Digital bank Monzo is rolling out Monzo Investments – a new investing service that’s handled in-app, right alongside the rest of your accounts and saving pots.
And given that everyone under-35 now ‘Monzos’ each other money in the same way we all ‘Zoom’ and ‘Google’, we expect that for millions of Britons this could be a first encounter with hands-on investing.
If that’s you then you’ll probably have questions. But the good news is Monzo won its seven million-odd customers by making financial management easy, and the new investing product seems designed to hit the same spot.
In fact there are few other platforms that offer an investing experience that’s as stripped back and decluttered as this.
But is simple best when it comes to investing? What are the trade-offs you’re making if you sign-up with Monzo Investments?
Let’s get into it.
How does Monzo Investments work?
Monzo’s new investing platform is more streamlined than a dolphin on a 5/2 diet.
You can invest from just £1 a throw into one of three BlackRock funds.
BlackRock ranks among the world’s biggest investment houses and the three funds it is offering here will put your money to work in companies across the globe.
MyMap 3 Select ESG Fund
The lowest-risk fund among the three on Monzo’s investment shelf puts approximately 80% into global bonds and 20% into global equities.
‘Equities’ is investing lingo for shares in companies that trade on the stock market. Owning Apple equities, for example, makes you are a part-owner – a shareholder – in the Apple business.
Bonds are less risky. They are loans that are paid back by companies and governments over time
The MyMap 3 asset allocation split – fewer equities and a lot of bonds – means it is likely to grow your wealth at a much slower rate when compared to the other two funds available with Monzo. But this also means it’s less exposed to the (hopefully temporary) downside of a stock market crash, too.
Choose this fund if you’re nervous about investing and want to tread carefully.
MyMap 5 Select ESG Fund
The split here is around 65% global equities and 35% global bonds. The theory is that equities fuel your returns while bonds pick up the baton when stocks are down.
The 65/35 asset allocation is slightly more aggressive than the standard 60/40 portfolio that’s commonly thought of as the Goldilocks of equity risk and bond caution.
Regardless, even a standard middle-of-the-road investing portfolio won’t always deliver the positive gains we all seek when investing – at least not over a short-run of just a few years.
But if you invest for long enough, then a diversified portfolio has a very good chance of paying off without you suffering truly gut-wrenching gyrations in the value of your pot when stock markets fall.
MyMap 7 Select ESG Fund
You’ll direct 100% of your money into global equities with this fund. Such an allocation is a highly aggressive move that throws caution to the wind in a bid for growth.
It’s likely to be a hair-raising ride if you check your investments regularly. That’s because the stock market is highly volatile.
Only choose this fund if you’re young and / or unusually risk tolerant – by which we mean you could stand to see your wealth cut in half in the space of a few weeks and still soldier on.
Even so, we’d suggest you avoid choosing this option unless you already have some investing experience. That’s because it’s better to dip your toe into the water cautiously at first. Seeing your hard-won savings go down in value for the first time is not easy, and you’ll be better able to judge your own risk tolerance after it has happened to you at least once.
Unsure which fund to pick? Learning more about asset allocation will help you decide which one is right for you.
What does ESG mean?
All three of the funds on offer at Monzo have ‘ESG’ in the name. So what does this acronym stand for?
ESG stands for Environmental, Social, and Governance investing. It’s a financial industry label that indicates your investment scores more highly on sustainability and ethical metrics compared to non-ESG investments.
But does investing in an ESG fund really help make the world a better place?
The MyMap funds briefly describe their ESG policy on each fund’s webpage and in more depth in the prospectus.
But you may not be much the wiser after reading it.
And this is not a BlackRock-specific problem. It’s an investment industry-wide issue.
If you dig into ESG methodology you’ll quickly discover it’s complex, convoluted, and questionable. But hopefully it’s better than nothing.
I say ‘hopefully’, because the ESG system has been accused of greenwashing and been denounced as ‘PR spin’ – from none other than a former BlackRock chief investment officer of sustainable investment!
And we suppose he should know.
As things stand, we believe ESG funds are a good look, but a poor substitute for more powerful action like voting for political parties that prioritise the environment, reducing your carbon footprint, and refusing to purchase goods and services that don’t align with your values.
How much does Monzo Investments cost?
You’ll pay annual investment fees of 0.45% to Monzo and an additional 0.14% to BlackRock.
If you’re a Plus or Premium customer then Monzo only takes 0.35%.
