How to start investing Using Robo-advice with Melanie Palmer
This episode of the podcast is going to be focused specifically around how to get started investing, and in particular, what robo-advice is. I’ve invited Melanie Palmer, CMO at Exo Investing, to talk with us today. I came across Exo Investing recently when they ran a campaign called Embrace Investing, which was really centred on encouraging more women to start investing.
Mel talks with us about her own investing journey, as well as covering some key questions and key themes around investing. We talk about the kind of things you should think about before starting to invest, such as;
- Should you be building an emergency fund?
- Should you pay off debts before you start to invest?
- What is a good amount of money to start with?
- Where is the best place to start?
- What robo advice is and how you can use it
If you are keen to learn more about investing and get started on your very own investing journey, I have decided to offer a 25% discount on my investing course for beginners which will help you to go away feeling completely educated before you start. You also gain access to our private Facebook community with the course, which a judgement free place to ask all those burning questions you have! Simply enter the code PODCAST25 at the checkout.
Listen to the interview
Hi Mel, can you tell us a little about yourself?
I am the CMO at Exo Investing, which is an AI (artificial intelligence) digital wealth manager. I’ve always worked in financial services, but I’m relatively new to the investing sector (2 years).
I studied psychology at university, so it was never my intention to forge a career in finance. I took a marketing role and was instantly placed on an American Express account, so I’ve been in financial services since then. I genuinely think if it hadn’t been for that first account that my career could have gone in a very different direction!
Can you tell us about your early experiences with money?
We had a relatively privileged lifestyle. My mum was a freelancer and my dad was a stay at home dad; I do remember that not having a fixed income could cause strain when things weren’t going so well for my mum. There were times that she would be working 14 hour days to make sure that things were paid for.
I think seeing the emotional impact of that helped to forge my own relationship with money, in that I knew I wanted to be in a situation where I wouldn’t have to worry in that way. I remember coming out of university and being in my overdraft; the time it took me to clear it was awful. I hated not having control over the things I wanted to do, and being in that position. So I do put a lot of emphasis on things like having my emergency fund in place now, and making sure that I make the most out of the money I have.
But actually what I found harder than that was when I was earning money and found myself in a position where I was comfortable, and I didn’t really know what to do with the money I had. That was when I began to be interested in investing, and I remember taking a stock-broking course which was really intense and totally put me off. And it’s really this that has made me want to help people, specifically women, to know that investing doesn’t have to be this big scary mathematical thing! In many cases it can actually be very simple.
I think a lot of people will resonate with that. After doing the course, how did things progress for you?
I completely stopped! I didn’t do any investing at all. I was working at a start-up company at the time, so my first actual investment was to invest in that company. Looking back on it now, it was actually a really risky step to take, to put all of my money into a brand new company. So that was definitely a learning curve.
Then when the job came up with Exo Investing, I saw it as a really big opportunity to get involved and to help more people, especially women, to get involved with investing. Working with Exo Investing has really lit my fire in that way; I really want to help people to know that it really isn’t as scary and complicated as it seems.
I think in our modern world we’ve almost jumped a step; we suddenly have all these apps and tools and things like robo advice at our disposal that potentially make investing really simple and easy to do, but if you don’t really understand what they’re doing with your money then that can be a stumbling block. So my real mission now is to really increase investing education, improve people’s knowledge so that all these tools we have will really become useful.
You mentioned robo advice; can you tell us more about what that is?
What robo investing does is a company will take ETF (Exchange-traded fund) portfolios and they’ll have maybe 5 different versions of those portfolios. You go into their website or app and you give them an idea of your risk appetite; this could be how much you’re willing to lose, or when you might take your money out. From there it will invest you into one of their portfolios which they will then manage for you.
And can you tell us what an ETF is?
