InvestEngine Lifeplan portfolio review

^{Disclosure: Links to platforms may be affiliate links, where we may earn a small commission. Your capital is at risk when you invest. This article is not personal financial advice. Please do more research before deciding whether an InvestEngine Lifeplan portfolio is right for you.}

Do you fancy the idea of buying an entire portfolio at the click of a button? Do you like the pre-packaged, multi-asset convenience of Vanguard’s LifeStrategy funds? Do you wish someone would do that for ETFs, only without the UK equity bias?

Well, they have!

Enter the LifePlan portfolios from UK investment platform InvestEngine.

InvestEngine is known for its zero-fee broker services for DIY investors.

The LifePlan portfolios are not zero-fee but they are nicely-priced for small investors. They also feature several noteworthy points-of-difference versus their LifeStrategy rivals.

The headline: there’s much to like about the LifePlans.

With that said, there is a lurking cost issue for large investors that must be aired. We’ll deal with that in the costs section below.

What are the LifePlan portfolios?

LifePlan portfolios are like InvestEngine-managed ETF meal deals.

They’re readymade ETF portfolios you can buy off-the-shelf, one and done. As opposed to agonising about how much to allocate to Emerging Markets, or spending your nights sweating over your precise percentage of inflation-linked bonds. (Who even does that? Not me. Definitely not. Oh no.)

This type of multi-asset, ‘life is too short’ strategy is incredibly popular among those investors who are happy to exchange a measure of control for convenience.

Choice cuts

Instead of filtering through hundreds or thousands of funds, your choice with LifePlan immediately narrows down to picking one of six portfolios.

Each portfolio contains anywhere from 11 to 15 ETFs – with trading and rebalancing handled for you.

You only need to pick your strategic equity/bond allocation:

Portfolio name	Equity allocation	Bond allocation
LifePlan 20	20%	80%
LifePlan 40	40%	60%
LifePlan 60	60%	40%
LifePlan 80	80%	20%
LifePlan 100	100%	0%

LifePlan 100 is so-named because it’s 100% invested in equities. That’s ideal for young bucks with little to lose and the nerves of a mountain goat.

At the other end of the spectrum is LifePlan 20. No prizes for guessing it’s 20% equities while the other 80% is in Dogecoin low-risk bonds.

Stability is the watchword of the LifePlan 20 portfolio. Its owners want all the excitement of a Sudoku book. That’s because they’re either risk-averse or wealth-preservers who’ve already won the game.

Sitting in the middle is the 60/40 portfolio – the default choice for passive investors the world over.

Are multi-asset investments a good idea?

Absolutely. Multi-asset investments are an excellent idea for anyone who wants to put their money to work, but doesn’t want to be hands-on.

Contrary to popular opinion and the messages we’re assailed by online, investing success does not depend on micromanaging ‘secret’ stocks, cryptocurrencies, or currency trading techniques.1

Rather than such punting, you’re far better off doing a few very basic and boring things:

• Invest in a low-cost, globally diversified array of equity ETFs, supported by high-quality bonds
• Automate your investing habits
• Press the snooze button and leave your investment alone while you get on with your life
• Check in periodically (every few years, not days) to make sure everything’s on track
• Look back with astonishment years later at how much your wealth has grown

That’s the basic operating manual of passive investing – a strategy that balances results with simplicity and best investing practice.

And happily, these principles underpin the creation and management of the LifePlan portfolios.

Sticking to the knitting

Fundamentally there’s nothing new here. And I mean that as a compliment, not a slight.

There are few points on offer for originality in the retail investing space.

You might be intrigued if you walked into the Tate Modern to see a parade of dead-eyed turkeys dropping votes into a Christmas-themed ballot box. A commentary on contemporary democracy perhaps?

But it’s best to steer clear of novelty when managing your money. Financial innovation and complexity has a history of backfiring upon trusting regular Joes/Josephines.

Hence I’m very happy that InvestEngine has opted for a tried-and-tested approach. Essentially, these are the sort of portfolios we’ve championed for years on Monevator.

Although there are enough twists to keep things spicy if you have strong opinions on currency hedging, bond duration, and factor investing.

But before we go on, we need to talk about costs.

After all, one of the key strengths of passive investing is that its devotees wage Holy War on fees.

Costs crusade

The Ongoing Charge Figure (OCF) of a LifePlan portfolio is 0.11% to 0.15% depending on the version you choose.2

Now add InvestEngine’s 0.25% fee for managing your portfolio.

The total price tag for a LifePlan portfolio is therefore 0.36% to 0.4% of your investment per year.

For LifePlan 60, for instance, it’s 0.37%.

LifePlans are only available at InvestEngine so there’s no account fee or trading charge to pay.

