The online broker InvestEngine offers ETF investing in DIY or robo-advice flavours. It’s beginner-friendly and suitable for veterans with large portfolios.

Moreover it’s a market-beater on costs.

Aside from the exceptionally low fees, InvestEngine feels like it’s been designed to make important investment decisions straightforward. The trade-off is some choice constraints, compared to other brokers.

Strengths

• Low costs: InvestEngine’s zero commission / zero platform fee combo is awesome for DIY investors. The robo-advice / managed service is cheaper than its rivals, too.

• Easy to use: the platform is very thoughtfully designed, and gives the impression InvestEngine is on your side.

• Pro passive investing: the restricted choice of ETFs is good enough. The calm user environment should promote sensible investing behaviour. As opposed to exploiting your monkey brain.

Weaknesses

• Choice constraints: it’s ETF investing only. There are few bells and whistles. For some this will be a positive. Choice overload bedevils investors, after all.

• Limited account options: there’s no SIPP, Lifetime ISA, or Junior ISA.

• Robo-advice complexity: the ready-made portfolios betray the over-elaboration that’s commonplace in the discretionary management industry.

InvestEngine fees

Platform	Annual fee	Fee notes	Dealing: Funds	Dealing: ETFs	Regular investing	FX charge	Entry/exit fee	Good for
InvestEngine	£0 DIY investing	0.25% for managed portfolios	n/a	£0 for fixed times daily	n/a	n/a	£0	Very low fees
Shares ISA	£0	0.25%	n/a	£0	n/a	n/a	£0	-
Trading	£0	0.25%	n/a	£0	n/a	n/a	£0	-
SIPP	No SIPPs

Note that a dash sign in the table means ‘as above’.

Minimums:

• Investment amount: £1
• Account balance: £100
• Account top-up: £1

Pros and cons

InvestEngine is the Double Decker of investment platforms. Two contrasting approaches are combined in one tasty product:

• DIY investing that’s near-free.
• A managed portfolio service that suggests and implements investments for you. (Also known as a robo advisor.)

The DIY investment side of InvestEngine is a serious contender – if you’re happy to work within its limitations. 

You can only invest in a restricted palette of ETFs. No shares, no funds, no investment trusts. There’s talk of adding more investment types later. But for now it’s just a select range of ETFs. 

Personally I don’t see that as a problem at InvestEngine’s prices. 

Granted, there are fewer ETFs available than at brokers who charge more. 

But I could easily build a diversified portfolio from the InvestEngine range. 

Most of the big ETF names are present and correct: Vanguard, iShares, HSBC, SPDR, and so on. 

I found low-cost options available in every important asset class. (Admittedly a few of my usual go-tos were missing.) 

Trades are executed automatically. InvestEngine buys and sells ETFs between 2.30pm to 4.30pm every day. 

You put in your orders in advance. But you can’t trade at will as with most platforms. And there’s no fancy trading options like stop-loss or limit orders.  

Prices are only updated on the platform twice a day. No worries! Just Google the price of your chosen ETF instead.

You can’t invest in a SIPP, Junior ISA, or Lifetime ISA for now. But a stocks and shares ISA and general investment account come as standard. 

If any of the above is a dealbreaker for you then forget about InvestEngine. 

Certainly day traders hooked on CFDs and candlestick graphs would enjoy it about as much as swingers at evensong. 

But otherwise, such restrictions are the quid pro quo for the platform’s passive investing strengths. 

The main USP

InvestEngine’s standout feature is the pinch-me-I-must-be-dreaming lack of fees for its DIY service. 

You’ll only pay the usual ETF management fees and dealing spreads. 

There’s no platform fee or dealing commissions. Such charges typically make ETF investing expensive for small and new investors. 

You won’t get gouged by other costs either. Don’t fret about inactivity fees, cash withdrawal charges, or FX conversion costs every time you deposit some money. 

Entry and exit fees are also absent. So you can try InvestEngine without feeling locked in. 

How does it do it? Probably by reducing overheads by reining in the vast lightshow of options you get with most brokers. 

That doesn’t mean InvestEngine has reduced customer support to a chatbot streaming expletives though. On the contrary, it typically seems responsive and helpful, judging by our sweep of the online feedback. 

