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Savings and Investments thread

I hope that like many other fine threads on CL this one will be a place where Lifers can share both knowledge and experience to help others. It isn't for "rich" Lifers. It's the way of the modern world that all of us have to try and save for old age. And it is not the place for politics, even though politics affects our decisions.

I think the best way to get this going will be if people post some questions about things they are contemplating, puzzled about, scared of. Hopefully some Lifers with the relevant knowledge and experience will reply. So I will start, in the next post
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Comments

  • So P2P (peer to peer lending). I suddenly decided to give this a go after the recent news that interest rates are going to hit rock bottom (even go negative) so there is no way to earn any meaningful interest on cash. But I want to keep a lot of my savings in cash right now because I don't trust the markets. I read up on it via this excellent summary from Martyn Lewis.

    Rationally if they can reasonably safely deliver 4-7% interest in one year, why would you not pull at least some of your cash savings out of a bank account paying 0.3% and put it in P2P? I also like the qualitative aspects; these guys are providing competition for big institutions which have caused us a lot of trouble in the last 10 years. And there is something rather noble about the idea that citizens are helping other citizens (including small businesses) get the loans they need when the big banks turn them away.

    Soooo... am I being naive? What are the risks that others might worry about which might stop them following my path here? has anyone got any specific experiences of P2P they would care to share?
  • I had a brief look at P2P the other day and my quick read through brought up that these sites are not covered by the financial services compensation scheme. So (I think) if it goes tits up you lose all your money, unlike if a normal bank does the government covers up to £75k.

    I have to say I am still tempted. If anyone knows more about this I'd be interested to know too.

    Good thread.
  • edited July 2016
    Like any investment, it's all about the risk/reward balance. Yes the potential returns are higher with P2P but the risks are of course higher as well - not least because they are not covered by the Financial Services Compensation Scheme, as moutuakilla says.

    My approach is setting the return at a reasonable level (3-5%) rather than increase the risk of bad debt by looking for higher returns. Also to limit the investment to asset backed lending schemes only.

    P2P has its place in a balanced portfolio.
  • I had a brief look at P2P the other day and my quick read through brought up that these sites are not covered by the financial services compensation scheme. So (I think) if it goes tits up you lose all your money, unlike if a normal bank does the government covers up to £75k.

    I have to say I am still tempted. If anyone knows more about this I'd be interested to know too.

    Good thread.

    I would suggest to read up what Martyn Lewis says on the risks. The companies are now regulated by the FSA, but not, as you say, in the compensation scheme. They talk about their own safety systems, Zopa has "Safeguard".

    After digesting it, I took the view that it is generally not that risky right now, unless the whole economy goes really tits up, 2008 style. But I thought that if I restrict my initial lending to one year only (you get better returns on longer periods), and across several P2P companies (those that Lewis recommends and uses) that's a good way to start. Review after the one year, listen out for any horror stories (not just in the UK) and then decide whether to continue.

  • I am interested in P2P as well, I am a bit unsure as I currently have a small amount of savings but sitting them in a savings account in a bank just doesn't work for me at all. but it seems a large amount needs to be invested to kick off right? certainly to make it worthwhile. I think I need to do some reading, as I need to make my money work more for me and I need to up my financial situation and get a bloody mortgage
  • I am interested in P2P as well, I am a bit unsure as I currently have a small amount of savings but sitting them in a savings account in a bank just doesn't work for me at all. but it seems a large amount needs to be invested to kick off right? certainly to make it worthwhile. I think I need to do some reading, as I need to make my money work more for me and I need to up my financial situation and get a bloody mortgage

    You can invest any amount, from as little as a few pounds. The key is investing a relatively small percentage of your available funds, and keeping most in safer investments. If you only have a small amount of funds available to start with then it may not be for you.
  • I have some cash in P2P with three companies who all have their own models. I'll mention Funding Circle in this post. You have to put in a minimum of £1000 to start off then £100+ afterwards. If someone who is already a FC lender recommends you then both you and they get £50 if you lend that £1k within a month. Unlike some other P2P companies you can choose who you lend to (they also have 'autobid' where a computer does it for you but then you have no control.) You can lend as little as £20 to each company and a spread of loans is recemmended (don't have all your eggs in one basket.) Each day they list small companies who are seeking loans for a period of up to 5 years. The companies are of every conceivable type (builders, retail, restaurants etc.) The interest rate depends on the risk which FC have identified and the duration of the loan. For example an A+ borrower will be about 8% but an E rated borrower would be paying up to double that. Except for property development, interest and capital are paid back each month over the duration of the loan. Small builders (mostly rated A+) usually seek loans for 12-24 months but in their case the interest only is payable until the completion of the project when your capital is paid back. Of course there are risks. Companies do go under and when that happens FC have a recovery team who try and get your money back but they may not get it all back. Despite this, if you do lend to a spread of companies your likely losses are minimised and you will still be getting a better return than in a bank on current rates.
    This morning FC had 21 companies seeking funds from A+ companies, including 8 property companies at 8% to C (offering 11.9% over 5 years.)

