Investing with Dozens and ideas for the future

BTW, I do think that you need money to make money and feel secure. I wouldn’t be able to risk £100 when I only had £1,000, but I wouldn’t mind risk £100 if I had £10,000. Without risking the £100, I would be earning pity interest from the £1,000 in cash savings accounts. Yet when I had £10,000, I can invest a large chunk of it and still feel secure.

I’m having issues with summary sections of the app not always displaying my investment properly. Specifically:
Profile > Your Money
Invest > Your Goals

The issue is intermittent. Sometimes these show the actual investment amount, sometimes they display £0. I can confirm the money hasn’t vanished by drilling down to goal details and to Investment details and in this location I can see the expected amount.

This is similar to an issue with pending bonds and investments, but now I’m talking about confirmed/live investments rather than pending investments.

Is anyone else experiencing this?

1 Like

sorry about this. This is a known issue that has been shared with me before

it seems that there is an issue when we update portfolio values for some customers - and in some cases it gets reset in the app. Nothing affects your investment or account, it is just the data that gets sent to your app on a regular basis.

This is at the top of the list of things the team will be working on once they are back to full strength so we should get this updated for you soon

2 Likes

On this point, I’m a bit concerned about the the current fund selection process, and whether that meets this goal.

Correct me if I’m wrong, you were deciding on some themes first, then selected the funds that fits into each theme. If I was right about that, I think the process isn’t well thought of. Because if the theme selection came before the risk and suitability studies, you’ll ended up with some very high risk themes such as India, China, Robotics and Cyber Security.

Experienced investors tend to stay away from single country (other than the US and their home country) and single sector funds, unless they want to take a punt on it, or they are building a portfolio based on many single country/sector funds (to either reduce cost or gain an edge).

I’d even argue that some single sector funds are even riskier than some low volatility single company shares.

You’ve expressed that your target market is mainly the people who doesn’t have experience in investment yet. That means they don’t have a good understanding of risk, shouldn’t take a punt on it, and they certainly don’t have the skill to build a portfolio from those high risk funds.

If you don’t want your customers to take the risk of single company shares, why do you allow them to “invest” in (bet on?) some equally risky single sector or single country funds?

Give those funds a risk rating of 5 (the highest) doesn’t solve the problem either, because inexperienced investors have no idea what’s the difference between risk level 4 and 5, other than 5 being riskier than 4. It’s like telling a 6 years old kid who lives in a hot country and has never seen snow that snow is like white and cold sand. They get the rough idea, but won’t understand it, until they experienced it themselves. That’s okay in terms of snow, but it will often be too late in terms of investing.

Right now, if anyone new to investing asks me about the funds on Dozens, I will tell them not to touch any risk level 5 fund (other than the BlackRock Consensus fund, but to avoid confusion, I won’t say it), and also warn them that risk 5 means your may loss more than half of your money in one week, and may not be able to break even for many years, or decades if they had a bad luck.

What can be done to fix it? I’d suggest remove all the following funds:

  • Single sector funds. This includes the lower risk level ones as well, such as Digitalisation and Ageing Population
  • Single country (except UK & US) funds
  • EM funds

They are too risky for inexperienced investors, and very dangerous to be held alone. They indeed can be a valuable part of a portfolio, but we aren’t talking about experienced investors here, and there’s no prebuild portfolio on Dozens for the inexperienced either.

Said enough about the high risk funds, the lower risk end has its own problems too. But I think that’s a topic for another day.

1 Like

I’m trying to consolidate the conversations around the same topic into one place. Therefore I’m quoting the contents from this thread below.

If you really want to cover risk levels, may I suggest you re-scale the risk levels on the app?

Currently, all but one risk level 5 funds and the only risk level 1 fund are considered (at least by me, but I’m sure many will agree) unsuitable for inexperienced investors. They all have very low risk-adjusted return on their own, and should be used as building blocks for a portfolio, not held on their own as an investment.

If we agree on that, and take action to remove those unsuitable funds, you will find that you’ve reduced the number of risk levels from 5 to 3.

Now let’s re-scale the risk levels by working from top to bottom.

  • Risk level 5
    100% equity single country funds, such as FTSE 100, UK SRI, and S&P 500, should be assigned this risk level group, as they are exposed to more country related risks (such as policy and political risk) than diversified equity funds.
  • Risk level 4
    All remaining 100% equity funds, such as Consensus 100, VLS100, World Islamic and World Equity, should be assigned to this risk level group.
  • Risk level 3
    Gold and GBP hedged bonds. Some multi-asset funds will fit in this risk group too.
  • Risk level 2
    Low equity % multi-asset funds.
  • Risk level 1
    The Dozens 5% bond. (Inflation risk. If UK inflation skyrockets, money in the bonds will lose their buying power)

I’m sure you will ask, why did I move bonds to the higher risk level 3? In case you didn’t pay attention before, they are currently in the risk level 2 group. I moved them to the higher risk level 3 group because bonds are sensitive to interest rate, and in the last decade interest rate has dropped to and remained at historically low level. The stable low interest environment has created a false sense of safety for bonds if you only look back for a decade or so. However, when interest rate moves up (and it will), new issued bonds will have a higher yield than the existing bonds, which means the existing bonds will be sold at a discount. In another world, bond price will go down. Combined with the low rate of return from bonds, when bond price go down, it can take a very long time to recover. So bonds are a lot riskier in the low interest environment than many people think.