Which is all an excellent deal for small investors.

By way of comparison, a LifeStrategy fund held on Vanguard’s platform costs 0.22% for the fund and 0.15% in platform fees. Again a total of 0.37% – so a dead heat with LifePlan 60. (Probably not a coincidence!)

However, small investors must pay a £48 a year minimum charge at Vanguard, which is quite a drag when you’re starting out.

Advantage InvestEngine.

Size matters

LifePlans are less competitive for large investors though.

That’s because LifePlan’s 0.25% management charge is uncapped. Bad news for big portfolios as there’s no limit to your fees on that portion of the costs.

Contrast that with Vanguard, which caps its 0.15% platform fee at £375 (when your portfolio reaches £250,000 in size).

Beyond that point, you’ll pay progressively more for your LifePlan versus Vanguard LifeStrategy.

Indeed it’s not hard to find an even better deal than that because LifeStrategy funds are not a Vanguard platform exclusive.

For example, Interactive Investor offers a flat-rate platform fee of £156 per year for a SIPP. That’s the charge no matter how big or small your portfolio.

Interactive Investor’s flat-fee is good for large investors and bad for small investors.

What counts as large and small in this scenario?

You can work out the crossover point like this:

£156 (fixed fees) / 0.0015 (differential between LifeStrategy and Lifeplan 60 percentage fees)
= £104,000

If your portfolio is worth more than £104,000, then LifePlan 60 is more expensive than LifeStrategy 60 in Interactive Investor’s SIPP.

Conversely, LifePlan 60 is cheaper than LifeStrategy 60 below that crossover point.

So that’s the threshold to think about if cost is your dealbreaker (and assuming Interactive Investor is your favoured flat or capped-fee broker).

Side-bar: for a fair comparison, include an estimate of your trading costs when you weigh up a fixed fee versus uncapped percentage fee proposition.

In this case, I’ve assumed the investor takes advantage of Interactive Investor’s free regular purchase scheme.

Sells aren’t needed because LifeStrategy rebalances itself.

LifePlan versus LifeStrategy – the detail

But cost is not the only battleground, so let’s consider some other key differences between InvestEngine and Vanguard’s offerings.

Home bias

InvestEngine promises no home bias in LifePlan portfolios. That is, a LifePlan’s UK equity allocation should equal the UK’s presence in the global market cap portfolio.

Right now, UK stocks sum just over 3% of the equity side of LifePlan, as opposed to about 25% in Vanguard LifeStrategy.

Why is home bias an issue? Because financial theory suggests we should accept the market’s view (that is, the wisdom of the crowd) unless we have a very good reason to do otherwise.

And yet home bias persists – with one theory being that investors prefer to invest in what they know.

Long-term studies suggest however that such a preference is not a winning strategy, even if it is a psychological comfort.

Choice of components

Vanguard LifeStrategy portfolios are built exclusively from Vanguard funds while LifePlan portfolios are free to play the field.

InvestEngine can choose from any ETF it stocks on its platform – and it has a solid range these days.

Vanguard funds are good but they’ve long since surrendered their lead in the price wars.

Moreover if InvestEngine spots an ETF with some other advantage then it can swoop on that, too.

Diversity fans should also note that LifePlan 60 currently comprises ETFs from five different providers, including Vanguard.

Bond duration

An interesting selling point for LifePlans is they use a shorter duration bond portfolio than LifeStrategy.

All things being equal, a shorter duration bond allocation implies lower overall portfolio volatility in exchange for a lower expected return.

Your bond portfolio’s duration number helps reveal the difference this choice can make.

The rule of thumb is that the duration number indicates the approximate gain or loss you can expect to see from your bonds for every 1% change in yield.

For example, if your bond portfolio’s average duration is 7 then it:

• Loses approximately 7% of its market value for every 1% rise in its yield
• Gains approximately 7% for every 1% fall in its yield

Marvellous. From there, we can see that a long-bond duration of 15 can result in some big movements when yields buckaroo. (With ‘movements’ being the operative word back in the time of Truss.)

More common scenarios to think about include:

• Yields rise, perhaps because inflation is running hotter than expected – shorter durations are best.
• Yields fall, and the stock market crashes as the global economy goes into deep recession – longer durations are best.

The right choice for you as an investor may depend on which scenario you fear more: surging inflation or a deflationary recession.

Or you might decide you have no idea what yields will do, but you’ll likely experience many such scenarios in your lifetime. In which case, it’s a balanced approach for you!

So what durations are our multi-asset pair sporting like rival teams’ football scarves?

