If you are not working and have no job lined up you should not be advised to invest for the long term in risk based assets.
Your money could go down as well as up and not be enough when you need it most.
The money should be kept in cash as it may be required. You should be looking for the most appropriate savings a/c, which may mean you could put it away for 1 or 2 years to get a better return than instant access.
Cash ISA's are simply savings a/cs that are tax free.
You can now earn £1,000 in interest per annum tax free in any case, so as someone who is possibly not a tax payer in any case, the tax free ISA benefit is likely of no consequence.
The long term benefit of ISA's is that over many years you could possibly accrue enough savings tax free, that will never be liable for tax, unless the rules were changed, which is unlikely to remove tax free benefits at a stroke.
If you are not working and have no job lined up you should not be advised to invest for the long term in risk based assets.
Your money could go down as well as up and not be enough when you need it most.
The money should be kept in cash as it may be required. You should be looking for the most appropriate savings a/c, which may mean you could put it away for 1 or 2 years to get a better return than instant access.
Cash ISA's are simply savings a/cs that are tax free.
You can now earn £1,000 in interest per annum tax free in any case, so as someone who is possibly not a tax payer in any case, the tax free ISA benefit is likely of no consequence.
The long term benefit of ISA's is that over many years you could possibly accrue enough savings tax free, that will never be liable for tax, unless the rules were changed, which is unlikely to remove tax free benefits at a stroke.
I speak as an ex Bank Manager and ex Financial Adviser.
I should also warn you shouldn't take financial advice from a football message board.
All the best.
Nonsense.
There's been some excellent advice on this thread, especially the bloke who mentioned the South Sea Company. On the strength of that advice I've invested everything and I'm now preparing to count all my lovely profit.
I'm also a financial advisor & I agree that you should keep your money on deposit. The Santander 123 used to pay 3% on balances up to £20k - don't know if they still do - if not then Covered End's point on the new £1k tax free interest limit is very sound.
If you have a steady job, it's a different matter, because you should be able to ride the ups and downs of the stock market without be forced to cash in at the wrong time.
The ISA limit increases to £20K in the new tax year, so there's no need to rush.
I had the 6 or so grand in there before I left for travelling and intend to keep it in there for the time being. I'm well aware that it's important to see the ISA as a long term investment and although there's easy access, not to use it as something to draw from unless in exceptional circumstances.
If you have a steady job, it's a different matter, because you should be able to ride the ups and downs of the stock market without be forced to cash in at the wrong time.
The ISA limit increases to £20K in the new tax year, so there's no need to rush.
Once again I'm in agreement with Covered End. If you were in a steady job & regularly had excess income (therefore it builds up in your account to a tidy sum) then you could invest every year into a stocks & shares ISA - using up as much of your annual allowance as possible. Seeing as the limit is £20k as from April 6th, and you only have £6k to invest, then there is no rush.
Any thoughts on the new lifetime ISA's for someone not saving for a first house.
I'm 39 next week so only have this year to take it up and was thinking of using it as a fairly risk free pension top up. Could potentially save £50k plus over the next 10 years including the government top up.
Any thoughts on the new lifetime ISA's for someone not saving for a first house.
I'm 39 next week so only have this year to take it up and was thinking of using it as a fairly risk free pension top up. Could potentially save £50k plus over the next 10 years including the government top up.
If you can't use it for your first home then it's retirement, which is a way off. That said it's a free £1k a year from the government so why not, assume you are already making pension plans so this will just supplement it and be 'tax free outcome retirement.
If I were under 40 years I would probably use it as long as you can afford to.
So I am just coming up to my 1st anniversary with peer -to-peer lending, so I thought I would share my experience and ask people one year on how they see this sector. It would help me decide the extent to which I continue.
I went with the same amount in three companies,Ratesetter, Zopa and Funding Circle. The latter is the one that lends to businesses, and therefore provides higher rates of return.