An ETF is an exchange-traded fund, and it’s really a way of diversifying your funds. If you think about an app such as free trade which is a stock trading app, this allows you to go on and buy shares in one company. This means that all of your money is tied up with one company and with one company’s success or failure. In comparison, an ETF portfolio might have 20 or more different companies within it, so if one of those companies doesn’t do as well, the upshot is that you’re taking much less of a risk with your money because you’re not solely dependent upon that one company’s success.
Going back to robo advice, it’s important to know that you can change your mind in terms of your risk appetite.
Yes absolutely. You can absolutely start with a lower risk appetite and gradually build yourself up. And even then it’s important to remember that it does really all come down to your confidence in investing. I know a little while ago there was some trouble in the market and I panicked and made a really emotional decision about my own ETF; my risk appetite was set at something like 8 and I went in and dropped it to 1, scared that I was going to lose all of my money, and it ended up being the worst decision I could have made.
So I think it’s really important to just get started, and know that it’s ok to make mistakes. You have to start in a way that feels right and comfortable for you personally.
I think the emotional factor is such an important one to mention. And actually research suggests that women are much more likely to stick with their investments when they make them.
Yes, we’re designed to be great investors! In general, women tend to be more risk averse, so long term investments suit us really well. It’s just that unfortunately the industry is very male dominated which has a way of making it feel as though it’s not for us, which is absolutely not the case. We have a real opportunity to make so much more of the money we have.
So how does Exo Investing fit into the robo advice model, and how would someone get started?
What we do at Exo Investing is we ask a set of questions to ascertain your risk level, much like most robo advice services. But the the difference with Exo Investing is that from that we build you a personalised portfolio from scratch. So the portfolio is completely individual to you. We then manage that portfolio daily via AI (artificial intelligence).
Technology has really allowed us to do this where previously in order to access fund management like this you would have had to be investing in the regions of millions.
Our approach is really about keeping the journey smooth. We will move money out of investments if it’s looking to risky or there’s turbulence in the market, and because of AI we can do this daily rather than having, for example, 3 big changes per year.
In terms of the investing journey, what does someone need to have in place before they start?
Definitely have an emergency fund in place. Investing really needs to be a long term strategy, so it’s not something you want to be putting all of your spare cash into. Some people like to start with small amounts, say £10 or £10. Personally I think you want to be in a place where you’ve got about £500 ready to put away, just like you would in regular savings.
Once you have that money, you really just have to dip your toe in and get started. From a female perspective I found talking to other women really helpful, and really helps with the decision making process. It can help to find a group or friend to act as an accountability partner, perhaps someone in the same position as you so you can kind of each other on track.
The great thing about technology and the advances we have made, especially with things like ETF funds is that it really doesn’t have to be seen as gamble, and you don’t have to know absolutely everything or do lots of research to get started. These are really tried and tested vehicles into investing that don’t have to be scary at all.
I think for a lot of people it’s really about getting into this habits of having an emergency fund and putting money away.One question I’m often asked is whether people should invest if they have debts or should they pay those off first?
I’m not an expert, but from my understanding the advice is not to worry too much about things like student loans which have a very small interest rate, but to definitely pay off things like store cards and other loans before you get started.
I think good habits are definitely your best friend, and you can set up direct debits so that you don’t really have to think about it too much. So you can set up direct debits to go into your emergency fund, into any savings, and into your investment funds. It can be hard to start, but once you’re used to the money going out it stops feeling like a part of your salary and in that way it starts to become second nature.
So robo advice is a great place to start. Do you have any other advice for beginner investors, Mel?
I do genuinely think that robo investments are the best place to start for beginners, just because it can be so low barrier and low risk. It really depends on how you see investing, and how much you want to be involved. If it’s the case that you just want to get started in the least complicated way possible, then robo investing really is the way to go.
I would say to think deeply about where your money is when you invest in a robo investment. Once you’ve had your account for a while and you’re feeling a bit more comfortable with it, then have a look at the funds your money has been invested in and start making small decisions about the kinds of funds you’re happy for your money to be in. Ethical investing has become a really big thing, and you can start to see your money not just as money in a pot, but also in terms of it doing something positive in the world.
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