How do Robo-Advisors work?
Robo-Advisors typically create portfolios for clients based on their indicated risk tolerance using passive investment models. Most Robo wealth managers will use funds that passively track broad indices of underlying assets such as Exchange Traded Funds (ETFs) or Tracker Funds.
What do Robo-Advisors invest in?
Portfolios built by Robo-Advisors usually comprise of a mix of underlying assets such as equities, bonds, commodities and cash. The risk profile of the client will dedicate the allocation of each asset class with lower risk portfolios having a higher weighting of cash and bonds and higher risk portfolios having a higher proportion of equities and possibly commodities.
What level of returns can you expect from Robo-Advisors?
At the time of writing, Nutmeg say on their website that a medium risk portfolio has returned 26.1% since inception in 2012 and 6.0% annualised. Over three years total return was 14.3%.
As with all investing, investments made with Robo-Advisors can fluctuate and you may get back less than your original investment.
How much do Robo-Advisors charge?
Robo-Advisors charge an annual management fee ranging from 0.75% in the case of Nutmeg’s most expensive charging tier down to completely free if you invest less than £10,000 with Moneyfarm