User experience

InvestEngine has not cut corners on the online interface or app. Both are a pleasure to use.

Design is minimalist, thoughtfully uncluttered, and very clean. 

There’s no creeping gamification. You don’t sense that the information architecture is designed to manipulate you. 

The interface feels intuitive, easy to navigate, and attractive without being overwhelming. 

Sure, the portfolio analytics are slight. If you expect lots of flashy tools and investment ‘research’ then look elsewhere. 

But what you do get is a very clever fund portfolio order facility: 

• Tell InvestEngine what ETFs you want in your portfolio. 
• Select your asset allocation percentages. 
• InvestEngine then executes the necessary trades to deliver on your asset allocation. You don’t have to micro-manage them.  

Once you’re up-and-running, you can use this feature to automatically rebalance your entire portfolio to its target allocation with a click.

That’s a passive investor’s dream. 

Do robo-advisors dream of electric money?

InvestEngine presumably hopes to make bank through its managed portfolio and robo-advisor service. 

The fee is 0.25% per year, plus an estimated 0.07% in trading spreads. That’s considerably cheaper than established rivals such as Moneyfarm, Nutmeg, or Wealthify. (Albeit we’ll have to see if it lasts.)

This ready-made service works much as you’d expect. 

You answer an automated risk tolerance questionnaire. Doing so supplies your attitude to risk, financial objectives, resources, goals, and time horizon. InvestEngine takes you down its decision tree and then serves up one of its ready-made portfolios for your approval. 

Accumulators can choose the growth portfolio options. Meanwhile anyone in the decumulation zone might opt for an income portfolio.

If you don’t like InvestEngine’s initial suggestion you can play around the edges a little, retake the questionnaire, and see what else is on offer. 

But beyond that you hand over your portfolio’s management to InvestEngine. 

It will rebalance for you. The ETF mix you hold will occasionally be tweaked in line with changes to your investment strategy, risk tolerance, or the product range. 

Computer says why not

In my view, InvestEngine’s robo-advice approach suffers from the industry-standard flaw of over-complication. 

It offered me a growth portfolio that included 14 ETFs. Asset allocation weights were as low as 1%. There was also a dollop of investment overlap. 

Meanwhile, the income portfolio was 99% bond ETFs studded with some eye-brow raising junk bond and emerging market sovereign debt choices.

To be fair though you might run into these issues with any managed portfolio provider. They’re the price of outsourcing control. 

If you want a robo-advice service then InvestEngine is worth a look. It delivers competitive fees, product transparency, and ease of use. 

Note it’s not regulated to offer financial advice however. (See InvestEngine’s FAQs.) 

Some other robo-advisors do provide that – for a fee. 

InvestEngine review summary

All-in-all, InvestEngine impressed me. Its market niche is truly pro passive investing and keyed towards getting the big investing decisions right. 

Low to non-existent fees mean it’s definitely worth trying – assuming you don’t mind the platform’s pared down choices. Note, transfers in are cash only, not in specie.

Trustpilot review score: 4.6

InvestEngine regulation

InvestEngine is authorised and regulated by the Financial Conduct Authority – Firm Reference Number 801128.

• Cash is held in a pooled client money account at Natwest.
• Investments are held in a pooled nominee account lodged with Euroclear (CREST). They are segregated from InvestEngine’s company assets.

This is industry standard.

Alternatives

• Vanguard for small investors
• Freetrade or Lloyds Bank Share Dealing for ISAs
• AJ Bell Youinvest for SIPPs

Don’t forget the bonus cash offer if you sign-up to InvestEngine via our link. (Capital at risk. T&Cs apply).

Like many other sites, we may be paid a small commission if you sign-up to products via affiliate links. The price you pay is not affected. Our reviews are editorially independent.

With the mindset of a long-term investor, you can avoid a lot of the worries that afflict the frightened hordes. But you can’t really avoid sequence of returns risk.

Oh I know you’re not scared of a stock market crash.

Nor do you pile in at the top.

You have the tough-under-fire attitude of a Vietnam veteran on his third Tour of Duty. When share prices plummet and others quiver before CNBC, you go surfing, Apocalypse Now-style.

