Four reasons we should all have a roboadvisor

I’ve had lots of people ask me questions about getting a stocks and shares ISA (Individual Savings Account) to invest their money. It may be because the tax year is ending and we have until midnight on April 5^th to take full advantage of the annual tax free £20k allowance. It may also be because we are all bored sat at home self-isolating with nothing else to do.

A stocks and shares ISA is a way of investing in the stock market, as well as other financial products such as bonds, without paying tax. Over the long run, a stocks and shares ISA could save you a lot of money in tax, since the dividend allowance has been reduced to £2,000 per year and the annual capital gains tax allowance (tax on money you make when you sell shares) of £12,000 may not stretch that far over the long run.

Stocks and shares ISAs are relatively low cost and easy to open (generally you only need to have your national insurance number and bank details to hand) although charges vary by provider, so it is worth doing your research on where to open one. Whilst a stocks and shares ISA is a bit more high risk than a cash ISA, you can be rewarded with better returns in the long run.

So where should you put your money?

There are three broad categories for providers when it comes to setting up a stocks and shares ISA:

1. Do it yourself (choosing investments yourself – requires time to research)
2. Do it with me (the provider offers a specific list of investments for you to choose from)
3. Do it for me (you state your goals and the provider chooses where to invest on your behalf – AKA a roboadvisor).

The first thing I do before I put my money anywhere is to check whether a company is FSCS covered. The Financial Services Compensation Scheme basically ensures that your money (up to £85k) is covered by the government in the event that a provider you use goes bust.

An easy analogy for opening a stocks and shares ISA is clothing stores. We all buy clothes, and there are literally hundreds of thousands of shops where you can go to buy them. In the same way, there are hundreds of providers that offer a way of investing your money. In each store you can buy different items of clothing – jackets, shoes etc and in the same way on each investment platform you can buy different investments – bonds, shares, funds. Now, you can think of a roboadvisor as a stylist who you tell your general style to. They then go and choose whatever clothes they think you should wear and even arrange the full outfit for each day that you go out. A roboadvisor will ask questions when you open an account to decide your investment style and then allocate investments accordingly.