Robo advisers use algorithms to build and manage a diversified portfolio based on your risk appetite. For those who want diversified investment without the complexity of self-management, they offer an accessible entry point.
- How robo advisers work
- The main UK options
- Costs compared to DIY investing
- Who robo advisers suit
How robo advisers work
You complete a questionnaire covering goals, time horizon, and risk attitude. The platform assigns a risk profile and invests in a portfolio of ETFs calibrated to that profile, rebalanced automatically over time.
The main UK options
Nutmeg is the largest UK robo adviser. Vanguard's Personal Investor is low-cost at 0.15% platform fee. Moneyfarm, Wealthify, and Wealthsimple also operate here.
Costs compared to DIY investing
Robo advisers charge 0.25-0.75% annually on top of fund charges. Building your own portfolio of index funds through a DIY platform can reduce total costs to 0.1-0.3%, but requires basic investment knowledge.
Who robo advisers suit
They work well for people who want to invest but find the DIY approach intimidating. For investors prepared to learn the basics, a DIY approach may deliver marginally better long-term returns due to lower fees.
Bottom line
Robo advisers make investing accessible to people who would otherwise leave money in cash. They are legitimate and sensible. If you later develop more confidence, transitioning to a DIY index fund approach can reduce costs further.