It's interesting that in some form, all three companies have said that they are changing the way they lend. Ratesetter sent out a moderately alarming email that they had "intervened with some borrowers" and as a result of what they disclosed (pretty frankly) offered customers that we could review our investments and if we wished, withdraw from Ratesetter immediately with no termination charge. Since Ratesetter offered fixed term lending, and my term was almost up anyway, I decided to hang on, not least because a £100 loyalty bonus was at stake. Zopa are, for reasons I find a bit opaque, changing their two less risky accounts to a new one which does not come with their Safeguard protection. Frankly, I don't like the look of this, and there is something else with Zopa which I will come to. Funding Circle announce that they are withdrawing from lending to borrowers in the property market. They explain this only as a return to their core market. I guess though that they see the property market as overheating.
As for the returns. Both Ratesetter and Zopa should deliver me around 3.8% -but if I add in Ratesetter's one -off bonus the return rises to 5.8% , while Funding Circle will deliver around 6.7%. Well that is very satisfactory, given that these funds were previously in a bank deposit account that cannot get near 1%.
However, what next? What I have discovered is that in only one of the three cases can I exit completely now, without a fee which would effectively reduce those returns. That exception is Ratesetter. Funding Circle might cost me 0.25%, which is OK, but Zopa is another matter. Basically I would be charged 1% if I said, give me my money back now. There is an alternative which is to wait while the existing loans are paid off but that can be up to five years!
Then, overhanging it all are the recent warning from authoritative sources that there are signs of dangerous over-lending to consumers, returning. This was last seen prior to the 2008 crash. Have we learnt nothing?
Right now I am inclined to decide to exit Zopa, slowly for now, but go again with Ratesetter and continue with Funding Circle. Maybe take the Zopa money somewhere safer, in the light of the warnings about consumer debt. Or possibly divert the money to Funding Circle. It is easy to have night mares about losing your money, but anyone who invests in equity based stocks now is doing so with markets some 20% higher than they were before Brexit, so it seems to me that if you invest there now, you are more likely to lose than gain anything over a 1 year horizon anyway. That said I have been waiting in cash for the post Brexit market crash for over a year, and it hasn't come.
So I am just coming up to my 1st anniversary with peer -to-peer lending, so I thought I would share my experience and ask people one year on how they see this sector. It would help me decide the extent to which I continue.
I went with the same amount in three companies,Ratesetter, Zopa and Funding Circle. The latter is the one that lends to businesses, and therefore provides higher rates of return.
It's interesting that in some form, all three companies have said that they are changing the way they lend. Ratesetter sent out a moderately alarming email that they had "intervened with some borrowers" and as a result of what they disclosed (pretty frankly) offered customers that we could review our investments and if we wished, withdraw from Ratesetter immediately with no termination charge. Since Ratesetter offered fixed term lending, and my term was almost up anyway, I decided to hang on, not least because a £100 loyalty bonus was at stake. Zopa are, for reasons I find a bit opaque, changing their two less risky accounts to a new one which does not come with their Safeguard protection. Frankly, I don't like the look of this, and there is something else with Zopa which I will come to. Funding Circle announce that they are withdrawing from lending to borrowers in the property market. They explain this only as a return to their core market. I guess though that they see the property market as overheating.
As for the returns. Both Ratesetter and Zopa should deliver me around 3.8% -but if I add in Ratesetter's one -off bonus the return rises to 5.8% , while Funding Circle will deliver around 6.7%. Well that is very satisfactory, given that these funds were previously in a bank deposit account that cannot get near 1%.
However, what next? What I have discovered is that in only one of the three cases can I exit completely now, without a fee which would effectively reduce those returns. That exception is Ratesetter. Funding Circle might cost me 0.25%, which is OK, but Zopa is another matter. Basically I would be charged 1% if I said, give me my money back now. There is an alternative which is to wait while the existing loans are paid off but that can be up to five years!
Then, overhanging it all are the recent warning from authoritative sources that there are signs of dangerous over-lending to consumers, returning. This was last seen prior to the 2008 crash. Have we learnt nothing?