What does that actually mean?
- For every £100 your investment is worth, BlackRock takes 14p and Monzo 45p.
If your investment pot eventually reaches £1,000, then BlackRock would still only take £1.40 and Monzo £4.50.
That sounds like nothing, doesn’t it?
Well, the BlackRock fee is actually great value for a global fund.
But the Monzo Investments’ charge is at the high-end compared to rival percentage-fee investment platform services, though not egregiously so.
One of investing’s golden rules is that it’s vital to control costs because fees can take a huge bite out of your wealth in the long-term.
That’s because eventually you’re likely to have significant sums of money invested, you will pay fees even if you lose money, and because the charges are an instance of negative compound interest.
All that said, many people choose to bank with Monzo because they enjoy a slick and modern experience.
If that’s you and you’re using Monzo to try out investing for the first time, no worries. Just remember to think again about how competitive Monzo is for you – or isn’t – once your pot reaches around £10,000.
What investment account types does Monzo offer?
Monzo provides two types of investment account:
- Stocks and shares ISA
- General Investment Account (GIA)
You can invest up to £20,000 per year into a stocks and shares ISA. Or you can split that twenty grand across different types of ISAs including a Lifetime ISA and a Cash ISA.
- Our article on the ISA allowance explains how the ISA system works.
ISAs are great because they enable your money to grow tax-free.
Only use a GIA when you’ve run out of room in your stocks and shares ISA. Investments in GIAs are subject to tax on dividends and interest, as well as capital gains tax. You’re allowed a small tax-free personal allowance every year but it’s quickly used up.
Happily, you can set up a regular investing plan with Monzo to automate your accounts.
After that, you can sit back and leave your funds to grow. Of course you should expect major setbacks occasionally when equities take a tumble, particularly if you’ve chosen a riskier fund. But the markets always recover eventually.
Check out this piece on managing an investment portfolio when you’re ready to think about longer-term investment objectives.
Anything else I need to know about the MyMap funds?
All three products are actively managed multi-asset funds. Active management means the funds are run by a team of investment professionals whose results partially depend on their ability to capture opportunities by trading in the market.
This isn’t necessarily as good as it sounds and there’s an ongoing debate about the merits of active vs passive investing (the other major school of thought).
Vanguard’s LifeStrategy funds are a similar idea to MyMap but are a passive investing play.
Multi-asset funds are the ultimate in investing convenience because they bundle a diverse array of equities, bonds, and potentially other asset classes into a single investment package.
So if you don’t want to manage multiple funds in your own custom investment portfolio then multi-asset funds are a modern miracle.
Multi-asset funds are widely available on other investment platforms too, including the MyMap funds.
Are my investments safe with Monzo?
If Monzo went bust and your assets were irrecoverable, then you’d be covered by the UK Financial Conduct Authority’s Financial Services Compensation Scheme (FSCS).
In a nutshell, the scheme is designed to pay out up to £85,000 per person if your FCA authorised investment platform fails.
Monzo says its service is protected by the FSCS scheme.
The same £85,000 limit applies if BlackRock collapsed.
The scheme itself has quite a few wrinkles. Read up on the rules if you’re particularly concerned about FSCS investment protection.
Beware: the scheme doesn’t cover you for investment losses – say if the stock market implodes.
Carry on investing
Investing has changed my life and that of many Monevator readers. If Monzo Investments encourages more people to try their hand then that can only be a good thing.
Incidentally, you might think it odd that I haven’t commented on whether the MyMap funds are a good bet in terms of making you money.
There actually isn’t much data available yet on the MyMap Select ESG funds. Though the wider MyMap range looks perfectly respectable to-date versus similar multi-asset products.
But what’s not well-understood is that obsessing over fund performance is a bit of a fool’s errand. That’s because investing returns are massively unpredictable – and also because it’s extremely difficult to differentiate luck from skill.
A dazzling fund this year often looks like a dumpster fire the next. Though many ‘industry experts’ make a wonderful living from convincing the public that they can predict these winners and losers, the evidence is against them.
Warren Buffett, one of the greatest investors of all time, has explained why.
Ultimately, the best we can do is to make a thoughtful selection based on timeless investing principles such as diversification and keeping costs low – and then hope that the future will be kind to us.
So get your investing wings as early as you can, learn more about investment from educational sites like Monevator as you go, and develop a sound investing strategy as your wealth grows.
