Micro machines

Asset managers benefit from a growing savings pool – but they could arguably do much more to encourage Europe’s savers to put aside additional money for the future. Instead it seems that a new crop of fintech platforms is performing this role, with the focus on small-scale deposits. Mark Phasey gives his take on a foray into micro-investing…

Since joining MackayWilliams and being immersed in the world of funds over five years ago, I’m amazed by how much my own habits and attitudes towards investment have changed. When I was younger, I never really grasped the concept of saving for the future and, like many people of my age, generally went through life from paycheck to paycheck. These days, however, I am regularly on the lookout for new investment ideas. I now have an ISA with robo-adviser Nutmeg, as well as an online savings account with my bank and a modest pension. More recently, I discovered another way of putting some spare cash to better use.

Back in March, there was a fascinating show on ITV in Britain called Buy Today, Pay Tomorrow? Tonight. The programme interviewed Ricky Willis, who operates a website called Skint Dad and blogs about how he and his family have coped with clearing consumer debts of £40,000 over the course of three-and-a-half years. I am nowhere near this level of debt, but Willis’s adaptation of the so-called ‘£1 saving challenge’ into the ‘1p saving challenge’ really caught my eye.

The premise behind the former is simple: You save £1 every week on a cumulative basis for 52 weeks (ie £1 in week one, £2 in week two and so on). The ‘1p saving challenge’ works in a similar way, but entails daily savings that rise in increments of just 1p, which amount to £667.95 over the course of a year (or £671.61 if it’s a leap year). Now, this may not seem a lot, but it could be enough to pay for things like insurance, road tax, or even the latest iPhone (well, maybe not quite)!

Storing coins in a jar seemed a bit clunky and I wondered whether there might be a better place to park these savings than in an account paying 0.10% in annual interest. This is when I discovered the potential of Moneybox… And stepped into the world of micro-investing!

Moneybox not only makes investing simpler but also, in my opinion, far more accessible to the average Joe. You link your debit card to the app, round up every transaction you make to the nearest pound, and invest the difference into one of three predefined fund portfolios: cautious, balanced or adventurous. These can be held in an ISA or a general savings account and you also have the option of setting up one-off or weekly deposits. Your savings are then collected once a week via direct debit and are invested a few days later.

Using Moneybox presented an opportunity not only to make tracking my saving challenge easier, but also to (hopefully) come out with a bit extra on top. I opted for the balanced portfolio, which is made up of a cash fund from Henderson, a global equity fund from Vanguard and a property fund from BlackRock. These firms’ participation highlights some global asset managers’ desire to be part of innovative fintech propositions – and the role that their funds can play in delivering these.

I expect to see more micro-investing services come to market – the convenience of this concept is a little reminiscent of the door-to-door insurance-premium collectors of the past. I’m sure there will be a lot of demand from people seeking alternative methods of saving that are quick, easy and available at a simple swipe of the finger. Moneybox also runs a Junior ISA, which would be ideal for young families who may find it difficult to save for their children’s future whilst coping with immediate expenditure. Look at it this way: if you bought a coffee for £2.40 every working day (252 days in 2017 for example) for 18 years, and rounded up 60p each time, you’d end up with a nice little pot of £2,712.60 (excluding interest and inflation). Possibly enough for their first car!

This form of saving still bears investment risk of course, and it’s too early to draw any firm conclusions from my portfolio’s performance. It’s also worth noting that the annual fees are very high on tiny portfolios before rapidly tailing off as more is added (from 12.72% on £100 to 1.88% on £1,000). But, all in all, the ability to squirrel away miniscule amounts is a very good way of opening up investment to people who would rather only commit money on an irregular basis, for those who are unsure about investing in the stock markets, or those – like me – just trying to invest little and often. For asset managers, there is an opportunity to tap into a whole new distribution channel and client segment: micro-investing for the mass market.

As they say, look after the pennies and the pounds will look after themselves!