So you want to invest, but have no idea where to start? You and millions of other people!
Thanks to modern technology though, there are now some pretty simple ways you can get started with investing. Today, we’re going to look at some of the popular ‘robo-advisers’ and investing apps in the market.
Robo-Advisers? Say, what?!
Traditionally, if you wanted to invest in the share market, you either had to pick your own shares through a broker (either a real person or an online broker like CommSec), or you would give your money to some smart guy and his hedge fund to pick out the best stocks and invest for you (like Bobby Axelrod from the TV show Billions).
But what if you didn’t trust Bobby Axelrod? I mean he could be right, he could be wrong, who knows, he’s only human!
Now, there are technology firms (‘robo-advisers’) that replace humans with computers. Instead of having a smart-but-fallible human promise to get you in on the next hot stock, these companies use algorithms and computers to track the share market.
This can be a good thing because:
(1) it means they can offer you investment services more cheaply than many traditional actively managed funds, and
(2) there are a lot of reports and studies that suggest that, in the long run, humans are just not very good at picking out winning stocks reliably and consistently. True story…
Factors to Consider When Comparing Investment Options
Before we jump in, here are a few things you may want to consider when researching these companies:
It’s really important to understand that a small fee can eat into your investments in a really big way. When it’s presented as a percentage it often seems really small (“Oh, it’s 1%, that’s nothing!”). But a 1% fee could cost you almost $600,000 over a 40 year period. That’s over half a million dollars.
However! You have to balance that out with getting good returns on your investment: if you’re paying a higher fee for better returns, it could be worth it.
With that in mind, many people who buy their own ETFs via an online broker may feel that these robo-adviser and investing apps’ fees are too expensive. If you are interested and informed enough, buying your own ETFs via an online broker like CommSec could be cheaper. I say ‘could’ because online brokers also charge a variety of fees, so it depends on the fees they charge and how much and how frequently you’re investing.
The downside of doing it all yourself is: time and convenience. You have to design your own portfolio, select the ETFs you want, buy them, keep putting more money into them, and of course, make sure that you’re rebalancing your portfolio from time to time. Not everyone has that kind of time or patience!
Rebalancing your portfolio is pretty important. If you want to invest 80% of your money in shares and 20% in bonds, someone needs to check that those percentages don’t skew over time as the market changes. Again, it’s just about whether you’re willing to put in the time.
c) Ownership of assets:
It’s important to make sure you understand who actually owns the underlying assets. Are the assets invested in, in your name? Or does the company buy them in it’s own name and just give you the return? What happens if the company goes bust…who owns those assets?
d) Investment options:
The robo-advisers we will look at have specific investment ‘profiles’ or ‘portfolios’. Each profile is aimed at a different level of risk/return. It’s important to be happy with the asset allocations and which ETFs they’ll be investing in because this is the bit that’s actually going to be making you money! If you want aggressive growth, you don’t want to go with a company that invests more heavily in defensive assets (and vice versa!).
Robo-Advisers & Investing Apps in Australia
Anyway. So, there are a few different types of robo-advice and investment companies in Australia. Both types use robo-advice to varying degrees, some more than others.
We’re going to look at two types of robo-advice on the market:
These companies provide a wider range of services, with a view to being a more end-to-end service for people who want to invest through them. Part of their service is to actually provide customers with advice on how they should invest, taking into consideration the person’s circumstances. Typically, this might involve customers undertaking a survey, based on which the robo-adviser will recommend a certain investment portfolio.
(2) Micro-Investing Apps:
These companies are more basic in their range of investment services and are mostly aimed at getting people to ‘start’ investing with small amounts of spare cash through the app. Often, they provide limited (or no) “advice” as such. To this extent, ‘investing apps’ are often considered a ‘financial product’ whereas robo-advisors provide an ‘advice’ service.
Note 1: People often think that robo-advisors and investing apps are the same kind of thing. They’re not. They’re apples & oranges, so they shouldn’t really be compared to each other. We’ve included them both here, to help point out how they are different!
Note 2: We are only looking at Australian robo-advice companies that invest in ETFs, not platforms or companies that enable share trading.
The 4 major robo-advice investment companies are listed below in the table.
