One of the more common questions I receive is “where should I invest?” The answer is not a simple one as proper financial planning requires a few questions to ascertain the correct investment objective and therefore the most appropriate product.
For example, the first question is usually “do you have short-term debt and if so, how much?” It makes no sense to be saving when you are struggling to pay off your credit card at 28% per annum. The next question is “do you have emergency funds?” Good money management starts with having funds that will cover unexpected events as emergencies are one of the main reasons people end up with short-term debt. Then there are a whole list of other questions such as: what are you saving towards, for how long, etc.
OUTvest is a robo-advice product launched by Outsurance which aims to replicate the basic financial advice that a human investment adviser would provide. The online platform asks you the correct questions to provide advice on the correct fund for your needs.
Does it deliver on its promise? Having recently tested the product out, my conclusion is that it is provides a reasonable service for someone who does not need complex financial advice.
Simple to use
The success is in its simplicity from a user perspective. You select your goal and reason for investing and then answer some key questions. Based on those questions a fund is recommended and if you go ahead, it takes about five minutes to register and start the investment – including verifying all your FICA documents.
Although OUTvest is using investment technology to advise clients, they also have a human element for those more complicated questions or where an individual needs some assistance
This simplicity belies a lot of work that has gone into the algorithms to provide the correct advice. According to Grant Locke, head of OUTvest, they have used extensive data as far back as 115 years to assess market performance and risk. They have worked closely with CoreShares and S&P Dow Jones Indices to design intelligent funds that use past experiences and ongoing changes to moderate the investments.
When a fund is recommended, it provides an outcome projection of what your investment will be worth based on your timeframe. The outcome is illustrated in a range from a good outcome to a poor outcome and probabilities attached. This at least gives you a realistic idea of what your funds should be worth when you withdraw.
Depending on your answers to the questions you could even be told not to invest. For example, in one trial run I answered that my debts would take more than a year to pay off, I had no emergency fund and was likely to withdraw the money within a year. The robo-advice was “we think it is a good idea for you to consider repaying your debt and establishing a small cash reserve before you invest with us.”
Although OUTvest is using investment technology to advise clients, they also have a human element for those more complicated questions or where an individual needs some assistance.
They also offer Crowdvest, a social version of investing which enables you to invite friends and family to invest towards a goal. For instance, grandparents could contribute towards a tertiary education savings goal for their grandchildren, or friends will be able to collectively save towards a trip or sports tour, and invite others to support them.
What you need to know:
All information is easily available on the OUTvest website but here are some points to consider before investing:
- The default investment is a tax-free savings account, although you can opt for a voluntary investment plan. There are no retirement products available at this stage.
- OUTvest only uses five funds which cover a range of time horizons and risk profiles, from a low-risk money-market fund to an aggressive index fund. They use specially designed index-tracking portfolios managed by Coreshares, in which Outsurance bought a 25% stake last month. The money market fund is managed by Granate Asset Management. By using index funds rather than actively managed funds, they are able to keep the investment management costs at 0.3% per annum.
- Fees range from 1.5% to 0.7% depending on how much you invest. There is an advice fee of 0.6%, an administration fee of 0.6% and an investment fee of 0.3%.
- There is a minimum fee of R5 per month so while you can invest as little as R100 per month, only R95 would be invested. Therefore this would not be ideal for short-term, low-value amounts as you would be better off just putting them into a high-interest bank savings account.
Fees are notoriously difficult to compare, but in comparison to investing in an actively managed unit trust through a financial adviser, you would be paying closer to 2.5% per annum and possibly an upfront fee as well. Investing yourself, without advice, into a fund offered by index-tracking investment platform Satrix, you would be paying closer to 1% per annum.
In conclusion, OUTvest has created a good starting point to address a gap in the market where people need some basic advice but their investable funds are too low to make them financially viable clients for financial advisers. Its use of low-cost index funds keeps it simple and cost effective – too much emphasis is placed by the investment industry on fund performance and not enough on advice and ensuring people are invested in the correct fund for their objectives.
This article first appeared in City Press.