Fiona Hatch and her partner Adam Godbeer bought their first house two years ago. While they were saving for the deposit they mainly used high interest cash savings accounts. But cash is no longer a compelling asset, so the couple have taken what they call the “smarter option” and have started to invest instead.
“Currently interest rates are really bad so it doesn’t seem worth keeping money locked up in a savings account,” said Hatch.
“When we want to have kids, or if we want pay down our mortgage we would like money saved up to leave our options open.
“I can’t imagine anything worse than wanting to do something life changing but not having the funds to do so, or not being able to manage if one of us lost our jobs.”
The couple, both 29, are therefore using a robo-adviser to build up a portfolio of ETFs.
Taking a Bucket Approach
Surplus funds at the end of the month are split between a regular savings account, currently with First Direct paying 5% and their ISA account with online wealth management firm Moneyfarm. The couple also save regularly into workplace pensions.
Hatch says: “We only put a limited amount into our regular savings account. Anything over and above this we save into our investment ISA.
“Although we know investing is likely to provide a better return long term, we know it is riskier. We want to make sure we also have some money building up in an account that we could access should we need it.”
Hatch has a doctorate in cardiology and now works as a medical writer, while her partner has a doctorate in quantum physics and works as software engineer. Both have good jobs where they can also contribute to a pension through their workplace.
Robo-advisers a “Good Starting Point”
Hatch says it was quite daunting investing for the first time. “The reasons we chose a robo-adviser is that it selects the funds or shares to invest in on our behalf. As we’re starting out we did not know what to invest our money in. Over time I’m sure we’ll become more confident and may make more decisions ourselves, but these robo-advisers seem a good starting point for newbies like us.”
They are also significantly cheaper than investing through a more traditional investment adviser or stock broker – not least because the portfolios they select invest primarily in lower-cost passive funds and ETFs.
By investing into a readymade portfolio Hatch says she feels she is able to get greater diversification than buying one or two funds herself. The firm also offered a generous cash back deal which effectively gave them a 12% return on their money in the first year.
Gauging Your Risk Appetite
Despite being relatively young, the couple haven’t opted for the most high-risk portfolio.
After answering a series of questions, the robo-adviser recommended a portfolio which currently holds around 30% of their money in developed equities including UK, European and US shares, and around 65% of their money in bonds. This bond weighting includes a mix of inflation-linked bonds, a small holding in investment grade corporate bonds, a slightly higher weighting in Government bonds and gilts and a substantial allocation to high-yield and emerging market bonds. The couple do not currently invest in emerging market equities.
To date the couple have been happy with the performance of this portfolio. Although bonds are often associated with older investors because of the steady income stream, any income they receive has been reinvested, helping to boost long term growth.
Hatch says: “Interest rates going down has been an issue for us saving, but it has also enabled us to get a mortgage whilst interest rates were low.”
Hatch adds that she is worried about their longer-term finances, adding that this is one of the reasons the couple are careful with their money and keen to save.
“The ageing population and austerity measures are worrying,” she says. “Both myself and my partner are 29 and we know that our kids will be the ones that have to shoulder the burden of these economic decisions. There is not much we can do, nevertheless, but the future is looking quite bleak.”