Right now I am inclined to decide to exit Zopa, slowly for now, but go again with Ratesetter and continue with Funding Circle. Maybe take the Zopa money somewhere safer, in the light of the warnings about consumer debt. Or possibly divert the money to Funding Circle. It is easy to have night mares about losing your money, but anyone who invests in equity based stocks now is doing so with markets some 20% higher than they were before Brexit, so it seems to me that if you invest there now, you are more likely to lose than gain anything over a 1 year horizon anyway. That said I have been waiting in cash for the post Brexit market crash for over a year, and it hasn't come.
What do you reckon?
Personally, I don't like peer to peer because of the risk involved, so it's a flip of a coin for me.
You may make say 5% instead of 1 %, but if you lose your capital, you're a lot worse off.
I wouldn't fancy a 5% b soc return if not covered by FSCS, unless we're talking about such small sums, it's neither here nor there. I'm sure plenty would feel the opposite.
Then, overhanging it all are the recent warning from authoritative sources that there are signs of dangerous over-lending to consumers, returning. This was last seen prior to the 2008 crash. Have we learnt nothing?
You are investing in P2P set-ups that make their money (and yours) by lending to consumers - well certainly Ratesetter and Zopa. Do you see the irony in your comment? ;-)
I'm pretty much out of Zopa now as the returns have diminished v risk, I expect the default rate to increase. Just running down the last few loans. Overall experience was good but as the returns dropped I've stopped reinvesting and let the loan book run off.
In about 5 years I only had 14 defaults which considering I must have lent on 5,000 loans isn't bad at all.
Annualised overall I'm at about 7% P.A. Before compound.
Still in Funding Circle although haven't lent new for about 18 months as I like to do a lot of vetting. No defaults and about 9% return.
I don't know what you have in Zopa but I'd let your book run off and not reinvest. If you have the time funding circle is still worth doing as part of a balanced portfolio. I've sold some loans on at times, it needs actively managing.
Then, overhanging it all are the recent warning from authoritative sources that there are signs of dangerous over-lending to consumers, returning. This was last seen prior to the 2008 crash. Have we learnt nothing?
You are investing in P2P set-ups that make their money (and yours) by lending to consumers - well certainly Ratesetter and Zopa. Do you see the irony in your comment? ;-)
Not at all, Bob. Those warnings are from the last two weeks, just as was about to review these investment anyway, after one year. I am now asking myself whether it is a good idea to continue with them both in the light of those warnings. Presumably you think the answer is "get out, now" ? If so, where does the money go? Into equity funds with markets still close to all time highs? Or into 'safe" accounts which in fact are now eroded by UK inflation?
You may have missed the boat to an extent but I'd still put some in the stock market, just not all at once!! Assume you do or can do a S&S isa? Spread the £20k in monthly and as long as you continue to and over a medium period (5 years) you should be OK even through the ups and downs, all a risk of course but manageable.
Goes without saying but choose a diverse set of funds and watch the exchange rates if US/Euro etc. A lot of my profit the last two years was partly on the dollar v pound.
FWIW my best performing funds have been ;
L&G US Index Index Trust (average 20%+ return PA for the last 5 years, lowest 11.23% highest 24.43%) BNY Mellon long term global equity Institutional Fidelity UK Select Fund L&G Global Health & Pharmaceutical (averaged about 20% P.A. last 5 years) L&G Global Technology index (been huge profit the last 12 months) L&G international Index Trust (average about 14% PA last 4 years) Vanguard US Equity Index (again has averaged around 20% per annum last 5 years).
Worst has been Fidelity Multi Asset Allocator Strategic Fund but even that has exceeded 6% P.A. for the past 5 years so still good.
Like everything finance/investment related, many eggs in many baskets is the order of the day.
my conservative pension was up about 13% last year after charges.
Thats why I asked, the best performing 'average' funds are 20% + up on last year, bonds/gilt based funds are more at the 5% level so could be a very conservative portfolio, or high charges! Mines up about 22% but quite a lot was at the higher end of the risk scale (have pegged it back a bit).
my conservative pension was up about 13% last year after charges.
Thats why I asked, the best performing 'average' funds are 20% + up on last year, bonds/gilt based funds are more at the 5% level so could be a very conservative portfolio, or high charges! Mines up about 22% but quite a lot was at the higher end of the risk scale (have pegged it back a bit).