“Is that all you’ve got?” you laugh as the market falls 10%.

The average after-inflation annual return from shares globally is 5.3% per year1.

So as long as you sit tight and don’t panic, you’ll be rewarded, right?

Well… yes. Probably.2

The sequence of returns matters

But you’d better know there’s another kind of risk to think about, and it can be a doozy.

Assuming we’re both adding or taking money out of our portfolios over different periods of time, the return you get will be different to the return I get.

This would be true even if we saw the same average 5% real return from our portfolios.

Huh?

I know – it’s counter-intuitive.

It also has a clumsy name: sequence of returns risk.

Sequence of returns risk is the risk that fate will deal you a shocking hand. That the timing of bear markets and bull markets will fall worse for you than for another investor.

This danger is especially high when you’re taking money out of a portfolio during a market crash.

It’s why we’re urged to reduce our exposure to the riskiest assets as we approach retirement age.

Young versus old

Stock market falls are great news for young investors who invest more throughout the turmoil.

The best time to get a bad hand from the market is when you’re starting out as a saver.

You’ve got less money to lose in a market crash. Better yet, what you buy with new money at a lowered cost basis will grow in the good times to come. (Plus you get used to volatility early.)

In contrast, the last thing you should want the day before you retire is to have all your money in shares, only for the market to plummet.

You’re retired. You need that shrinking portfolio to live on.

How to multiply your money

You might not think it matters how the market tosses up its treats and its treacheries.

Returns from investment are multiplicative, after all. You multiply your money!

And every precocious child knows that it doesn’t matter what order you multiply numbers together. You still get the same result.

For example:

1 x 2 x 3 x 4 = 24

4 x 3 x 2 x 1 = 24

3 x 4 x 1 x 2 = 24

It’s exactly the same with investing.

When the market delivers a 20% return, it goes up 1.2 times.

When the market falls 10%, you multiply it by 0.9 times.

1.2 x 0.9 = 1.08

0.9 x 1.2 = 1.08

Okay, so why does it matter to us poor strivers exactly when the sturm und drang of a stock market crash hits us?

Well it wouldn’t if you were a member of the landed aristocracy and you were simply managing a big pile of loot before passing it onto the next generation.

But most of us are saving and investing over our lives to ensure our financial futures. We’ll have to withdraw money from our savings in retirement for spending.

And it’s because we add and subtract money from the market over time – at different times – that the sequence of returns risk can have its wicked way with us.

Here’s one we did earlier

Let’s consider a real world example.

Here are the total returns from the FTSE 100 for the five years from 2008 to 2012:

Year	Return
2008	-28.3%
2009	27.3%
2010	12.6%
2011	-2.2%
2012	10.0%

Source: FTSE

Do the sums and you’ll see that’s an average annual return of 3.9% per year.

Now let’s imagine you invested £100 at the start of 2008. Here’s where your money would have stood at the end of each year:

Year	Return	Investment
2008	-28.3%	£71.70
2009	27.3%	£91.27
2010	12.6%	£102.77
2011	-2.2%	£100.51
2012	10.0%	£110.56

Note: £100 compounded for five years, as per the returns listed.

The first thing to note is you’ve ended up with less than you might have expected.

If you plug 3.9% into a compound interest calculator, it will spit out £121. You got £10 less.

Why? Because investment returns are geometric, rather than arithmetic. But that’s for another article…

For now remember we ended up with £110.56 after this five year run.

Investing in Bizarro World

Back to the sequence of returns risk. Let’s imagine you fell through a wormhole and ended up in an alternative reality, five years in the past.

(Stay with me here.)

Being a good Monevator reader, you shrug off your trip through time and space and head to the nearest stockbroker. People always need to save and invest for their retirement, even in Bizarro World.

But things aren’t entirely the same here.

In this alternative reality, the order of the annual returns from 2008 to 2012 are reversed:

Year	Return
2008	10%
2009	-2.2%
2010	12.6%
2011	27.3%
2012	-28.3%

Source: Bizarro World Bank Headquarters broom closet.

This time the big crash comes at the end of the five year sequence. Rather than at the start as it did in our reality.

