Welcome to P2Pblog.co.uk: first hand experiences from an avid private investor. I’ve been actively investing my savings in the stock market over the last 5 years. Recent events and uncertainty over the future post-brexit economy have made me re-examine my investment choices and look at the emerging opportunities in P2P/’P2X’ investing. I’m starting this blog with a view to provide hard numbers and experiences for others interested in P2P lending.
A Difficult Economic Environment for Savers
It would take a massive economic shock to stop the Bank of England cutting interest rates from 0.5% to 0.25%. Retail banks have responded in turn by offering very little return on savings accounts, RBS/Natwest going so far as threatening to charge their business customers to hold cash deposits. Until recently a relative shining light was simultaneously using special incentives offered on small cash amounts from a number of banks. For example, TSB offered 5% up to £2k, Lloyds 4% on £5k and Santander 3% up to £20k. A couple could spread their savings across many of these offers and have a reasonable return safely protected under the £75,000 FSCS guarantee. Compared to an average of 0.3% offered across all savings accounts, bonus rates of 3% to 5% look appealing. However, the future of these too are uncertain, with Santander already in plans to cut their bonus rate to 2%.
For those of us willing to step outside the FCSC protection and seek higher returns for a degree of risk, many options are now also under pressure. As we know, government bonds/gilts are paying at all-time lows, and high quality corporate debt is also priced at a premium. Meanwhile, companies are sitting on record levels of cash with cautious enthusiasm to invest their money into growth. Large trustworthy businesses are able to borrow so cheaply and easily. Retail savers, turned off by low rates in cash, bonds and gilts are left searching for returns in the stock market and property. I am worried that both these asset classes have become inflated and can no longer match their historical returns.
My Investment History
After all platform and management fees, over the last 5 years I’ve achieved a weighted average of 9% annual return from investing through my stocks and shares ISA, before inflation. The yearly breakdown after fees is as follows:
*The FTSE100 and FTSE250 total returns are just included as a guideline, 6 months ahead of my personal portfolio.
**My weighted average return of 9% is higher than the simple average as I added more money in later years.
My investing strategy evolved over the period above. At first I bought individual stocks that I thought would do well, but after some disproportionate losses I realised the best strategy was a widely diversified portfolio of funds at the lowest possible charges. With funds you can re-balance portfolio weightings every few months with minimal trading charges.
Also included in the returns shown above was a massive upturn following Brexit. Following the result, as I had many funds holding US and Asian stocks these rose directly from the falling pound. As we know the FTSE 100, with most companies selling internationally, similarly rose through the implications of currency movements.
Going forward, with a strategy of diversifying across local and international markets through low cost ETFs and funds, I’d expect my returns to be about 6-8% after inflation. This is what I’m aiming to beat with P2P.
My P2P Investment Strategy
Short term plan:
- Invest in a wide range of P2P platforms (around 20) to understand how they work, their pros and cons.
- Take advantage of all the cashback offers, about £500 in total from the most well known platforms.
- At this stage prefer investment options that offer an easy withdrawal, even at lower rates.
Long term plan:
- Whittle the list of platforms down to less than 5 that need to be actively managed.
- If some managed platforms like BondMason, or ‘fire and forget’ options like Assetz Capital deliver a similar return then put a larger weighting in these and have just 1 or 2 actively managed platforms.
- Wait and see on what happens with the Innovative Finance ISA. Perhaps widespread adoption will drive down rates, or perhaps there will be additional rules on choosing a particular platform/ set of platforms.