I don't think so - more like 2%. That is one of the investing problems for pension pots. FTSE100 is up around 20%, DAX too, since just before Brexit so any portfolio based around decent index funds would deliver that return. But I am sceptical that that can be replicated in the next 12 months. I still expect a global correction, but at least being stuck in cash I could take advantage of it.
Of course your overall advice is very sound, but as I've said in other political threads, the gap between UK inflation and bank savings interest is wide in a way that I cannot remember having a precedent, and that's a huge issue which I am surprised more of us are not troubled by. And that's why I've had a go with P2P.
my conservative pension was up about 13% last year after charges.
Thats why I asked, the best performing 'average' funds are 20% + up on last year, bonds/gilt based funds are more at the 5% level so could be a very conservative portfolio, or high charges! Mines up about 22% but quite a lot was at the higher end of the risk scale (have pegged it back a bit).
I don't think so - more like 2%. That is one of the investing problems for pension pots. FTSE100 is up around 20%, DAX too, since just before Brexit so any portfolio based around decent index funds would deliver that return. But I am sceptical that that can be replicated in the next 12 months. I still expect a global correction, but at least being stuck in cash I could take advantage of it.
Of course your overall advice is very sound, but as I've said in other political threads, the gap between UK inflation and bank savings interest is wide in a way that I cannot remember having a precedent, and that's a huge issue which I am surprised more of us are not troubled by. And that's why I've had a go with P2P.
It works both ways though, borrowing rates are also very very cheap in comparison, there are now sub 1% mortgages, think it's Yorkshire that has a 0.89% mortgage but other trackers/discounts for sub 1%. If it wasn't for the fee's/tax almost worth borrowing against the property to invest. No good for non mortgage holders with cash though who want to keep as cash.
I don't have many bond/gilt holdings, my main one in my pension is M&G Global Macro Bond Fund and is up 6% Jul 16 to Jun 17 (was over 20% up Jul 15 to Jun 16), which is nearly double the Morning Star category so you're probably right re the 2ish%.
I think the next 12 months will be interesting, I think it's still conceivable to get double digit returns on your pension/investments but you need to be actively managing it and be brave!
My pension investments after charges have gone up by 5% in the last year despite Brexit, Trump etc so I'm pretty happy with that.
You should be doing better than that, what are you invested in? Who's the platform through?
I moved my pension last September from a final salary scheme into a Suffolk Life SIPP with Investec managing the funds. I did so for the greater flexibility and the fact my wife will benefit from the whole pot if I die as opposed to half my final salary scheme pension.
I am 55 next year and intend drawing a pension from my pot so my wife can retire whilst I work for maybe another five years. I know what I want from my pension pot and how much it can provide us with annually and for how long. I don't intend risking my retirement plans in any way.
So I instructed Investec that I wanted my funds to be invested conservatively. Effectively as long as my investments make enough each year to cover the charges I'm happy. That way I know my money is safe and that our retirement can go as planned and we can be financially secure. Of course if it does do well and my pot increases in value then happy days. Ten months in, after charges, my pot has increased by about 5% so yes I'm very happy.
I understand some people would say that I could take a bit more risk and it'll be ok but there is that risk. I don't want to be greedy, I'm lucky, very lucky, with the amount I have invested and I don't intend to jeopardise it at all.
Comments from those with obvious knowledge of these issues would be appreciated.
As an IFA I would urge anyone doing P2P lending to be cautious. I would generally advise anyone with savings of £10k+ to look at ISA's first & if can keep money there for a min 3 years then go for stocks & shares & not cash.............and take advice !!!! Its not that costly (I charge 3% upfront & 0.5% ongoing - special deals on offer for CL members ) and my conservative clients have seen annual returns of around 15% for the past 3 years & more balanced investors have seen annual returns of around 20%. My own pension grew 22% last year & is invested in a mix of fixed interest (25%), property (10%) and the rest in equities (UK, US, Europe, Asia, Japan, Emerging economies) .
