Archive | October, 2015

P2P

19 Oct

What is P2P and can it form part of an Investment Plan?

In New Zealand in the 1990’s there was a little lending scheme run by some wealth management companies which allowed private investors to invest $500+ into privately lent money schemes. The money was normally secured against a farm or land development. Interest rates were high and paid on either a quarterly or six monthly basis. This was my first introduction to P2P lending.

In 2000 when I arrived in the UK this type of investment was not easily assessable. How times have changed. Lending was traditionally the domain of Banks and Building Societies. With the Great Recession in 2008 onwards Banks & Building Societies stopped lending and Peer-to-Peer (P2P) lending companies such as Zopa, Rate Setter, Thincats and Funding Circle became the norm.

P2P offered lenders, such as you and I, the chance to earn higher returns for lending small amounts of money. The maximum you could lend to one borrower was £10. Several lenders were needed to make up loans of £1000 for borrowers. You were paid interest each month on your money but you took the risk if the borrower failed to repay the loan.

Over recent years the main P2P Companies have introduced a repayment guarantee by putting aside money into a pot so if the borrower defaults your payment plus interest is guaranteed. You now have a very secure investment with interest guaranteed at a better rate than can be obtained through a bank.

Interest rates vary depending on a variety of reasons. Level of risk to the borrower. A* borrowers will be given loans around 3%. Higher risk borrowers could be up to 10%. Once the company’s management fee is deducted. Usually 1% there are still some good returns available for investors.

P2P investing fits nicely into a ‘Cashflow’ style Investment Plan. It provides regular monthly income which can easily be invested back into further loans simply by using the automatic invest option on your P2P account. This will increase your return on investment per year to greater than the advertised interest rate due to the compounding effect.

Regular automatic investment amounts can be set up with a standing order from your bank to your P2P lending account. The P2P company will immediately, upon receipt of your deposit, queue your money to be loaned to a customer on a first come first lent basis.

Once you are earning a reasonable income per month you can vary the amount reinvested and drawdown income as you require simply by removing the automatic invest option and manually allocating the amount to be reinvested.

If for any reason you find you need your money back quickly there are opportunities, with conditions, to resell the loans to other lenders and get your investment back.

Some SIPP (Self Invested Pension Plan) companies have their own P2P lending schemes which can be included in SIPPs. Watch out for the fees though as some have a minimum charge and a minimum investment per year requirement. Check the small print and if there is a repayment guarantee.

The government announced in last year’s budget that P2P would be available through ISA accounts. This has taken longer than anticipated to come into effect. As I write this I am not aware of any ISA opportunities. But things change on a daily basis so you never know how quickly this could be available.

P2P has come a long way since from the privately offered investments in the 1990’s to one which offers every individual the access to high return guaranteed investments on small investment amounts. Good compounding effect structure and guaranteed returns. What more can an investor ask for?

Karen Newton is an Entrepreneur, Investor, Author and Speaker.  For more information visit www.karennewton.co.uk

 

Advertisements

Yes, I Can ….

5 Oct

Investing is not only about making money it’s about continuous learning, personal development and over coming our fears.

On the weekend I was on a training course about identifying limiting beliefs and overcoming them. I was in a room of 50 very successful business owners, working in small groups to identify what they believed was holding each of them back from even greater success. To the outside world these people are the epitome of great entrepreneurs. Many of you reading this have the mindset and belief that you could never emulate them. Yet, here they were in the same room saying there are things they believed they could not do. Things that were holding them back from achieving more.  They were human just like you and me with the same doubts and disbelief.

Does that sound familiar to you?

When I speak to groups about investing I see doubts in their faces. The look that says ‘I could never do that.’ Or ‘I’m not clever enough to be an investor.’ The same doubt I had 15 years ago when starting on my journey to become an investor. I had no special qualifications, I didn’t know anything about investing. I even had the wrong image about what an investor was and what they did. But I had a dream of a lifestyle that I wanted. Investing became the vehicle that let me start building that lifestyle. So, I willingly put in the hours of learning and practicing to achieve my dream. I am no different from you in my skills or abilities except I was willing to give it a try. I was not clever at school. I left with few ‘O’ levels or GCSE’s as they are called today. I was just willing to give it a try.

In my latest book ‘Homebiz Millionaire – Building Lifestyle and Wealth’, I tell the story of wanting an apartment in a ski resort in the French Alps. How I worked out the costs of running such an apartment and then using the skills I’d learnt about investing found an investment that provided me with the income to afford the apartment.

In investing jargon, I used leverage to buy an income producing asset that offset the expenses of an asset liability. I’m sure if that was said to you it would be enough to put anyone off. But, in layman terms I bought a rental property using a mortgage. Once the mortgage is paid from the rent the money left over pays for my apartment in the Alps. Understand the language of investing and you are 90% of the way to becoming a successful investor.

What is holding you back from building your dream lifestyle?

There is nothing complicated about what I’ve done anyone can do it. There is nothing stopping you from doing the same except for you. Your perception of what investing is, how complicated it is, or if you have the skills and knowledge to do it. Investing is easy. We just have never been taught how to do it. Sadly, many of us don’t take the steps to learn. We see barriers and excuses for not doing the necessary things for success. When all we really need to do is look in the mirror and say ‘Yes, I can…