Blossom is a new, Australian investing app that is aiming to be an alternative to traditional savings accounts. The fund aims for a 3% return per annum which is much higher than what you'll get through a high interest savings account. But is it worth investing in Blossom? I signed up to test it out and like all my reviews I'm using my own money. Here is what I found…
What Does Blossom invest in?
When you transfer money into Blossom you are buying units of the Blossom Fund. The Blossom Fund is a diversified portfolio of lower-risk financial assets. Basically you are investing in Government and Corporate bonds.
These are known as fixed-income assets. Basically bonds provide a small yet steady stream of income.
What is the Advantage of Using Blossom
While there are some ETFs that provide access to some fixed income products, many assets are only available to institutional investors. For example, Apple Inc. – one of the largest corporations in the world has a stockpile of cash close to $300 Billion. Over 50%+ of that money is invested in fixed income assets like Corporate and Government bonds. Apple doesn't just stash that money in a bank account and lose out to inflation. And now you can invest in the same way.
Basically when you invest with Blossom you are using the same cash management strategy that the worlds largest corporations use.
Traditionally you haven't been able to easily invest in these lower risk, income producing assets because:
- High minimum requirements – many fixed income products have minimum investment amounts that are out of reach of individual investors.
- Platform Access – Blossom uses JP Morgan as their broker. Regular individuals don't have access to the same type of platform. You basically need to have a minimum amount of cash to get a seat at their table.
- Access to Funds – When you invest in many fixed income assets, your funds are locked up for a set period of time. You can't withdraw whenever you want. But with Blossom you can deposit and withdraw as much as you.
What I like about Blossom
- Unique Product – As far as I know, there is no other app in Australia that lets you invest in a fixed-income portfolio. This could become an alternative to a savings account for many people.
- No Lock-Ups – You can withdraw your money at any time. Your funds aren't locked away.
- No Minimum – You don't need thousands of dollars to start investing. There is no minimum investment. You can deposit as little as you want, as often as you want.
- No Withdrawal Fees – you can withdraw at any time and there are no fees to withdraw.
What I don't like about Blossom
- Lack of Details – Beyond the PDS, there are no details on what the fund invests in. If this was a boutique fund I could understand. But for a consumer app targeting retail investors there should be more details within the app. The app doesn't even show you how many units in the fund you own. We have to trust that the fund managers know what they're doing without any oversight. I think this is a terrible approach.
- App Issues – The website is great to use and I really like the design. The mobile app (which I'm assuming is running the same stack) has issues with staying logged in. It's really annoying having to log in every time you open the app.
- Slow Deposits – Deposits through Direct debit seem to take longer than they do on similar apps like Spaceship or Raiz.
- Really High Fees – the fee is 1%. This is stupidly high for this type of product.
As an investor you'll pay a 1% fee only when Blossom exceeds its 3% target. Blossom puts aside money above the 4% (3% which goes to you, 1% goes to Blossom) to cover any future shortfalls. However this is all in Blossoms discretion. They are under no obligation to cover any shortfall below 3%. We also have no idea how the Blossom fund is performing (as there are no details in the app or website). So they could be making much more.
Is this a good investment?
Is 3% per annum a good return? Well it depends who you are. If you're saving for a house deposit, then you would want a low risk investment and 3% would be ideal. But if you're looking to grow your future wealth, I would be pretty disappointed in 3%.
Blossom is a good alternative (in terms of rate) to a savings account. But I don't believe it is a good alternative to a diversified portfolio of shares and ETFs.
Should you invest in Blossom?
At this stage I don't think it's a good investment due to issues around transparency. Blossom (to the best of my knowledge) isn't a scam. It is a legit investment. I would just like to see more transparency. An App like Raiz or Spaceship will tell you exactly where your money is getting invested. If the Blossom fund team is taking on too much risk or doing anything dodgy we really have no idea. That's not ok for a consumer investing app.
This really feels like a war between the old and new of finance. In “old” world (aka Gleneagle Capital), everything was mysterious and money managers acted like they had some secret sauce. The reality is that most money managers over the long term underperformed the major indexes. They simply sold their funds as “income” funds. Young investors don't want to give money to shady “Wall Street” types anymore. Blossom will make the fund managers and Gleneagle rich. It's not such a great deal for you though.
If Blossom had a more transparent model, then I would absolutely recommend it as an alternative to savings. But with so little transparency it's too risky in my opinion in comparison to a savings account with a bank.
Great idea. Interesting business model. Poor execution.