Yes the stockmarkets have done well over the past few years & the FTSE & The Dow Jones are both close to their all time highs - does this mean that they are close to a fall (or a slight correction)......who knows. As you say, you could it on the sidelines & wait...& wait....& wait - and all the time the markets are still going up. There will probably be a downturn at some point, but if you have a well rounded portfolio then the losses should be reduced - maybe 10%, 15% if things go a bit wonky, but over time these losses will be made up (and some)
My pension investments after charges have gone up by 5% in the last year despite Brexit, Trump etc so I'm pretty happy with that.
You should be doing better than that, what are you invested in? Who's the platform through?
I moved my pension last September from a final salary scheme into a Suffolk Life SIPP with Investec managing the funds. I did so for the greater flexibility and the fact my wife will benefit from the whole pot if I die as opposed to half my final salary scheme pension.
I am 55 next year and intend drawing a pension from my pot so my wife can retire whilst I work for maybe another five years. I know what I want from my pension pot and how much it can provide us with annually and for how long. I don't intend risking my retirement plans in any way.
So I instructed Investec that I wanted my funds to be invested conservatively. Effectively as long as my investments make enough each year to cover the charges I'm happy. That way I know my money is safe and that our retirement can go as planned and we can be financially secure. Of course if it does do well and my pot increases in value then happy days. Ten months in, after charges, my pot has increased by about 5% so yes I'm very happy.
I understand some people would say that I could take a bit more risk and it'll be ok but there is that risk. I don't want to be greedy, I'm lucky, very lucky, with the amount I have invested and I don't intend to jeopardise it at all.
Comments from those with obvious knowledge of these issues would be appreciated.
You need to appreciate that you are only looking at one risk - market risk. If you protect capital you are exposed to inflation risk and the fact is that you can't protect capital and hedge against inflation at the same time. By taking some market risk you can get some inflation protection which is why few investment strategies exclude equity exposure. It should not be a binary choice as if there are binary risks. You are exposed to interest rate risk and mortality risk as well as inflation .
If you are not didinvesting your whole pot next year why is the value of your pot next year relevant? Your capital will always be volatile, and that is not an issue if your reduced capital generates a higher return to maintain the income drawdown stream. If I have £1m and interest rates are 5% I am happy with my income of £50k a year, I am rich. If interest rates are 1% I am poor living on 10k a year when actually I needed to have £5 capital to maintain my living standards. You are effectively saying all I am worried about is my nominal balance sheet value and I don't care about my return on capital.
The reality is that you are facing market risk, interest rate risk, living too long and the risk of your circumstances changing. There is no single magic investment strategy that covers off these risks. The compromise is a balanced diversified approach weighted according to the best guess you make about how your life and financial needs pan out over the future. There are strategies to cover them all but not one covering all at the same time and you ideally have a mixture tailored to your objectives.
The problem is that advice does not come cheap if you want professional support, it needs to be ongoing and the right advisers are not easy to identify.
Many senior execs are baling out of their final salary pension schemes and companies are funding advice running into the tens of £thousands per executive.
My pension investments after charges have gone up by 5% in the last year despite Brexit, Trump etc so I'm pretty happy with that.
You should be doing better than that, what are you invested in? Who's the platform through?
I moved my pension last September from a final salary scheme into a Suffolk Life SIPP with Investec managing the funds. I did so for the greater flexibility and the fact my wife will benefit from the whole pot if I die as opposed to half my final salary scheme pension.
I am 55 next year and intend drawing a pension from my pot so my wife can retire whilst I work for maybe another five years. I know what I want from my pension pot and how much it can provide us with annually and for how long. I don't intend risking my retirement plans in any way.
So I instructed Investec that I wanted my funds to be invested conservatively. Effectively as long as my investments make enough each year to cover the charges I'm happy. That way I know my money is safe and that our retirement can go as planned and we can be financially secure. Of course if it does do well and my pot increases in value then happy days. Ten months in, after charges, my pot has increased by about 5% so yes I'm very happy.