Take it steady,
The Accumulator
P.S. Do you have a younger Monzo fan in your life who would benefit from reading this article? Why not email it over to them!
Concept and title of the article got me excited. Monzos execution though is disappointing. Its a good mass market product but limiting the options so significantly is a shame. I wish investengines product and platform was acquired by or copied by one of the banks like Starling or Chase to offer UK investors a way of banking and investing with a large trusted institution in a more democratic or unrestricted way.
Is this article sponsored by Monzo?
It’s been a while since the last time I read about MyMap funds here. Wonder if you can perhaps do an article comparing their performance with vanguard and/or maybe some other multiple assets funds ? Thank you.
@P — No, Monzo has nothing to do with it. We haven’t even got affiliate links (sadly).
@ Ramzez – Did you see this updated piece from last year?
https://monevator.com/passive-fund-of-funds-the-rivals/
I need to update it again for 2023 but I doubt there will be any radical change. When I was doing my Monzo research, I could see that some MyMap funds were ahead of their Vanguard LifeStrategy equivalents and some behind. There’s not a huge amount in it, and the first MyMap funds only launched in 2019 so we don’t even have five years worth of data yet.
@ DaneJames – wouldn’t surprise me if InvestEngine got acquired by a digital bank. Nutmeg got bought by Chase. Revolut have added ETFs but only in Europe as far as I can tell. I guess they’ll add them for UK customers soon enough. Feels like Monzo are going for a soft launch and could add more features later.
I’m clear what Blackrock are charging for, running a fund, but it’s not clear to me what Monzo are charging for, a platform fee maybe? If so it’s odd that they charge the same for an ISA as a GIA
Right now there are many zero fee platforms available – including iWeb – all online
Meh, I hate this sort of “integrated” offering. I have just moved my investments from first direct to Lloyds because I don’t want a running commentary on my net worth every time I log in to the FD app to pay a bill.
I don’t think @TA is suggesting that Monzo is a good option for most of the Monevator readership. I’m certainly not in the demographic Monzo are aiming this at- probably most of us aren’t. It does look like something that might just get some younger people started on investing though, and that could make massive difference to them longer term, possibly a life-changing one. Yes, the percentage fee would be pricey if you had £1m in it, but it’s peanuts on the few hundred quid a youngster might be investing. They might start to see that longer term and move to iWeb or wherever. The ESG element might appeal to them also, and it’s likely to be safer than triple leveraged Tesla bets on Robinhood!
I got into investing via a FSAVC that was sold to me “semi-fraudulently” and had usurous fees creamed off for the wide boys selling it to me. It did at least get me started, and once I saw that I was the product rather than the customer I got out and (thanks to this site particularly) have done pretty satisfactorily since, and have never stopped investing. Monzo’s offering looks a thousand times better value than mine was- there’s been some progress I reckon!
@ The Accumulator yes that’s the article I have seen I believe but didn’t notice it got updated last year! Thanks again.
The Monzo investment platform charge appears excessive. Underlying investment charges reasonable. If Monzo had gone for a lower charge percentage or a fixed monthly fee it would have been beneficial for their customer base.
Agree with @Neverland #6 and @William #10. Not obvious what the USP is here for Monzo. At 0.45% p.a. platform fee and 0.14% p.a. OCF for the BR funds (which is good for the funds, but much less so for the platform fees) the overall cost of ownership with Monzo is only a smidgen less than, say, the 0.64% p.a. OCF of a respected, defensive one stop shop, multi-asset, actively managed IT like Capital Gearing Trust, if its either held on a no fee platform, like iWeb, or in an HL GIA, which doesn’t charge for holding ETFs, company shares or ITs. For an annual 5 basis points more overall than Monzo, CGT gets you access to the longest serving IT manager (41 years) and a rare (albeit rather small) discount to NAV.
The list of profitless high % fee platforms, roboadvisors, and similarly loss making ‘zero’ fee investment apps in the UK is long and growing. On the one part, HL makes money hand over fist (its 65% margins being an open invitation to competition); and eventually ii and AJ Bell might turn some sort of a profit. But, as for the rest, the future is going to be one of using seed rounds to raise capital, getting up and running, doing a couple of eye catching adds for the Millennial crowd, and maybe also putting out a few transfer in and/or account opening offers; followed by an increasingly long shot bid to try and establish a small but appreciable market share and some sort of relevance or brand identity in the hope, perhaps, of being acquired by one of the big two or three (although, realistically, only HL have got the deep pockets, and they don’t tend to go for lateral acquisitions).