(Note: this information was obtained on 17 February 2018, mostly from the respective company websites)
|Fees for up to $10k invested||$5.50/month||$5+GST/month||$0||N/A|
|Fees for $51k invested||0.66% p.a.||0.6% + GST p.a.||0.5% p.a.||0.5% p.a.|
|Fees for $201k invested||0.66% p.a.||0.55% + GST p.a||0.4% p.a.||0.4% p.a.|
|Rebalancing||Yes||Yes||Rebalancing is done only for portfolios with assets under management of $10,000 or more||Yes|
|Investment Portfolios||5 portfolios ranging from: most conservative: (35.5% Growth); to most aggressive: (68.8% Growth)||‘Customised’ portfolios, ranging from:|
most conservative (20% shares) to most aggressive (90% shares)
|5 portfolios ranging from: most conservative (33% Shares) to most aggressive (91% Shares)||5 portfolios ranging from:
most conservative (17.5% growth) to most aggressive (85% growth)
|What do they invest in?||You can view Stockspot’s chosen ETFs here||ETFs; |
Specific ETFs not clear
|You can see more about QuietGrowth’s investment methodology here and here||You can view SixPark’s selection of ETFs here|
|Whose name are investments held in?||“All ETF securities are held in your name via a unique HIN (Holder Identification Number) that identifies you as the holder of the securities on the CHESS subregister.” |
- Stockspot website
|“All ETFs that are purchased as part of your Clover portfolio are held in your name under your personal Holder Identification Number.” |
- Clover website
|“Legal and beneficial ownership, and ultimate control of the underlying investments remain with the client, enabling the client with greater security.” |
- QuietGrowth website
|“All your Six Park investments are owned directly by you in your own name.”
- SixPark website
(2) Micro-Investing Apps
Micro-investing apps are a newer, fancier way to start investing. They use a ‘round-up’ system: your daily purchases are rounded up and the spare cash is invested. Basically, if you buy a coffee for $3.50, the investment app will round up to $4, and take that extra 50c and invest it for you. Pretty neat! You can start investing without even really thinking about it.
However, ’round-ups’ also have some other important implications. It means that:
- You need to give the app your credit card, debit card, or bank details so it can ‘round up’ for you
- Generally, investments are not invested in your name (because the amounts invested are so small that it doesn’t make sense for the company to start investing $7 at a time for every single individual)
- The minimum amount you can invest is much lower than the companies in the previous section…so if you only have a few hundred dollars, you can still get started
- But! That said, you need to pay close attention to the fees: if the app is charging you $1.25 per month, that’s $15 a year. If you are relying on ‘round ups’ to invest, you’re only going to be investing small amounts over a long period of time. If you only have $100 sitting in your account, a $15 fee per year is a 15% fee. That’s enormous. You need to make sure you have enough invested to make the fee worth it. Capiche?
Also, unlike robo-advisers, these firms are not really investment advisory companies. Their range of services (in terms of access to personal advice, or investment advice) is limited. Their primary motive is to get people to start investing their spare, leftover cash. Their focus is the actual investing bit, not so much providing advice.
The two main micro-investing apps in Australia at the moment are: Acorns & FirstStep. FirstStep is fairly new on the market, I think it’s only been available since late 2017.
|Raiz (aka 'Acorns')||FirstStep|
|Minimum Investment||$5 to start investing||$1|
|Fees for up to $5k invested||$1.25 per month||For accounts up to $5.5k, monthly fee of $1.25 OR $1.95 depending on if you link your account for ‘Round Ups’ + 0.20% p.a. (‘Usual Expenses)|
|Fees for over $5k invested||0.275% p.a.||For accounts over $5.5k:
0.275% p.a. (Account Fee) + 0.20% p.a. (‘Usual Expenses)
There may be additional fees (spreads, withdrawal fees etc)
|Additional Fees||There may be additional fees (dishonour fees, transaction costs etc)||There may be additional fees (spreads, withdrawal fees etc)|
|Investment Portfolios||6 different portfolios ranging from conservative (22.5% growth) to aggressive (90% growth), including a ‘socially responsible’ option||3 different portfolios, ranging from: most conservative (35% growth) to most aggressive (95% growth)|
|What do they invest in?||You can view the ETFs Acorns invests in, in their PDS||ETFs;
Specific ETFs not clear
|Whose name are investments held in?||Investments are not in your name. “All assets are held in custody by Australian Executor Trustees Limited which is a member of IOOF Holdings Limited (IOOF) Group a listed Australian financial services company. So if Acorns ceased to exist AET will still hold the assets associated with your investments in trust so that money is returned.”|
- Acorns website
|“You don’t own the actual investments - we do (or more accurately we have a professional custodian, independent from us, hold them). What you own is an interest in the trust that is FirstStep. The custodian isn’t responsible for managing your investments in FirstStep – FirstStep Investments is.”
- FirstStep PDS
So those are the popular investing apps and robo-advisers available for Australians at the moment. Again, make sure you consider the important factors before you sign up (i.e. the fees, rebalancing, asset ownership, and the investment options). Or, if none of these look appealing, you could always go the traditional route and just invest directly through an online broker!
Do you have experience with any investing apps or robo-advisers (whether it’s one above, or something different)? Comment below, I’d love to hear about your experiences!
* Note: This is not intended to be an exhaustive and complete review of all the services and products available on the market in this category. This blog post looks at a select number of what is available in the market. Further, the intention is not to provide a comprehensive and/or conclusive evaluation and/or ranking of products/services to determine which is ‘better’ or ‘worse’. Readers are encouraged to conduct their own independent research and obtain independent advice to determine which services would be most appropriate for their circumstances. The purpose of this post is to provide factual information, which readers may use to make their own informed decisions. We do not in any way recommend, advise or endorse any particular products and services. We do not receive commissions or payments for writing about any of these products or services.