I understand some people would say that I could take a bit more risk and it'll be ok but there is that risk. I don't want to be greedy, I'm lucky, very lucky, with the amount I have invested and I don't intend to jeopardise it at all.
Comments from those with obvious knowledge of these issues would be appreciated.
You need to appreciate that you are only looking at one risk - market risk. If you protect capital you are exposed to inflation risk and the fact is that you can't protect capital and hedge against inflation at the same time. By taking some market risk you can get some inflation protection which is why few investment strategies exclude equity exposure. It should not be a binary choice as if there are binary risks. You are exposed to interest rate risk and mortality risk as well as inflation .
If you are not didinvesting your whole pot next year why is the value of your pot next year relevant? Your capital will always be volatile, and that is not an issue if your reduced capital generates a higher return to maintain the income drawdown stream. If I have £1m and interest rates are 5% I am happy with my income of £50k a year, I am rich. If interest rates are 1% I am poor living on 10k a year when actually I needed to have £5 capital to maintain my living standards. You are effectively saying all I am worried about is my nominal balance sheet value and I don't care about my return on capital.
The reality is that you are facing market risk, interest rate risk, living too long and the risk of your circumstances changing. There is no single magic investment strategy that covers off these risks. The compromise is a balanced diversified approach weighted according to the best guess you make about how your life and financial needs pan out over the future. There are strategies to cover them all but not one covering all at the same time and you ideally have a mixture tailored to your objectives.
The problem is that advice does not come cheap if you want professional support, it needs to be ongoing and the right advisers are not easy to identify.
Many senior execs are baling out of their final salary pension schemes and companies are funding advice running into the tens of £thousands per executive.
Inflation protected government bonds achieve both goals - you are not insulated from (real) interest rate risk but that may work in your favour and is anyhow irrelevant if you hold to maturity.
I think they have an essential role in any diversified portfolio and are an underappreciated asset class.
Fair enough @LargeAddick seems sensible given your age and plans.
If your wife is retiring (and dependent on her circumstances) it may be worth considering when you start drawing your pension if you can afford to paying £2880 a year into a SIPP for your wife with that money as you'll get tax relief all over again (20%).
Over 5 years you'll pay in 14,400 but the government will top that up to £18k.
I believe also you can (if doing draw down) still pay in up to £10k per annum (assuming you still work and earn that amount). So depending on your tax rate in theory (say you are a 20% tax payer) you could draw down £10k and put back in £8k which gets topped back up to £10k leaving you with £2k and your pension pot remains the same. Might be worth seeing an advisor on that to see what you can do to maximise your pension.
@newyorkaddick TIPS can be useful for inflation but you need to be careful with interest rates as you mention which in today's low interest rate environment is probably why a lot of people don't make use of them.
Comments
Your money could go down as well as up and not be enough when you need it most.
The money should be kept in cash as it may be required. You should be looking for the most appropriate savings a/c, which may mean you could put it away for 1 or 2 years to get a better return than instant access.
Cash ISA's are simply savings a/cs that are tax free.
You can now earn £1,000 in interest per annum tax free in any case, so as someone who is possibly not a tax payer in any case, the tax free ISA benefit is likely of no consequence.
The long term benefit of ISA's is that over many years you could possibly accrue enough savings tax free, that will never be liable for tax, unless the rules were changed, which is unlikely to remove tax free benefits at a stroke.
You may wish to have a look at the link below.
http://www.moneysavingexpert.com/banking/
I speak as an ex Bank Manager and ex Financial Adviser.
I should also warn you shouldn't take financial advice from a football message board.
All the best.
There's been some excellent advice on this thread, especially the bloke who mentioned the South Sea Company. On the strength of that advice I've invested everything and I'm now preparing to count all my lovely profit.
On no account should you invest the money,
At this stage it just seems prudent to stick with what I have and look at my options further in the new tax year and once I'm back in work.
Thanks for your input all.
The ISA limit increases to £20K in the new tax year, so there's no need to rush.
http://www.moneysupermarket.com/isas/isa-allowance/
I had the 6 or so grand in there before I left for travelling and intend to keep it in there for the time being. I'm well aware that it's important to see the ISA as a long term investment and although there's easy access, not to use it as something to draw from unless in exceptional circumstances.
