Funding Circle (P2P Investments) & Investments (2013 edition)

[cptwhite_uk]

I've come to a point on my life where it's time to start considering some serious saving. With the house paid for, wedding and house extension done we're in the fortunate position of still being fairly young with low out-goings. I've done some small amount of research of my options and ended up giving one of the crowd funding websites a go - Funding Circle.

I invested a reasonable stake from my savings, not enough that it was make any noticable dent should I loose everything, but enough to pip my interest and make it worth my time to monitor it's progress.

The three main players in this area are Zopa, Ratesetter and Funding Circle. I opted for Funding Circle for a few reasons:

• It offers better rates typically than the other two
• It offers manual or automatic bidding (automatic bidding is based on parameters you define)
• Unlike the others if offers a range of risk vs return so you have more control over how exposed you are and your estimated interest rate
• Using loan sales (you can sell your loans to other investors) you can "cash out" of the sytem and (in theory*) retrieve your money at short notice unlike Zopa and Ratesetter which require you to lock away your money for a guaranteed interest rate (similar to a fixed rate bond, but typically with a better interest rate).

* This assumes others buy your loan parts, which in practise I've heard users report they typically sell within 24 hours.

While it takes a while to get your head around the system initially, now I fully understand it it's quite flexible, the website is very easy to navigate and the statistics (your account summary) give a very useful summary of your current status (amount invested, amount in your "pool" to invest, amount of interest earnt etc.)

The one thing which is new to me is the fact you need to fill in a self assessment tax return (by the end January following the previous tax year) So for this tax year for example (which ends 5th April 2014) the tax return needs completing by 31st January 2015.

The website does provide a statement for tax purposes, so you don't need to work the figures out manually at least.

As a guide line I should hopefully see a return of 5.5-6% Compare this to your bank or building society which is typically offering 0.5-2.5% on ISAs and Fixed term savings and it's a favourable rate, for a little risk. With a little luck it might even be higher, I've heard of people averaging 9% once you're savvy with the system.

Zopa are offering 5.6% for 5 year fixed term, and ratesetter are offering 4.6%, although I'm not sure what the terms are for that.

So is anyone else testing the waters, or diving into these kind of propositions for better returns on their savings? I'd be interested to read others experiences.

[TheAnimus]

A friend of mine has used:
http://www.kiva.org/
With good results.

But investment isn't easy, there are risks that people giving the advice will always be unaware of. But the internet powered microfinance options are really interesting.

If you are looking at small business ventures, remember, cash flow is king. A business that is ticking over at just enough to pay the founder (ie making profit of say £20k gbp for UK firm) is a much, much better bet, than a firm which doesn't have positive cash flow!

[Moby-Dick]

I actually used a Zopa loan to buy a car a while back - was pretty impressed. For now my spare cash is going towards a house deposit but I can see the attraction of putting a little bit of it away.

[mcmiller]

This sounds very interesting, can you explain the whole process it to me like im a 5 year old or point me in the right direction?

[TheAnimus]

Traditionally, you give your money to a bank. They give you a crap rate of interest, but are underwritten by the government for up to £100k of savings. This means you won't loose the money short of the government collapsing (or Greece / Cyprus where the government showed it was willing to take some!).

The bank takes your money and sells it on markets, people who want money bid for it, depending on how risky they are, the more they pay to borrow. The bank ensures you always make at least say 0.5%, but the bank could make 10% on that (or it could even loose money!).

Micro Finance is about you taking a more direct look at what you are investing in.

Some are considered charitable, aimed at developing areas or empowering people who are normally excluded (women). The idea is you decide directly who the recipient is, rather than having money markets (money is often re-sold many times between different institutes before it is 'invested' in something, this isn't actually a bad thing).

It allows you to decide yeah this guy, he has a good plan for his business, I'll take a punt on him. as a result you will get a higher rate of interest than a bank will give you on the whole. However it is much more risky. As they say, risk is reward.

However some people think of this as great because it is anti-money market, anti-big capitalism and other first year at uni / guardian grade logic. The fact is a farmer in Calcutta will spend the money on something which is purchased from someone else, which in turn purchases something from someone else...... It's a long cycle of helping people.

Micro-finance is another way of taking more direct interest in where your money is going straight too. Just like investing in stocks and shares yourself, but it has the advantage of being people focused.

Myself I run about 2% of my savings on it. I have made returns of about 4% relatively low risk. Compared to my leveraged stock market investing on indices, which has made about 15x return and blown up

[cptwhite_uk]

I could try, but given I'm pretty new to it myself I'm liable to miss important information. It's probably better you go to the website yourself and read around the subject online but in terms of how it works practically it's like this:

1) You transfer some cash into your 'Funding Circle' virtual cash pot, much like buying something online with your bank card
2) You lend part of your pot (typically 1% to spread the risk of bad loans over a minimum of 100 borrowers) to people requesting a load (loan requests page) or other investors selling their already bought loans (loan parts page).

Note you are not buying a full loan outright, think of it as part buying into a loan, like a kickstarter campaign. You offer £20 towards to the total (for example) for a fixed interest rate. The borrower can accept or decline your bid. Borrowers are credit rated A+ to C-, the difference being each category has an aggregated risk of the borrower defaulting on their loans. A+ is only 0.6% chance, C- is around 5% chance. So on average if all 100 loans you made were in the C- category rating, you should expect to see around 5 of them go bad and loose your money, 95 would be fine. You go for a mix of grades as the lower greater offer higher interest rates on your loan, more risk = better reward.

3) You either set the system to bid on loans for you (AutoBid) which is a feature of the site, or you manually select loans yourself. You're given the company name, their recent credit scores, and a bit of background about the business, where they're located etc. AutoBid allows you specify minimum interest rates you want for various Credit grades, for example 6% for A+, 7% for A, 8.5% for B, 10% for C, and 11.5% for C- for example.

4) The website takes a 1% cut on the interest, and some other fees for providing the service

5) When you want to "sell up" you put your part loans up for sale for others to buy, and your "cash pot" then fills up. Once you no longer have any live investments you can transfer the cash back to a regular bank.

http://www.youtube.com/watch?v=bpD4d...=TLlqcJ3mAdU64

[Moby-Dick]

It sounds like a slightly more global version of the "bank of Dave" - akin to the german model for Local banks. both of which I would feel relativly comfortable putting some money into.

[wasabi]

Interesting - heard of these things but not tried in anger. Currently have most of my savings in stocks and shares ISAs across a fairly broad portfolio. Will need to check through the buying and selling fees - it might tempt me to take a punt if I can pop down a few hundred here and there to test the water.
With my ISA it costs me roughly £10 / transaction which is probably high but it is linked to my bank account which makes it easy to transfer in/out of investment account. Losing the tax protection of ISAs means I'd have to get a higher return rate.

[mcmiller]

thanks. i think this warrants further investigation and perhaps a bit babbling with a few hundred quid

[TheAnimus]

That probably is the best way to do it. Set aside some dosh you don't mind loosing as a learning experience.

[mcmiller]

Has anyone tried investing in http://www.nakedwines.com apparently they offer a 7% return or 10% in wine return..

[herulach]

Has anyone tried investing in http://www.nakedwines.com apparently they offer a 7% return or 10% in wine return..

Wine as an asset class is frankly a mugs game, just like Art or anything similar. If you're a millionaire buying some wine to stick in a cellar might make a return, but it probably won't.

[TheAnimus]

Wine is exempt from CGT. This makes it rather attractive business, if you are the company providing the cellarage fees !