is 18%. This is far supers to the returns I am receiving from Nutmeg. Almost 13% a year superior. And this has recently got me thinking about why I am paying Nutmeg close to £60 a year when I am doing a better job myself. But I’ll leave this argument for another blog post which I will write in a couple of weeks.
Maybe I am being harsh on Nutmeg for giving me returns of 5% a year whilst I have made triple that. Maybe I got lucky. So let’s see how Nutmeg did in comparison to plain vanilla index funds. My portfolio on Nutmeg has over the past 2 years lagged the FTSE 100, the FTSE 250, the S&P500 and a simple 60:40 share/bond fund. So in this respect, the performance has been disappointing. Having said this, it still beats a whole lot of mutual funds (OEICs) due to the lower charges.
Even though I am in the process of moving my funds from Nutmeg to a more hands on stocks and shares ISA, I do still believe a platform like Nutmeg, Wealthfront or Betterment is great for the novice investor, or anyone who is not interested or does not have the time to manage their own portfolios.
It is far better to invest using a a platform like Nutmeg that it is to go alone and not know what you are doing. Just look at the case of GTAT investors to see how you can lose all your money and much more by investing in individual stocks and shares.
If truth be told, I don’t think I would have ever started my investing journey if Nutmeg did not exist. Nutmeg allowed me to bide my time in researching how the market works and what companies generated the highest returns on equity whilst still benefiting from the current bull run. But the more I have learnt about stocks and shares, the more I am wanting to manage my own money. So whilst Nutmeg is great for a beginner investor, it is not the best place to put your money when your investment skills grow.