Nothing wrong with that of course. Gives investors some choices and a chance to make some quick cash with the sign up offers. But a longer term, reliable and trusted investing ‘platform partner’ it does not necessarily make for.
I have 99% of investments split over the big two platforms and the last 1% is used to go for every (GIA) account opening incentive that I can manage to easily bag. That does mean having a proliferation of micro pots alongside the main ones with the big two; so there’s a small platform / roboadvisor account tracking exercise to keep up to date. But otherwise, why not?
I have signed up for this service, with no knowledge on investing.
This article is superb, the level of detail and the information shared is crucial.
Thank you so much for creating such a well written page!
@ Windinthefens – you’ve summed up my take perfectly.
@ Shaun – Cheers! Thank you for taking the time to comment, I’m glad it helped.
@TLI #11 > HL GIA, which doesn’t charge for holding ETFs, company shares or ITs
Flippin’ heck, is that really the case? I could start splitting my GIA off from Iweb if so, thanks for the lead!
@ermine #14: thanks. Yes, no GIA charges for shares, ETFs and ITs. This is what the HL Fees’ page for their Funds and Shares Account (i.e. GIA) says verbatim (but with original formatting removed to save some space): “Your annual charge depends on whether you hold funds or shares in your Fund and Share Account. There are no charges for opening an account, holding cash or inactivity. Shares. Including UK and overseas shares, investment trusts, exchange-traded funds, VCTs, gilts and bonds. No Charge”. My only hesitation here is that very recently I actually looked into buying some ILGs (individual index linked Gilts, not a Gilt ETF or fund) for the HL GIA and the fees & charges illustration showed a platform fee. The left hand not knowing what the right hand is doing perhaps?
@ermine (#14) & @TLI (#15):
See also: https://monevator.com/compare-uk-cheapest-online-brokers/
and note £11.95 per trade
@Al Cam #16: It’s the thing that irks me the most about HL because the only way to avoid it (unlike platform fees for holding OEICs/UTs) is not to trade at all. I suppose they use it to maintain fees from those who choose to hold only ETFs/ITs.
@TLI and ermine
The cost illustrations on HL for things like individual gilts seem accurate to me. To see them for the right account you need to go to ‘change these assumptions’ and switch from as ISA (the default illustration) to GIA. And just like that, the 0.45% charge disappears…
@tetromino #18: ahhh. That explains it. Many thanks. Even after 15 years using HL I still have much to learn. I had though that HL charging their full and hefty platform fee whack for plain vanilla Gilts and ILGs was a bit Dick Turpin highway robbery on the value for money front, so it’s very good to know that they’re definitely not going to be doing this.
@ermine and @TLI
I have a GIA with HL and can confirm there are no charges for gilts, shares, ETF, but the £11.95 per trade seems fairly steep.
X-O.co.uk do not charge any annual fee either for their GIA (or even their ISA!), but are much cheaper at £5.95 per trade.
@Ermine, IIRC your did a bit of jiggery-pokery buying ETF’s in Vanguard’s GIA because bulk sales/purchases were free and moving them some other account to avoid Vanguards annoying 0.15% annual charge.
I was always sceptical that the free trades were worth it. I suspect if the market makers know there is a big bulk order coming through at a fixed time then they may widen their bid/offer spreads. Plus you are limited to Vanguards ETFs.
VWRL Vanguards popular FTSE All World Tracker now has competition from Invesco’s new FTSE All World Tracker (FTWG) and it is 7 bps cheaper. It may be cheaper in the long run to just buy FTWG and pay the 5.95 with X-O than stick with VWRL and your method of avoiding the explicit trading fee.
I am directing new money to Invesco’s tracker in X-O and I am happy with it. I will also use it if I need to rebalance at any point.
@Jam (#20):
I know we have discussed X-O before (possibly not here though) and whilst you seem to still be happy with them I have a residual concern about exceeding the FSCS limit with X-O. Have you any thoughts to share on this point?
Thanks @Jam #20.
Planning on turning HL GIA into a funnel for HL ISA (where ETF and IT platform fees are capped at £45 p.a.), trimming GIA IT holdings each year, and defusing any gains, by ‘bed and ISA’ (to use or part use up soon to be only £3k p.a. CGT allowance). This will then fund my ISA for the next few years.
