Friday 22 January 2016

Thinking About The Future.

I’ve always been of the opinion that reading the news doesn’t do much for one’s happiness. For me, there are better things to do than immerse yourself into all that’s wrong in the world. Then again, it’s also a bit of a fine line between that and staying in touch with daily developments that are relevant to yourself as an individual.
Having kept half an eye on the many disconcerting things that have happened already in 2016, it’s hard not to be anxious over the long-term security of my child, particularly from a financial perspective. All the talk of a crash as a result of oil prices and China is rather doomsday, and I’m left wondering what we can do with the little bit of money we have saved to make it count.
Interest rates on savings accounts and ISAs have been shockingly low for so long now, but the prospect of taking it out and piling it into investments – something I don’t know a lot about, and a realm which appears to be on shaky ground to say the least – isn’t all that appealing.
It was in this malaise that I stumbled upon a different kind of investing known as peer-to-peer, or P2P lending. I hadn’t heard of it before, but it’s a simple yet very clever concept involving orchestrating a transaction whereby a person who has extra money in the bank which they are willing to lend is matched up with those who need a loan.
The incentive for the participants? Because of the efficiency of the transaction, there is good value generated, and for a lender this means annual returns of 5 or 6%, depending how long you’re willing to lend for. Either way, certainly a tremendous improvement on rates offered by the banks. 
How safe is peer-to-peer lending?
It isn’t without its risks, of course. As you can imagine, the biggest threat is borrowers not repaying their debt, and, unlike money in the bank, any lender capital losses are not covered by the Financial Services Compensation Scheme.
But the more reputable platforms have ways to counter this; either as a result of regulation and/or voluntary action in order to put their lenders minds at ease. In addition to diversifying a lender’s capital across multiple borrowers, it is mandatory for platforms to have a segregated reserve fund, topped up as a percentage of incoming lender capital, to cover any arrears or defaults on borrower repayments. There is also typically strict criteria in terms of approving loan applicants, meaning only those with good credit scores crack the nod.
One platform in particular – Lending Works - has taken safety to another level, offering an insurance against borrower default for reasons including fraud, cybercrime, accident, illness, death and unemployment. It all reflects in industry figures, with no lender having lost a penny through any of the major platforms since the advent of the reserve fund in 2010.
I would be reluctant to plunder all our spare savings into this, but it is tempting to start off with a small amount to dip a toe in the water. Investing is very personal and subjective, and something like P2P lending may not work for everyone. But it is good to know that even in these volatile times with derisory interest rates, there are other decent options out there.
I'd love to know if anyone has gone down this route, after all it's time to start thinking about our futures.
Until next time, Jada x