I calculate average bond durations of approximately:

• LifePlan 60: 5.2
• LifeStrategy 60: 7.2

Hence if yields rose 2% from here then you’d roughly expect:

• 5.2 x 2 x 0.4 (bond % of overall portfolio) = 4.16% in bond losses for LifePlan 60
• 7.2 x 2 x 0.4 (bond % of overall portfolio) = 5.76% in bond losses for LifeStrategy 60

Conversely if bond yields fell 2% then the same maths would apply, only this time reversed for gains.

It doesn’t seem life-changing to me, either way.

(Neither firm publishes average durations for these portfolios but it looks like the difference could be more significant at the LifePlan/LifeStrategy 20 level.)

Global and corporate bond diversification

One thing many of us discovered in 2022 is that bonds are a complex beast.

A bit like a guard dog sold as a family pet, they made us feel safe right up until we were bitten in the backside.

It’s surprising to me then that neither InvestEngine or Vanguard makes it easy to assess the key splits in their bond portfolios.

For example, geographic diversity, type, credit quality and, as mentioned, duration.

One long-running debate on Monevator is whether it’s best to diversify your government bonds across other developed world countries or to stick to UK gilts.

To that end, here’s each product’s global/GBP fixed income allocation (as a percentage of the bond portfolio):

• LifePlan 60: 37/63
• LifeStrategy 60: 66/34

(Note: these percentages include some corporate bonds, and cash-like securities.3 They’re also my approximate calculations based on fund provider and Morningstar data.)

Personally, I’m indifferent to the split. Home bias isn’t a thing if you stick to high-quality government bonds.

But I know many others prefer to diversify, in which case LifeStrategy has the edge. (Although, LifePlan’s overseas bond holding becomes more pronounced at the 40/60 and 20/80 equity/bond levels.)

Finally, both portfolios hedge all overseas bond holdings back to GBP, which is what I want to see.

Moving on, here’s the corporate/government bond allocation (as a percentage of the bond portfolio):

• LifePlan 60: 13/87
• LifeStrategy 60: 32/68

I prefer the LifePlan approach here. Fewer corporate bonds means InvestEngine is accepting a smidge less expected return in exchange for lower risk.

That divergence only widens as you head into the meatier bond realms of LifePlan 20 versus LifeStrategy 20.

Inflation-linked bond conundrum

For inflation defence, LifePlan uses the short duration, US inflation-protected bonds in iShares $ TIPS 0-5 ETF (GBP hedged).

LifeStrategy plumps for long duration, UK inflation-protected bonds in Vanguard’s UK Inflation-Linked Gilt Index Fund.

Here’s how those two options have performed since inflation took off in late 2021:

Source: Trustnet Chart tool

Lordy, Vanguard’s fund lost 37% without even adjusting downwards for inflation.

Meanwhile, LifePlan’s pick managed 6.3% growth (or 1.85% per year), although that’s also before adjusting for inflation. In real terms, LifePlan’s TIPs ETF also lost money, just not as much.

So neither put up a great fight against high inflation albeit InvestEngine’s choice was far better.

The reasons are complex but duration is key to the puzzle:

• Vanguard’s fund is long duration – average duration is 14.5 at the time of writing
• InvestEngine’s ETF has a very short duration of 2.3

When inflation runs riot, you want a shorter duration inflation-linked fund on your bond side (imperfect though it is), as the chart shows.4

Ultimately, you have to enter LifePlan/LifeStrategy 40 territory before either product starts to offer a significant index-linked bond allocation.

To hedge or not to hedge (equities)

Vanguard does not hedge equity exposure.

However, 50% of a LifePlan’s US equity exposure is hedged to GBP.

InvestEngine says:

While a fully unhedged equity position increases a portfolio’s risk, a fully hedged position increases costs and the temptation to time currency markets.

Based on extensive research, our balanced currency hedging policy is designed to reduce volatility and drawdowns, while keeping costs low and increasing long-term risk-adjusted returns.

That’s a strong claim.

The conventional view is that currency fluctuations are extremely hard to predict and we should expect hedged and unhedged investments to deliver similar returns over the long run.

If so, the decision to hedge depends more upon your personal risk exposure than the evidence base, which presents a truly mixed and timeline dependent picture.

It’s certainly a good idea to hedge your overseas bonds because their primary job is to lower portfolio volatility. Exchange rate gyrations can add excessive volatility on the bond side, hence Vanguard and InvestEngine both eliminate that problem with GBP-hedged choices.

In contrast, currency swings aren’t as problematic for stocks because they’re such a wild ride anyway. Thus the volatility benefit gained by hedging out FX perturbations is much less on the equity side.

So because hedges increase fees – and can work for or against you – most people don’t bother hedging equities unless they’re betting on currency moves.

Hedging my bets

One person who might consider hedging some of their overseas stocks is a retiree or near-retiree.