You may have also noticed that I’ve putted the low equity % multi-asset funds at risk level 2, below the risk level 3 where the bonds are. Why is that? That’s because the small % of equity in those funds will reduce the impact of rising interest rate, and will also help them recover much faster than 100% bonds. That’s not all, the volatility of the equity is only affecting a small part of the fund value, because the funds are largely made up by bonds. So small % equity + large % bonds is actually less risky than 100% bonds.

Although, I want to say that if I was fully in charge of this product, I will remove the choice from user, and give them prebuild portfolios for each risk level instead (see Nutmeg). That’s because the human behaviour risk is much higher than the investment product’s risk for inexperienced investors. Prebuild portfolio doesn’t need to be a black-box approach as all other “wealth management” companies are doing. You can still explain to your user (and educate them) what is in the portfolio, and why is it like that. For example, you can show a list of big name companies in the portfolio, a list of interesting countries, even allow the user to pick one or two themes they like, and put no more than 5% of their portfolio value to those risky themes.

I agree with you except rather than remove it, allow users (with risk level 5) to invest in more than one fund to create a diversified portfolio. A major dislike at the moment is the need to set up a new goal for each fund invested in which makes it impractical to do so.

I like this suggestion a lot - move the Fixed Bonds to the Invest part of the app. Will make the proposition of investment products (S&S ISA/GIA) vs. (future) grow products (Cash ISA, Savings) a lot cleaner for Dozens.

It’s perfectly fine to keep those funds if the target market is focused on experienced investors, however that’s not the case here. Because Dozens is focused on inexperienced investors, my concern is that they do not have the skills needed to build a portfolio. What’s more likely to happen is they believe that they have created a balanced portfolio by randomly picking a few different funds (say, China + India + Robotics).

Dozens shouldn’t encourage first time investors to build their own portfolios. This is definitely not the right direction.

With the same logic above, you could argue Dozens should therefore only offer the Consensus and VLS funds which are already diversified.

If the short survey carried out tells me I’m a Risk Level 3, parking my funds in a Gold ETF or GBP hedged bonds as you note above is risky (albeit with lower expected vol). Risk Levels become meaningless in my opinion unless you can invest in more than one fund to diversify your portfolio.

Unless the fund is already diversified going back to the first point on the Consensus and VLS funds!

Which is exactly why I suggested that Dozens should remove the choices of non-diversified funds completely, and offer ready made portfolios with optional theme tilts.

If Dozens does go down this route, the options available to the users will be:

  1. Multi-asset funds, such as Consensus and Vanguard. Dozens can always add more multi-asset funds, there’s plenty of choices on the market.
    and
  2. Ready made portfolios, and allow the user to pick one or two themes to add to their portfolio. The weight of theme funds should not exceed 5% of the portfolio.

By doing this, you can be rest assured that the user will not be able to make terrible choice, and you will also have a wide range of choices available to them.

In the longer term, to attract existing experienced investors, a wide range of funds can be made available in “expert mode”, turned on by a switch on the app. Contrast to popular belief, you often don’t really need to prevent novice investors from doing this, just show them a warning before the switch, and scare them off with a profession looking UI and lots of abbreviations and jargon is usually enough to convince them to switch back (providing that they can still find the button to switch :wink:). Just type in “professional trading software” on Google image search, and you will see what I’m talking about.

1 Like

I think these are the obvious next step after the bond, but that’s far from clear in the app. “Buy and forget” is clearly the most attractive step for first time investors. A section dedicated solely to multi asset funds would be nice.

I wouldn’t recommend portfolios to newbies at all, unless there’s some element of auto/robo rebalancing. At the bottom end of invest, it just means hassle every year for little obvious benefit and is likely to put off newbies.

The platform fee is at a level to compete with robos, so it would be nice to see a robo option too. It would be a nice step on from/on top of a multi asset fund.

I think the current minimum investment per strategy makes rebalancing a headache or even impossible in practice at the moment anyway for smaller investors

1 Like

By saying “ready made portfolio”, I meant the user can’t change it in any way (other than the up to 5% theme tilts), and it’s managed by Dozens (e.g.: auto rebalance). This is basically what those “wealth management” (technically, Discretionary Fund Management, or DFM) companies are doing. The so called robo investing is basically just a DFM but replacing the human portfolio managers with a computer software.

