Tuesday, 13 October 2015

(I don't have much money to invest) investment portfolio part 1 - Peer to Peer lending

The fact is that interest rates are not great at the moment and it really doesn't encourage me to save.  With rates at an ongoing all time low and the banks tightening up their lending criteria an opening has arisen over the last few years for an all new investment type.

What I am getting to is peer to peer lending, in a nutshell it is you or me, lending to an individual or company that need to borrow some money.  This method of investment is not protected by the financial services compensation scheme in the same way as most bank accounts and it involves risk.  Be aware you can lose money.  To explain the pros and cons there are a miriad of guides but click HERE for a simple concise guide.

This post is not to advocate peer to peer lending but to show how things are going for me.  As my main priority is overpayments on the mortgage my 'investments' are limited, with little scope to change this any time soon.  I am looking at alternative investments to a regular savings account or cash ISA and peer to peer lending was my first step on this path.  I was looking for somewhere to invest longer term with a view to bring part of our long term savings/investments plan.  

Okay,  so I have set the scene, last December (2014) I decided to dip my toe into peer to peer.  I chose Funding Circle on 'moral' grounds.   In this financial climate where is it forever more difficult for small businesses to get funding I feel that Funding Circle (FC) is a real benefit to some businesses.  I took a look at the site it is easy to use and didn't require a big investment.  I was in!

So I check my account and I can spare £200. With FC you can lend any amount from £20 on any loan you would like to bid on, with a minimum investment of £100.  I was happy to bid on 10 loans at the minimum investing of £20 to diversify my investment and spread my risk.  

FC has an autobid feature that automatically bids on the loans that fit a criteria that you select.  Initially I used this then worked out with some effort that for small investments such as mine a superior interest rate can be achieved by bidding manually myself.  FC are changing over the next month to fixed percentage loans which is morally better but not as much fun for me as I liked to try and get within 0.1 to 0.2 percent of the highest rate paid off the loan.  (Autobid always pays the lowest rate). 

Anyhow, how has my £200 investment gone.  The following has happened since December.

No loans have defaulted so far.  I have 100% of my expected repayments made although this is only so far.  You do need to factor in that some loans will end up defaulting, it's inevitable.  

I referred someone to FC so recieved a very generous £50 in July 2015 from FC to invest and made bids using this money.  

I added an additional £100 recently (September 2015) and have bidded on an additional 5 loans.

I have reinvested all the capital and interest recieved to date in additional loans.

The scores on the door as of today are

I have investments in 16 loans totalling £298.73

I am bidding on 3 loans totalling £60

I have £3.34 available funds which I am building up to £20 for my next investment.  

I have paid £1.35 in fees

My total held in FC is £362.07 thus a 'profit' of £12.07 after fees if you don't take into account the referral bonus.  Which according to the FC website is a gross yeald of 9.5%

As its newly added I won't include the additional £100 investment so if you had £200 in a savings account with a really good interest rate you could be expecting to have achieved about £7.50 in interest in this period of time.  That makes my £12 look really quite good.  If you had many thousands to invest and were a bit of a risk taker, this could certainly look like an attractive option.

To follow this theme I am going to also let you know about my (very small) investment in a stocks and shares ISA and premium bonds.  That is though for another post.  

Finally when I've given you the low down on my mini (I don't have much money to invest)

investment 'portfolio' I will write the odd post to give an update on progress and their net worth!  Fingers crossed they do well!
Z
Find out more about Funding Circle at www.fundingcircle.com

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