I'm 39 next week so only have this year to take it up and was thinking of using it as a fairly risk free pension top up. Could potentially save £50k plus over the next 10 years including the government top up.
If I were under 40 years I would probably use it as long as you can afford to.
I went with the same amount in three companies,Ratesetter, Zopa and Funding Circle. The latter is the one that lends to businesses, and therefore provides higher rates of return.
It's interesting that in some form, all three companies have said that they are changing the way they lend. Ratesetter sent out a moderately alarming email that they had "intervened with some borrowers" and as a result of what they disclosed (pretty frankly) offered customers that we could review our investments and if we wished, withdraw from Ratesetter immediately with no termination charge. Since Ratesetter offered fixed term lending, and my term was almost up anyway, I decided to hang on, not least because a £100 loyalty bonus was at stake. Zopa are, for reasons I find a bit opaque, changing their two less risky accounts to a new one which does not come with their Safeguard protection. Frankly, I don't like the look of this, and there is something else with Zopa which I will come to. Funding Circle announce that they are withdrawing from lending to borrowers in the property market. They explain this only as a return to their core market. I guess though that they see the property market as overheating.
As for the returns. Both Ratesetter and Zopa should deliver me around 3.8% -but if I add in Ratesetter's one -off bonus the return rises to 5.8% , while Funding Circle will deliver around 6.7%. Well that is very satisfactory, given that these funds were previously in a bank deposit account that cannot get near 1%.
However, what next? What I have discovered is that in only one of the three cases can I exit completely now, without a fee which would effectively reduce those returns. That exception is Ratesetter. Funding Circle might cost me 0.25%, which is OK, but Zopa is another matter. Basically I would be charged 1% if I said, give me my money back now. There is an alternative which is to wait while the existing loans are paid off but that can be up to five years!
Then, overhanging it all are the recent warning from authoritative sources that there are signs of dangerous over-lending to consumers, returning. This was last seen prior to the 2008 crash. Have we learnt nothing?
Right now I am inclined to decide to exit Zopa, slowly for now, but go again with Ratesetter and continue with Funding Circle. Maybe take the Zopa money somewhere safer, in the light of the warnings about consumer debt. Or possibly divert the money to Funding Circle. It is easy to have night mares about losing your money, but anyone who invests in equity based stocks now is doing so with markets some 20% higher than they were before Brexit, so it seems to me that if you invest there now, you are more likely to lose than gain anything over a 1 year horizon anyway. That said I have been waiting in cash for the post Brexit market crash for over a year, and it hasn't come.
What do you reckon?
You may make say 5% instead of 1 %, but if you lose your capital, you're a lot worse off.
I wouldn't fancy a 5% b soc return if not covered by FSCS, unless we're talking about such small sums, it's neither here nor there. I'm sure plenty would feel the opposite.
In about 5 years I only had 14 defaults which considering I must have lent on 5,000 loans isn't bad at all.
Annualised overall I'm at about 7% P.A. Before compound.
Still in Funding Circle although haven't lent new for about 18 months as I like to do a lot of vetting. No defaults and about 9% return.
I don't know what you have in Zopa but I'd let your book run off and not reinvest. If you have the time funding circle is still worth doing as part of a balanced portfolio. I've sold some loans on at times, it needs actively managing.
Buggered if I know. That's why I am asking...
Goes without saying but choose a diverse set of funds and watch the exchange rates if US/Euro etc. A lot of my profit the last two years was partly on the dollar v pound.
FWIW my best performing funds have been ;
L&G US Index Index Trust (average 20%+ return PA for the last 5 years, lowest 11.23% highest 24.43%)
BNY Mellon long term global equity Institutional
Fidelity UK Select Fund
L&G Global Health & Pharmaceutical (averaged about 20% P.A. last 5 years)
L&G Global Technology index (been huge profit the last 12 months)
L&G international Index Trust (average about 14% PA last 4 years)
Vanguard US Equity Index (again has averaged around 20% per annum last 5 years).