Planning on then whacking some cash savings into ILGs in the GIA, as no CGT on Gilts’ gains.
But this kinda ties me into having to keep the GIA with HL for the next few years owing to the likely logistical headache of moving IT sale proceeds from a GIA with one platform over to an ISA held with another.
@TLI That makes sense; I also do a bed and ISA, very similar to you.
The main difference is that I tend to worry about the market moving against me while the ETFs/Funds outside the ISA are settled, normally 3 days. So, I move Cash into the new ISA from a savings account and then place the sale/buy orders as close to the same time as I can manage.
When the sales outside the ISA eventually settle, I use the cash from that to top the savings account back up.
It is a bit more work, but it is a once a year job. (And I know I could miss out if the markets moved in my favour). It means I don’t worry if the bed and ISA holdings are not all on the same platform either.
@Al Cam. I don’t think there is any solution to the 85K FSCS limit apart from having a good slug of redundancy.
I have the most invested through Halifax, who were bailed out in the GFC of 2008 and I think are too big to fail. Closely followed by II, owened by Abrdn, so feel safe, then my SIPP is with Hargreaves who I have confidence in. All well above the compensation limit.
I am below the FSCS limit with X-O, but directing new money there. Once I over-top it, I think my SIPP with Hargreaves will be a bit smaller, so may switch to using them for any new ISA subscriptions.
I wouldn’t want to use any more platforms. My current set up isn’t too bad, since I am a passive investor and rarely trade more than once per month, so the paperwork is fairly simple.
I used to have a sharedealing ISA with HSBC, but didn’t like paying the quarterly fee on it. I plan to avoid fees for as long as I can, which X-O lets me do in the meantime.
I suspect there must be a lot of readers who have exceeded the FSCS limits and get the general impression that once they have some level of redundancy built in, to their own perception of risk vs. the admin trade off people just live with it.
@Jam (#23):
a) re FSCS limit vs complexity (inc. number of platforms, TBTF, etc):
I agree and OOI in the last few weeks have also come around to favouring HL in the circumstances you describe
b) re your strategy for handling time out of the market risk:
I do something similar but to date have split a large transaction in two and do one part in advance and the other part as soon as possible post settlement, as this requires less (about half) cash liquidity and gives at least some possibility to catch anything favourable too – bit of a faff, but, as you say, manageable on an annual basis
@DaneJames #1
Have you seen https://www.investments.lloydsbank.com/etf-quicklist/ “Lloyds Bank Share Dealing have engaged with BlackRock, a recognised exchange traded fund (ETF) provider, to produce an ETF Quicklist.”
Main disappointment this week was the new InvestEngine SIPP having a (high) annual £200 cap on platform fees. Not particularly competitive, feels like it’s intended to cross subsidise the rest of the platform.
InvestEngine fees are 0.15% – matching Vanguard but with wider choice of ETFs and lower cap.
For me, that makes it a table-topper for anyone with a SIPP worth £100K or less. Looks good for anyone just starting out.
@Richard #26: Suspect down to operating leverage & cash burn. New platforms have operating losses from get go. Reliant on VC/seed funds. Cash burn’s high. With interest rates, harder to get more start up funding now. So, new platforms begin charging customers like old ones reducing their USP (low or no cost). My assessment at #11 turns out to be dated. Discovered whilst researching this comment that in last several years all platforms have been pushing for profitability by squeezing costs and finding ways to earn more from customers, i.e. they’re no longer just going for profitless growth to gain market share. That was the old MO. It’s no more. Hence I suspect the £200 fee cap with IE for SIPP. Apparently, 60% of UK platforms now reporting profits. I was quite surprised to learn this.
As @TA #27 identifies, 0.15% and a £200 cap is still good compared to Vanguard’s more limited range and £375 cap. It’s all relative I suppose.
Just popping in with a mercantile note — if you do decide to try InvestEngine you can get a free £25 bonus with our affiliate link:
https://monevator.com/go-to-investengine
Heartily recommend affiliate links. Mrs TFI & I seamlessly moved SIPPs to ii via affiliate links, receiving generous switch bonuses, and bagged IE account opening bonuses. Many thanks @Monevator.
Also note in this weekend’s Monevator links the FT article on improving ISAs (i.e. how to get cash ISA savers to go instead for S&S, especially – so it seems Jeremy Hunt is thinking – UK shares) saying 250,000 have already signed up for Monzo investments.