    FC charges you 1% but MY current estimate is a return of over 6% after fees and bad debts. I hope this is of some assistance.
  • On this, has anyone tried Property Partner https://propertypartner.co/

    Have stuck a few quid in so far - and had a dividend paid!

    Might be a less risky option for some?
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  • Renting out garages is something I've been looking in to.

    You can pick up a garage (something small, like for a single car) for around about 10k.

    Going rental rates are around £100 p/m which is obviously a very attractive yield of over 10%. As well as the potential increase of the value of the garage itself it seems a relatively 'safe bet'.

    Anyone had any experience on this?
  • On this, has anyone tried Property Partner https://propertypartner.co/

    Have stuck a few quid in so far - and had a dividend paid!

    Might be a less risky option for some?

    With Brexit and the 'experts' predicting a property mini-crash, I would be wary.
  • bobmunro said:

    I am interested in P2P as well, I am a bit unsure as I currently have a small amount of savings but sitting them in a savings account in a bank just doesn't work for me at all. but it seems a large amount needs to be invested to kick off right? certainly to make it worthwhile. I think I need to do some reading, as I need to make my money work more for me and I need to up my financial situation and get a bloody mortgage

    You can invest any amount, from as little as a few pounds. The key is investing a relatively small percentage of your available funds, and keeping most in safer investments. If you only have a small amount of funds available to start with then it may not be for you.


    hmm, well I have a couple grand or so to work with, would it be worth lets say putting in 10% as a way of dipping the toe in, could what I yield be worth it in the mid to long term?
  • with P2P lenders, stay with big ones with good track records and reputations. I think at least one P2P lender has gone bust and i suspect some others will go.
  • Clearly as has been said risk/return profile is important as well as timescales and whether you are looking for growth, some growth with income, or income which probably depends on your stage of life and financial needs.

    I have had a look at Wellesley https://www.wellesley.co.uk/how-it-works/how-we-lend/ I like the way they undertake weekly 'auto matching' and the matching of their funds to the lenders. Returns are gross and subject to income tax

    Peer to peer lending is not without risk as their website states. As to be expected the bigger the returns, the bigger the risk.
  • Banks are in the business of risk and for the most part are very good at it. Sometimes they get it spectacularly wrong, as in 2008, but most of the time they get it right because they employ very clever people and spend shed loads on systems and information and everybody thinks they are ripping people off because they make a profit. Banks are also highly regulated. They are supposed to have strong capital and liquidity ratios that they have to maintain. Banks accept that they will take a bath on some loans and that there will be a rainy day. Anybody thinking of cutting out the bank as a middle man in the lending game needs to think like a bank and about how good an opportunity that lending proposition really is, how sound the borrower is, whether the borrower is actually a crook or a terrorist (it would be a bummer for you if you are also funding terrorism or busting a sanction) whether the money they borrow is actually going to be used for what they say it's for, how they plan to monitor the loan and the borrowers progress, whether they can afford to lose all of the loan. How they will get it back. Then there's the questions such as what will happen if all that liquidity the Bank of England pumps into the economy starts to be withdrawn, what will a rate change do, whether Brexit will fck up the borrowers business. What if you need your money back urgently.
  • It's a little old - in terms of how the market is changing swiftly for P2P - but this paper from the FCA is still worth a read.

    https://fca.org.uk/static/documents/crowdfunding-review.pdf

  • I have some cash in P2P with three companies who all have their own models. I'll mention Funding Circle in this post. You have to put in a minimum of £1000 to start off then £100+ afterwards. If someone who is already a FC lender recommends you then both you and they get £50 if you lend that £1k within a month. Unlike some other P2P companies you can choose who you lend to (they also have 'autobid' where a computer does it for you but then you have no control.) You can lend as little as £20 to each company and a spread of loans is recemmended (don't have all your eggs in one basket.) Each day they list small companies who are seeking loans for a period of up to 5 years. The companies are of every conceivable type (builders, retail, restaurants etc.) The interest rate depends on the risk which FC have identified and the duration of the loan. For example an A+ borrower will be about 8% but an E rated borrower would be paying up to double that. Except for property development, interest and capital are paid back each month over the duration of the loan. Small builders (mostly rated A+) usually seek loans for 12-24 months but in their case the interest only is payable until the completion of the project when your capital is paid back. Of course there are risks. Companies do go under and when that happens FC have a recovery team who try and get your money back but they may not get it all back. Despite this, if you do lend to a spread of companies your likely losses are minimised and you will still be getting a better return than in a bank on current rates.
    This morning FC had 21 companies seeking funds from A+ companies, including 8 property companies at 8% to C (offering 11.9% over 5 years.)

    FC charges you 1% but MY current estimate is a return of over 6% after fees and bad debts. I hope this is of some assistance.

    For the investment dyslexics amongst us, can you just clarify the 1% charge? Is that 1% per annum of the total amount you lend?
  • This is from the FC website:
    Fees

    Fees are simple at Funding Circle:

    1% annual servicing fee: Servicing fee taken directly from borrower repayments. If no repayment is made, no servicing fee is taken.

    0.25% sale fee: payable if you sell any of your loan parts to other investors.