Worst has been Fidelity Multi Asset Allocator Strategic Fund but even that has exceeded 6% P.A. for the past 5 years so still good.
Like everything finance/investment related, many eggs in many baskets is the order of the day.
Of course your overall advice is very sound, but as I've said in other political threads, the gap between UK inflation and bank savings interest is wide in a way that I cannot remember having a precedent, and that's a huge issue which I am surprised more of us are not troubled by. And that's why I've had a go with P2P.
I don't have many bond/gilt holdings, my main one in my pension is M&G Global Macro Bond Fund and is up 6% Jul 16 to Jun 17 (was over 20% up Jul 15 to Jun 16), which is nearly double the Morning Star category so you're probably right re the 2ish%.
I think the next 12 months will be interesting, I think it's still conceivable to get double digit returns on your pension/investments but you need to be actively managing it and be brave!
I am 55 next year and intend drawing a pension from my pot so my wife can retire whilst I work for maybe another five years. I know what I want from my pension pot and how much it can provide us with annually and for how long. I don't intend risking my retirement plans in any way.
So I instructed Investec that I wanted my funds to be invested conservatively. Effectively as long as my investments make enough each year to cover the charges I'm happy. That way I know my money is safe and that our retirement can go as planned and we can be financially secure. Of course if it does do well and my pot increases in value then happy days. Ten months in, after charges, my pot has increased by about 5% so yes I'm very happy.
I understand some people would say that I could take a bit more risk and it'll be ok but there is that risk. I don't want to be greedy, I'm lucky, very lucky, with the amount I have invested and I don't intend to jeopardise it at all.
Comments from those with obvious knowledge of these issues would be appreciated.
Yes the stockmarkets have done well over the past few years & the FTSE & The Dow Jones are both close to their all time highs - does this mean that they are close to a fall (or a slight correction)......who knows. As you say, you could it on the sidelines & wait...& wait....& wait - and all the time the markets are still going up. There will probably be a downturn at some point, but if you have a well rounded portfolio then the losses should be reduced - maybe 10%, 15% if things go a bit wonky, but over time these losses will be made up (and some)
If you are not didinvesting your whole pot next year why is the value of your pot next year relevant? Your capital will always be volatile, and that is not an issue if your reduced capital generates a higher return to maintain the income drawdown stream. If I have £1m and interest rates are 5% I am happy with my income of £50k a year, I am rich. If interest rates are 1% I am poor living on 10k a year when actually I needed to have £5 capital to maintain my living standards. You are effectively saying all I am worried about is my nominal balance sheet value and I don't care about my return on capital.
The reality is that you are facing market risk, interest rate risk, living too long and the risk of your circumstances changing. There is no single magic investment strategy that covers off these risks. The compromise is a balanced diversified approach weighted according to the best guess you make about how your life and financial needs pan out over the future. There are strategies to cover them all but not one covering all at the same time and you ideally have a mixture tailored to your objectives.
The problem is that advice does not come cheap if you want professional support, it needs to be ongoing and the right advisers are not easy to identify.
Many senior execs are baling out of their final salary pension schemes and companies are funding advice running into the tens of £thousands per executive.
I think they have an essential role in any diversified portfolio and are an underappreciated asset class.
If your wife is retiring (and dependent on her circumstances) it may be worth considering when you start drawing your pension if you can afford to paying £2880 a year into a SIPP for your wife with that money as you'll get tax relief all over again (20%).
Over 5 years you'll pay in 14,400 but the government will top that up to £18k.
I believe also you can (if doing draw down) still pay in up to £10k per annum (assuming you still work and earn that amount). So depending on your tax rate in theory (say you are a 20% tax payer) you could draw down £10k and put back in £8k which gets topped back up to £10k leaving you with £2k and your pension pot remains the same. Might be worth seeing an advisor on that to see what you can do to maximise your pension.
@newyorkaddick TIPS can be useful for inflation but you need to be careful with interest rates as you mention which in today's low interest rate environment is probably why a lot of people don't make use of them.