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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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?
Shouldn't this thread be merged with the "14/1 for Relegation" thread?
I have to say I am still tempted. If anyone knows more about this I'd be interested to know too.
Good thread.
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.
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 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.
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.
Have stuck a few quid in so far - and had a dividend paid!
Might be a less risky option for some?
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?
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?
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.
https://fca.org.uk/static/documents/crowdfunding-review.pdf
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.
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.
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.
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.
In the past you deposited your savings with a bank and the bank manager advanced your money as loans to exactly the same customers who are now borrowing under P2P schemes. The bank charged 10% and you got 2%. The margin covers the inevitable default risk, but there is ample profit by applying basic risk management to minimise defaults.
It's all about diversification of risk, you assume there will be defaults and you allow for them when anticipating returns. All P2P does is cut out the overcharging for managing the default risk. Instead of a bank doing it for 8% the P2P schemes take 1%.
People are saying P2P is more like an investment - if you did economics you know that "Savings = Investments". They are the same monies, it's just that with P2P the intermediary process that establishes a third party (the bank) between you, the saver, and the company that borrows your money, is removed. You now see what your money is earning instead of someone else using it to make a profit and giving you what's left over.
Rather than look at P2P as risky, you should look at a 6% return on a diversified P2P account as the average open market return for investing in private debt, after defaults. If you get 0.5% from a safe guaranteed deposit by lending to the UK government, but 6% with less certainty by lending to financially sound companies, you should look at 5.5% as being the "risk premium". Put the other way, are you happy paying 5.5% to guarantee a 0.5% return and return of your capital.
Some P2P schemes give a choice of a secure rate of return where the scheme covers the default risk, or a higher, but variable rate where you carry the impact of default risk.
There is no comparison between a bank going tits up and the default risk on a P2P debt instrument. The banks went tits up because they were lending money backed by securities that didn't exist. It wasn't defaults that killed the banks it was the fact that the security against the defaults didn't exist and the banks deposits and assets were an inadequate fraction of their liabilities. P2P can't possibly suffer the same fate as the security against the loan is tangible, has value is non transferrable and remains the property of you the investor.
The risk in P2P is the reliability of the selection of borrowers. The larger the number of borrowers the more the risk is spread and the less will returns diverge from the mean average after allowing for defaults.
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.
It is worth £169.91 now.
Extrapolate from that what you will.