Guide to ready-made investment portfolios
Ready made portfolios let you leave your investments to an expert. Find out how they work.
If you’d like to invest without having to choose individual investments, a ready-made portfolio could be a great option for you. These are put together and managed by experts, so all you need to do is choose a portfolio to invest in, fund your account and sit back. There are plenty of providers that each offer a range of ready-made options, including dedicated “robo-advisors”, who specialise in these investments and traditional brokers
What is a ready-made investment portfolio?
Ready-made portfolios are bundles of investments that are put together by experts. They’re well diversified, which means they hold lots of different investments, including different types of asset, worldwide shares, shares in different sectors and of differing sizes. These portfolios are given a risk level based on how they’re made up – for example, a portfolio that doesn’t hold much cash and has a large holding in equities (shares) would be riskier than a portfolio that has a large cash holding, investments in bonds and a small number of equities.
Your chosen provider will have several portfolios with a few different risk profiles, so you can read about them and choose the one you like the sound of most, like choosing a delicious investment smoothie off a menu. They will usually work to a certain risk parameter: low, medium or high, sometimes with an added creative flair to how they’re named.
Why invest in ready-made portfolios?
There are two big benefits to investing in ready-made portfolios:
- It’s easier than doing it yourself. The idea with these portfolios is that they are lock and leave, invest and forget. You get a fully diversified portfolio all in one place. You don’t have to do anything: the portfolio should adapt to changing market conditions (either using technology or with a manager) and you can get on with your day job. That’s the theory, at least. As with any investment there are risks.
- The experts are likely to do a better job than you, sorry. In theory, the experts should do a better job than you could do. They have access to all the best research and can pick up the phone to a fund manager at the drop of a hat. An expert fund selector knows the right questions to ask and picks the right fund manager for the job. Equally, the experts can blend the right portfolio, with diversified assets, appropriate to an investor’s risk profile. They can also vary the mix of the portfolio depending on the market environment. This should help defend a portfolio against falling stock markets, for example.
How much work is involved when investing in ready-made portfolios?
There’s very little work involved, but you need to work out the right option for your particular investing needs.
However, many platforms and advisers will help you to work this out, sometimes with a quick quiz. The rule of thumb is that if you have years and years to invest, you can often choose a higher risk portfolio as you have the time to ride out the highs and lows of stock markets.
If you think you’ll need the money soon, you should gravitate to low-risk portfolios. Bear in mind your risk level will change as you get older, which may mean changing your options.
What are the main drawbacks of a ready-made portfolio?
The main drawbacks of ready-made portfolios are:
- It can be expensive. Ready-made portfolios add another layer of fees. For the most part, an investor has to pay the manager and also to pay the cost of the underlying investment. This can bump up the overall cost and you could be looking at a round-trip cost of over 1%. If the experts get it wrong, the poor old investor (you) has paid a load of fees for no discernible benefit, which eats into your savings. Fees can have a real drag on your savings over time. A drag of 0.5% on a portfolio of £50,000 over 20 years can be the difference between it growing to £135,632 (at 5%) or just £122,773 at 4.5%.
- You’re trusting someone else to do better than you. You’re taking a gamble on whether the experts get it right, or whether you could do it better yourself. Having said that, fees have come down a lot in recent years. The inclusion of passive funds has helped lower costs.
- It’s not always easy to judge performance. It’s not always easy to know whether you’re in a good one. Most will appear in performance tables, so you can compare performance, but that can feel like hard work for what is supposed to be a low-energy option. It is worth keeping an eye on how they’re doing over time. You need to know that those extra fees are actually helping you get wealthier over time.
Where can I invest in a ready-made portfolio?
There are a couple of different ways to access ready-made portfolios — traditional stock brokers often offer them alongside individual investments, and there are dedicated platforms called robo-advisors that only offer ready-made options. On the face of it, these seem very different, but the types of investments you have access to are very similar. It’s typically best to choose a robo-advisor if you’re not interested in choosing individual investments down the line, and a stock broker if you think you’d like to give it a go once you gain confidence.
Some stock brokers offer ready-made portfolios, often at cheaper prices than robo-advisors. There isn’t typically a huge range of options available (for example, Hargreaves Lansdown offers just 6 portfolios, while Nutmeg has 30 available).
Sometimes you’ll have more flexibility with a stock broker. For example, AJ Bell allows you to play around with the fund choices or asset allocation weightings in its ready-made fund offering. This can be useful as you grow your confidence, particularly if you think you’d like to choose individual investments in the future.
Robo-advisors don’t often have individual investments available, so the only investment options you’ll have when you sign up are from their range of portfolios. Because of this, these providers may have a larger range including additional options, such as ethical portfolios.
How much do ready-made investments cost?
How much you’ll pay to invest in a ready-made portfolio depends on the provider you choose. Some providers charge a pretty low fee, such as Dodl‘s 0.15% fee or Hargreaves Lansdown’s 0.45% fee. Those with more choices, such as Nutmeg or Wealthify, charge a little more (0.75% and 0.6% respectfully).
How to invest in a ready-made portfolio
The exact process will depend on the provider, but here’s the process that you’ll usually follow to invest in a ready-made portfolio:
- Choose a provider. Decide between stock brokers and robo-advisors. You can do this by having a look at the portfolios available, the fees and the tools.
- Sign up on the website You’ll need some personal information, such as your national insurance number and your bank details.
- Answer some questions about your risk appetite. Some providers don’t do this, you may just have to choose a portfolio by reading the risk profile for each one. If your provider has a quiz, it may suggest a portfolio for you.
- Fund your account. Once you’ve chosen a portfolio, you can choose to either add a lump-sum or invest a set amount each month.
- Check back every few months to see how it’s performing. You can check in more often if you want to.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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