That’s because if you’re relying on global equities to pay your bills soon, then you don’t want a rapidly appreciating pound devaluing your foreign assets. (Think some kind of reverse Brexit, or the discovery of Saudi-scale oil reserves in Cockermouth.)

On the other hand, if most of our retiree’s wealth is held in gilts or hedged overseas bonds then their bills are probably covered by assets linked to GBP. In which case some currency diversification is probably a good idea, just in case the pound sinks.

Overall, I’m sceptical of the need for hedged equity exposure – though it wouldn’t put me off either, if I liked the rest of the portfolio (which I do).

For what it’s worth the pound remains at a low ebb against the dollar. If it should rise over the next few years then InvestEngine’s decision will provide a boost.

But over the long-term? Nobody knows.

For more on this, see Monevator contributor Finumus’ post on why you may not want to hedge your equities.

Factor investing: thrive or dive?

Factor investing is a strategy that advocates holding particular stock categories which are historically associated with beating the market.

The risk factor categories that LifePlan includes are:

• Value
• Momentum
• Quality
• Small cap
• Minimum volatility

Things to know:

• The research underpinning the risk factors is convincing
• But nobody guarantees the risk factors will continue to outperform in the future
• Indeed, they’ve mostly been down on their luck in recent years
• Risk factors are only available in a diluted form in ETFs
• They do diversify the standard market cap portfolio
• InvestEngine has chosen an excellent blend of factors
• It invests 30% of the equity portfolio in risk factors, which is a sensible slice if you’re going to do it
• Some or all of the risk factors can trail the market for long periods

The next chart shows how each risk factor has performed since dedicated factor ETFs came on stream:

Source: JustETF

Only momentum has really fulfilled its promise over the past 11 years. Quality scored a draw. The rest of the factors would have weighed a portfolio down.

But the purpose of the chart isn’t to illustrate that risk factor investing is a bad idea per se. Risk factors could come roaring back and start trouncing the market tomorrow. Again, nobody knows.

What the chart does reveal is that good investment ideas can fail to deliver – and for long periods – even when backed by research, theory, and common sense.

I invest in risk factors myself. But I also think it’s worth knowing the pros and cons to avoid disappointment later.

Like the equities-hedging decision, this one may prove to be a tailwind or headwind, but we’ll only know in retrospect.

Summing up

I think the LifePlans are an excellent option for people who want to invest but don’t care about investing.

That’s a lot of people!

I’ve recommended LifeStrategy funds to friends and family and I’ll happily do the same with LifePlans.

Personally, I think the LifePlan-InvestEngine fee structure is a great deal for small investors.

But InvestEngine needs to cap its fees before I could recommend LifePlans to anyone with much over £100,000 in their portfolio.

For current LifeStrategy investors, LifePlan offers a rational alternative, especially if you’re looking for a portfolio without home bias or long-duration inflation-linked bonds – or if you want to diversify your exposure to fund management companies.

Take it steady,

The Accumulator

Bonus appendix

InvestEngine shared with us the current allocation for each ETF in the LifePlan portfolios. It’s very useful information if you’re interested in how the portfolios are constructed.

LifePlan 100% equity portfolio

Weights may not sum to 100 due to rounding errors.

80% equity portfolio

60% equity portfolio

40% equity portfolio

20% equity portfolio

You can only invest in LifePlan portfolios through InvestEngine. See our review of the platform.

InvestEngine offers LifePlans in ISAs, SIPPs, and GIA accounts.

InvestEngine is FCA-authorised and is covered by the UK’s FSCS investor compensation scheme.

LifePlans are managed portfolios of ETFs, not fund-of-funds. Thus the underlying ETFs determine whether dividends are accumulation or income. Happily, InvestEngine automatically reinvests all dividends for you, if you enable the AutoInvest feature.

LifePlan’s asset allocations are rebalanced when they stray too far from their initial moorings. InvestEngine checks daily to see if the rebalancing thresholds have been passed.

Check out our best multi-asset funds list for a snapshot of other products available in this category.

If you’re wondering how to select the right LifePlan portfolio then check out our articles on:

• Asset allocation rules of thumb
• Constructing your asset allocation
• Risk tolerance

1. Y’know, the one recommended by that nice guy off the Internet? Promising he’ll teach you everything for free / after you’ve spent hundreds of pounds ascending through his multi-level marketing scheme. [↩]
2. That charge covers the individual OCFs of the underlying ETFs. You don’t pay those on top. [↩]
3. InvestEngine includes a money market ETF on the bond side of the portfolio. [↩]
4. Of course, you also want an index tracker that holds inflation-linked bonds that correlate with UK prices. A short-duration index-linked gilt fund is a good choice. Global/US index-linked trackers (GBP hedged) also work. [↩]