Do the maths and you’ll see the Bizarro World market averaged the same 3.9% return.

But what about a £100 investment?

Year	Return	Investment
2008	10.0%	£110.00
2009	-2.2%	£107.58
2010	12.6%	£121.14
2011	27.3%	£154.20
2012	-28.3%	£110.56

Note: £100 compounded for five years on Bizarro World.

Because returns are multiplicative, we end up with exactly the same £110.56 in Bizarro World as we got on Planet Earth.

That was true even though the sequence of returns was reversed.

We expected that. So far so good.

Now add sequence of returns risk

The complication comes if you are saving or taking money from your investment over the years.

Let’s say you add £20 at the end of each year to your portfolio.

The result in our reality on Planet Earth:

Year	Return	Investment
2008	-28.3%	£91.70
2009	27.3%	£136.73
2010	12.6%	£173.96
2011	-2.2%	£190.14
2012	10.0%	£229.15

Note: £100 initially invested, then £20 added at the end of each year.

What about in the alternate reality, where the sequence of returns was reversed?

Here you got a different result:

Year	Return	Investment
2008	10.0%	£130.00
2009	-2.2%	£147.14
2010	12.6%	£185.68
2011	27.3%	£256.37
2012	-28.3%	£203.82

Note: Again, £100 in, then £20 added each year. Alternative return sequence.

As you can see, you’re left with a different sum. Falling through the trouser leg of time3 and investing in Bizarro World reduced your final total by around 10%.

Now I don’t know how much things cost on Bizarro World. But I’m sure anyone would rather have that extra spending money.

More seriously, this is exactly what happens in real-life to different investors with different saving and withdrawing schedules.

The sequence of returns varies over time. And so two regular savers with the same general strategy but investing over different periods will see different sums accumulated by the end.

Even if they enjoyed the same average annual return.

People who retired in the mid-1990s as the stock market soared were laughing.

People who retired in 2001 in the midst of a severe market decline?

Not so much.

The science bit: As well as the multiplication, we now have addition in our sums. So the order now matters.

Withdrawal symptoms

As I mentioned – and more scarily – all this is equally true when you’re withdrawing money as when you’re saving.

I say ‘more scarily’ because there’s not much you can do about it once you’ve stopped earning.

At least if you see a bear market while you’re accumulating money, you can try to find more cash to invest before you retire. You might even enjoy a market rebound on that extra cash you put in.

Once you’re retired though, you’ve no new money. So maybe you’ll have to spend less and cancel your subscription to Caravan Monthly.

Withdrawal method

Imagine you had £100,000 in 2008.

For the sake of this example let’s say you put it all in the stock market.

You withdraw £4,000 a year.

In the table that follows the third column shows how £100,000 would fare if you kept all your money invested. The fourth column shows the impact of withdrawing £4,000 at the end of each year:

Year	Return	Hands off	With withdrawal
2008	-28.3%	£71,700	£67,700
2009	27.3%	£91,274	£82,182
2010	12.6%	£102,775	£88,537
2011	-2.2%	£100,514	£82,589
2012	10.0%	£110,564	£86,848

Note: £100,000 in with no withdrawals, versus £4,000 taken out each year.

No great surprise. Taking £4,000 out a year reduces how much money you’re left with, compared to keeping it all invested.

But let’s now turn our telescope to Bizarro World. How does the alternative sequence of returns play out with the same £4,000 withdrawal rate?

Year	Return	Hands off	With withdrawal
2008	10.0%	£110,000	£106,000
2009	-2.2%	£107,580	£99,668
2010	12.6%	£121,135	£108,226
2011	27.3%	£154,205	£133,771
2012	-28.3%	£110,564	£91,914

Note: Alternate sequence for retirement assets on Bizarro World.

Column three reruns the £100 example. With no withdrawals, the hands-off portfolio of £100,000 compounds to the same £110,564 in both instances.

However in Bizarro World with £4,000 per year withdrawals, its sequence of returns proves more favourable for the retiree.

She ends up with £5,000 more in the pot in 2012 than her spirit sister here on Planet Earth.