The benefit of a ready made portfolio (or robo investing if you prefer) over a multi-asset fund are:

  • Potentially lower cost
    For example, VLS have 0.22% OCF, yet majority of the sub-funds have an OCF of 0.15% or lower.
  • Possible to improve the risk-adjusted return when some theme tilts are added to it
    For example, assuming the portfolio originally invests in bonds and equities but does not invest in gold, if the user tilts 5% of their portfolio to gold, the portfolio will then be able to reduce the weight of long duration gilts and increase the weight of equities to remain at the same risk level but improve the risk-adjusted return.
1 Like

Managed portfolios will likely come at a cost for Dozens as someone or a system will have to manage it, some licenses will need to be obtained, etc. - I’m not sure if Dozens as a business wants to go down the route of managing client investments?

Also I don’t have much faith in allowing entry level investors the ability to 'tilt their portfolios…would they really know what they’re doing? Alternatively, maybe offer themed multi-asset funds (can’t think of any, I’m sure some exit).

The biggest draw is the fixed monthly fee of £5 (and all the benefits) vs. 75bps platform fee at roboadvisors. Avg. OCF of Robo ETFs (20bps) is not that far off the VLS or Consensus funds (22bps or so). So I think as long as someone invests around £10k (plausible if they are investing in an ISA) it starts to pay off.

I purchased a bond fund last month (my opening purchase in Invest). Yesterday I wanted to purchase a second fund (an equity fund). Compared to other platforms, I’m not finding the process of purchasing a second fund intuitive at all.

Here’s what I did - I clicked on my Goal then I clicked on Add Lump sum and then continue. My expectation was I would be offered opportunity to choose a fund to add to the Goal, but the app seems to have just gone ahead and set up a purchase of more units of the bond fund.

If I want to purchase a second fund do I need to first create another Goal, even though in my mind they would be contributing to the same goal???

I’ve used 3 other DIY investment platforms and this is the first time I’ve ever found the process of purchasing a fund confusing.

at the moment, yes, you do. You can select the same goal but it will be shown as a second entry in your list of investments for the time being

It will come at a one-off cost for someone to make the portfolios and write the software, then very minimal on-going cost for the software to do all routine tasks automatically. Annual review of the portfolios may be desirable, but depending on the portfolio, may not be necessary. E.g.: there’s no reason to do annual review for a classic 60-40 portfolio.

And AFAIK, no new FCA license is needed, but Dozens may need to add some additional regulated activities to their existing license.

On the last point, I totally agree with you, it is a business decision to make - whether they want to be the inexpensive DFM for low net worth clients.

The 5% limit is there to address this issue. Imagine the user made a terrible choice, the fund they chose lost 80% of its value in 5 years, while the other 95% had a moderate 4% average return in the same 5 years. Ignoring rebalancing & dividend reinvest for the sake of simplicity, at the end of the 5 years, the portfolio value would have gone up by more than 19.5%, or ~3.64% CAGR. The 80% loss is translated to a merely ~0.36% reduction on the annual return.

I don’t know any themed multi-asset ETF or OEIC other than SRI and country weight biased. Even they do exists, due to the lack of economies of scale, they are going to be significantly more expensive than the average multi-asset funds. I’m happy to be proven wrong if anyone managed to find some examples.

Or 0.50% (Dozens) vs 0.75% (average robo invest) for investors with smaller amount of assets.

On the £5 monthly fee, I want to add that paying the £5 from a current or savings account has a bigger psychological impact than paying the same fee from investments. Which means it inflicts more pains, and the user is more likely to think more about it, therefore more likely to question themselves whether they should keep paying for that service.

If 0% platform fee is the biggest selling point of Dozens black, I would rephrase the description of the same product. Instead of branding Dozens black as a premium service with £5 monthly fee, I’d advertise that Dozens invest has a £5 monthly platform fees cap, and when the user has invested enough to reaches the cap, they will enjoy some additionally benefits such as the black debit card. If the user doesn’t have enough invested yet but still want to have other benefits, they can opt-in to the Dozens black and pay £5 per month. It ultimately is the same product, but made it psychologically easier for users to accept the £5 fee.

Decided to test selling an investment. As far as I can tell, I have to sell the entire investment. I can’t sell part of it. Is this by design or am I missing something?

It is by design. Investments are for holding rather than trading, buying and selling.

You can always sell it, then buy back a smaller portion, as long as it is above the minimum investment level.

Ok thanks.

Investments aren’t usually for holding forever though. At some point you’ll need or want to sell and it doesn’t really make any sense to me to force sale of entire holding.

First time I’ve ever encountered a platform blocking partial sale!

4 Likes