Moneyfarm Passive Investing Review – A Real Investor Experience (Updated Jan 2019)

By | 24th January 2019

Summary: With several companies offering passive investment services to general investors, Moneyfarm may make an interesting choice and alternative to P2P lending, not least because investments of up to £50,000 are covered by the Financial Services Compensation Scheme. However, it should be noted that previous results are not a guarantee of future performance and even conservative products can be volatile and in the short-term can lead to losses.

Here is a table on how Moneyfarm compares to other platforms that I have invested in:

PlatformLinkTarget Rate (%)My XIRR (%)Current (%)Live Rating
ReviewVariableTBC30.9%3.5/5
ReviewVariableTBC-4.88%3/5
ReviewVariableTBC32.42%4.5/5

JANUARY 2019 UPDATE: Bad performance in the last month, although that can be explained by the general dive in most indices. Such dips are part of investing in a product such as this.

What is Moneyfarm?

As the name implies, Moneyfarm is a place designed where you can put your money out and hopefully watch it grow, like vegetables in a field. Originally created in Italy, in 2015 Moneyfarm came over to the UK and launched its wealth management product, quickly gaining FCA approval. The premise simple: investor money is aggregated and deployed in equities such as bonds, investment grade credit, and equities, which is packaged up into a portfolio, which investors can choose from depending upon their attitude for risk.

Blending debt and equity products together in one investment is nothing new, as many of the most popular Vanguard products have elements of both. The attraction of the equity element offers the potential of a greater return, but also a greater loss to investors. As shareholders in Flybe, Patisserie Valerie, or Carillion might know from bitter experience: the value of an equity can drop to zero.  But the flip side is also true: the upside potential of an equity is theoretically uncapped and you could earn many times your investment.

In practice neither scenario is that likely as many different types of equity or debt would be held within one portfolio, although it would still be vulnerable to a larger market downturn.

In recent years Moneyfarm have widened their offerings and it is possible to hold their investments in an ISA, a pension, or just as a general investment.

Here is a table showing Moneyfarm’s features:

Established2012
Advertised ReturnsVariable
Investment TypeBonds/Equity
Loan SecurityFCSC
Minimum Investment£1
Cash DragNone
Secondary Market?No
Fees0.3% Platform
plus variable
Provision Fund?No
Auto Invest?Yes
Available in ISA?Yes
FCA Authorised?Yes
Active on forum?No
Sign-up offers?Up to £5,000 managed free (use code MF087359)

Moneyfarm Sign Up Bonus

There isn’t a cash sign up bonus as such but rather one that offers your first £5,000 managed free of charge, worth around £50 a year on current charges. Simply use the member code MF087359 on signup.

Moneyfarm Operating Model

The model is tailored to your circumstances. Moneyfarm have 12 different portfolios which are graded in terms of risk, although you cannot directly choose them. Instead by answering a series of questions on attitude to risk and time horizons of the investment, you will be assigned a particular range of portfolios. Once these are allocated they are displayed in your dashboard which also shows the allocation of assets.

Crucially you are not limited to taking out just one type of investment: you can build multiple investment pots, meaning it is possible to be both defensive and attacking in different funds.

The products are blended, and provide a mixture of bonds, equities and cash. Given this there is no ‘income’ as such on a set period, with gains in the account value coming from an increase in the underlying value of the investments (and re-invested monies). Values of portfolios are updated on the website daily.

How are funds protected?

There is no protection against loss of individual financial investment, but crucially your funds are protected by the Financial Services Compensation Scheme. This compensates users for up to £50,000 of losses, but in practice will only activate in the event of the platform becoming insolvent. However, relying on this alone should not be the only consideration.

Pros of Moneyfarm

What I like about Moneyfarm:

Different type of investment: This provides a different asset class from P2P, being neither invested in personal loans, properties or businesses. It therefore offers a diversification opportunity.
Hands-off product: Investment in equities and bonds requires some research, even if it is into funds which aggregate these products. Moneyfarm make it easier as you just specify your risk tolerance and time horizon.
Low fees: Fees for holding investments are lower than some platforms, starting at around 1% and falling as you invest more. Transferring in (or out) is free.
Flexibility: It is welcome that you can hold investments within ISA/SIPP or outside, and can set up different portfolios with different risk levels.
FSCS protection: Hopefully it is never needed, but gives a better level of security than others.

Cons of Moneyfarm

There are also some downsides about Moneyfarm, most of them the polar opposite to the pros and will depend on your viewpoint:

Market volatility: Even under the least risk options, the value of portfolios can be very volatile, and in the short term you may be looking at paper losses (the risk greatly decreasing as time goes on). Even though the performance has been good in the past, we cannot forsee the future.
Potential correlation: Although the asset class is different, in a prolonged downturn, it may be the case that every asset ends up suffering, reducing the usefulness of a diversification.
Fee structure: Previous incentive plans where no fees were charged for smaller investments have been scrapped (although you can get £5,000 managed for free if you sign up via an existing member) Fees are low but not as low as Vanguard (although you then have to choose the funds you want to invest in).
Lack of choice: There is a small choice of portfolios and are only assigned on the basis of certain factors. There is no way to avoid a particular sector, or country in your investments.

Moneyfarm Investment Strategy

My personal Moneyfarm investment strategy is to simply invest up to the fee-free limit, which is £5,000 if you sign up using code MF087359 . This used to be much higher – £15,000 or £10,000 depending on time of sign-up. After this, the difference is quite pronounced. For example, at just under the £5,000 limit your charge is £0. Adding another £5,000 then adds over £50 in fees – perhaps not a large amount but in a tough market, this might add insult to injury.

The rest of the strategy would depend on your own personal circumstances, and as such there is no real way to recommend any portfolio over another. I would also compare the product costs of your proposed investment against funds such as Vanguard (although it is possible to hold both investments).

This type of account is not to be confused with any type of savings account, and I would not use this for keeping cash in the short-term. In the longer-term, if your investments perform as projected, there should be a premium over the fixed rates.

CONCLUSION

It would be churlish to say that Moneyfarm is the only way to invest in this fashion – there are several other ‘robo-advisors’ such as Wealthify and Nutmeg who broadly offer the same things at varying price points. As a hands-off investment it is about as simple as it gets, and with past results not meaning too much in terms of future performance, deciding between them may be a matter of personal circumstance. For those that want a little more control, it may be better to go with a platform such as Vanguard who offer a far greater range of fund choices.

Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).

 

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