  • edited July 2016

    P2P is lending money for greater return. The return mirrors the risk. There would be no FCSC protection for speculators and that is effectively what you are doing.

    I was tempted by the returns but have serious concerns about these companies, very very few have seen a recession as the majority were started post 2008/09.

    Things to think about:

    - they say your cash can be accessed any time by selling your stake, if the market tanks there will be no one to buy it at par so you will be stuck until whatever project is complete.
    - some allow you to pick a specific project, others allow you to spread risk across many. Think about what risk profile suits you.

    My personal feeling is they are an accident waiting to happen and some of them will collapse in the next recession so be picky which ones to invest money into. That being said, I have an exceptionally low risk outlook on my personal investments so you should read my post in that context.

    You've posted my thoughts entirely.

    If the big banks can go "tits up", then I don't fancy this at all, without FSCS protection.

    Also, they have to hold £50,000 cash reserves ! What sort of a cash reserve is that !

    Even if you are invested in shares or corporate bonds, it would appear to be much simpler & less risky to withdraw funds immediately, if things are looking grim, unless you are invested in a fund like corporate property.
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  • P2P lenders offering attractive returns sound great but how transparent are these companies? What's to stop them 'doing a Madoff' and paying off existing investors with new investor money? I'm not knocking the concept but I'm genuinely interested in who is responsible for the oversight of these companies, what teeth they have and also who is signing off their books.
  • Great start to this thread, thank you all for supporting it.

    One thing that might be useful to say re P2P and bank savings. Many of the big banks do offer modest regular saver accounts where you can earn up to 6%, as with mine at HSBC. You have to have a current account where you pay in a certain minimum each year, to qualify, and then you get that interest on your funds which you must pay into monthly. Up to £250 month in HSBC case. At the end of 12 moths you will get around £140 to add to the total £3,000 you have set aside. Not a huge amount but probably a good idea to have one of those accounts before you commit money to P2P.
  • edited July 2016
    Santander 1 2 3 is the best, as the current a/c pays 3% up to £20K I believe and you can have 3 a/cs if you are a couple. One each & a joint a/c, so £60K.

    You have to have a couple of DDR's in each a/c and a certain amount has to go in each month, but you can fund that by transferring from a savings a/c. It's a bit of agg, but a lot safer than P2P.

    Also has a regular savings a/c option as well I think.
  • Santander 1 2 3 is the best, as the current a/c pays 3% up to £20K I believe and you can have 3 a/cs if you are a couple. One each & a joint a/c, so £60K.

    You have to have a couple of DDR's in each a/c and a certain amount has to go in each month, but you can fund that by transferring from a savings a/c. It's a bit of agg, but a lot safer than P2P.

    Also has a regular savings a/c option as well I think.

    On the same note a Nat west cash back current account pays decent rewards. Costs £3 a month but the rewards on direct debits like sky, electric, gas, council tax etc make it more than worth it. Reckon I make about £15 a month after the charge.
  • Three or four years ago as a test I put £150 into Zopa to see what happens.
    I don't have a clue because I can't remember any of my log in details, and can't be bothered to figure them out. I get emails from Zopa but never look at them.
    Maybe there is a modest percentage growth, probably, sort of.
  • I did smile at Santa Claus's reference to Bernie Madoff because it reminded me that even so called 'experts' can get shafted by a con-man. In that case Nicola Horlick (nicknamed Superwoman by the press) who ran Bramdean Investments put £21million of her clients money with Bernie who nicked the lot. The difference with P2P is that YOU are investing with the company seeking the funds, not entrusting an intermediary to 'use their expertise' to invest on your behalf. If your P2P went tits up, your money isn't lost because your contract isn't with the P2P company but with the individual borrowers. Dippenhall has it absolutely right as indeed have others who suggest cashback accounts for more modest amounts because diversification is the safest way of investing.
  • OK I put £150 in Zopa in March 2013 apparently.
    It is worth £169.91 now.
    Extrapolate from that what you will.
  • Just over 13% gain in 3 years. Not bad. Better than bank/building society term deposits possibly, but maybe not by much (without checking).
  • So P2P (peer to peer lending). I suddenly decided to give this a go after the recent news that interest rates are going to hit rock bottom (even go negative) so there is no way to earn any meaningful interest on cash. But I want to keep a lot of my savings in cash right now because I don't trust the markets. I read up on it via this excellent summary from Martyn Lewis.

    Rationally if they can reasonably safely deliver 4-7% interest in one year, why would you not pull at least some of your cash savings out of a bank account paying 0.3% and put it in P2P? I also like the qualitative aspects; these guys are providing competition for big institutions which have caused us a lot of trouble in the last 10 years. And there is something rather noble about the idea that citizens are helping other citizens (including small businesses) get the loans they need when the big banks turn them away.

    Soooo... am I being naive? What are the risks that others might worry about which might stop them following my path here? has anyone got any specific experiences of P2P they would care to share?

    I've had some money in P2P lending for a couple of years. The return is 5% before tax and 0.5% has been lost to bad debts, so a return of about 3.75% after tax.
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