Hard luck

Interestingly, the result for the retiree on Bizarro World is the opposite of what we saw with its regular savers. Savers did worse there over the same five-year period than we did.

But let’s not get hung up on these specific numbers.

The point is that sequence of returns makes a difference to how your retirement plays out. But we cannot know what returns we’ll get in advance.

Which makes it an especially thorny problem.

Don’t risk doing badly

Can you do anything to sidestep the sequence of returns risk?

Not a lot. Its impact is mainly down to luck.

You might try to guess if various markets are cheap or expensive. You could try to shift your investments accordingly.

But many people – probably most – will do worse using such active strategies than if they had just saved and rebalanced automatically.

I think the main response to sequence of returns risk should be:

• To de-risk your portfolio by rebalancing towards safer assets as you approach retirement

• To consider locking in some income. Perhaps enough to meet your basic spending needs when you do retire, perhaps through an annuity.

All investing involves risk. But by diversifying your portfolio and playing a bit safer, you can reduce the role of luck, and increase the odds of your plan working out.

Next week we’ll consider what to do if you think sequence of returns risks is about to savage your retirement. Subscribe to make sure you see it!

1. Source: Credit Suisse Global Yearbook 2022 [↩]
2. A handful of markets, such as pre-communist Russia, have been completely wiped out. Never put all your eggs in one basket. [↩]
3. Apologies to the late Terry Pratchett. [↩]

What caught my eye this week.

I kept coming across inflation articles this week, and tried to be judicious about what was earmarked for Weekend Reading. Yet I still ended up with all those below and more on my shortlist:

• Rising fuel and food costs push US inflation to 7.9% – BBC
• Analysts predict year of 7% inflation for UK – FT Adviser
• Petrol hits new record above 160p per litre – BBC
• Higher inflation is increasing the cost of servicing Britain’s public debt – Economist
• An energy shock and high inflation: are the 1970s reborn? [Search result] – FT
• UK farmers warn rocketing gas costs could cut food production – Guardian
• Hedging future energy costs with shares in a Ripple wind farm – DIY Investor UK
• Energy bills are forecast to double, but switching is pointless – ThisIsMoney
• Netflix hikes prices for the second time in 18 months… – Guardian
• ..and other subscription fees are rising too. Here’s how to save – Which
• Typical payments on cheapest fixed mortgage deals rise by £840 a year – ThisIsMoney
• Are we heading for recession? – A Wealth of Common Sense

This list could have been five times as long. It could be the same next week.

We are facing a hyper-inflationary environment for articles about inflation.

War footing

Of course it’s a trivial concern compared to actually suffering an invasion from a waxwork germophobe gangster armed with nuclear weapons, but it’s the war in Ukraine that has turned our inflation expectations up to eleven.

And it could get even worse.

Only a few weeks ago I was expecting inflation to start to roll over about now. Investors would have to be ready for quantitative tightening, sure. But interest rates would probably be rising against moderating inflation, as supply chains righted themselves.

Weaponising the energy market has changed all that. Higher oil prices could continue to juice – both directly and indirectly – the inflation statistics. A few pundits see oil doubling to $240 a barrel. Russia is warning of $300.

Saner voices anticipate demand destruction well before we hit those levels. Yet that means using less energy – just when the global economy was meant to be rebooting after Covid.

Dear oh dear

Could Europe see fuel rationing, no-drive days, and other throwbacks from the energy shocks of yore? It’s not impossible. Indeed it’d be a righteous thing to do, compared to spending hundreds of millions of dollars a day on Russian energy that further funds its war effort.

However in the short-term choking off energy use could hurry along a recession, even as rising prices force central banks to raise interest rates.

I raised the dread prospect of stagflation before Russia invaded Ukraine earlier this year, though I mostly waved it away as an outlier. That was because I didn’t think inflation would become embedded.

But war has changed the odds. All kinds of commodities – from oil to wheat to nickel – are being disrupted by the war. We may yet see something of a wage spiral. (I still believe recovering trade and technology and productivity gains can take the edge off.)

The end of super-low interest rates has meant tweaking our investing expectations. It now looks like everyday earning and spending will be worth reviewing, too.

Have a great weekend!

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