Robots really can make you money. Here’s the proof

PRIMARILY in response to limp interest rates and dismal returns on cash, more people than ever are turning to the stock market to earn a profit from their savings. In excess of 6.5 million Britons are now in the DIY investor club.

Yet trying to predict the future in terms of what are the best markets and companies to invest in is harder than I have witnessed before in a 20-year career in investing.

But t here i s hope for t hose interested in the stock market but lacking the confidence to go it fully alone. It lies in ready-made portfolios created by robo-advisers.

Robo-advisers are a digital solution offering investors a portfolio spread across thousands of investments. I treat them as a readymeal, or perhaps a playlist which someone else has put together for you. All you do as an investor is answer a few simple questions. They will guide you to a portfolio which matches your attitude to investment risk.

As founder of website Boring Money, I have been closely monitoring the growth in robo-advisers. In January 2018, fed up with unclear performance information and a lack of clarity on which companies were best at roboadvice, I bit the bullet.

I set up 15 accounts in my own name, each with £500 in a ‘mediumrisk’ portfolio.

Most robo-investors end up with a ‘medium-risk’ portfolio which in i nvestment l anguage typically means that about £60 of every £100 is invested in shares. The remaining £40 is in ‘bonds’ or less spicy assets which behave a bit more like cash. These portfolios will never shoot the lights out, but they will avoid the most turbulent of stock market journeys.

So how have these portfolios done?

Last week, I analysed the performance of my 15 accounts net of all fees. My £500 with Moneyfarm had grown to £605 (a very respectable three-year return of 21 per cent). As for Barclays and Fidelity, it had reduced in value to £418 and £435 respectively.

To be fair to Barclays and Fidelity, they feature at the bottom of the performance table because of minimum monthly charges which eat into my returns.

If we remodelled this exercise with £50,000 invested instead of £500 – neutralising the impact of these charges – Barclays and Fidelity would have ranked 5th and 8th respectively in terms of overall performance.

The top three providers in my test were Moneyfarm, Vanguard and Nutmeg, while the average medium-risk robo fund made just over £40 more on £500 than if the £500 had been squirrelled away in a cash Isa three years ago. The top performers all had more than 40 per cent of their overall share allocations i n the booming US stock market.

In the round, the average balance of all 15 accounts is now £552 – a return of just over 10 per cent. Put into perspective, the UK stock market has done pretty badly over this three-year period. The 100 largest listed firms have collectively fallen in value by 14 per cent – so I would have lost £70 of my £500.

Although any investment with a robo-adviser would, of course, suffer in a market crash or downturn, it’s possible to see their merit as long-term investment vehicles.

Why it’s always best to hedge your bets

THE best thing about every roboadviser fund is the investment diversification they offer.

A golden rule of investing is not to pick a couple of shares and simply keep your fingers crossed that they will perform well – but to spread your investments around the globe, backing lots of different sectors, companies and regions. Lots of eggs in lots of baskets.

This, of course, is hard if you don’t have a PhD in economics and a lot of time on your hands.

No investing is risk-free but the spread of assets that robo-funds give you exposure to makes it less likely the investment is going to blow up in your face.

So, after three years, my £7,500 investment is worth £8,284. Investing is a long-term game and some might say that three years is not long enough to truly identify skill over luck. But I’m happy.