I earn 10.25% interest, is this good?

Jonbvn

thor wrote: »

What is naive, is thinking that shares are any less riskier than zopa.

It is impossible to make such sweeping statements. There are low risk investments in S&S and very high risk options on ZOPA such as listings. As an example, I had a lot of money in absolute funds during the rocky patch. They mostly did what it said on the tin.

I think it best if you stuck to your 0.1% passbook accounts.

TechnoBadger

Zopa was on BBC1's The One Show last week:

http://www.bbc.co.uk/iplayer/episode/b00s5gd0/The_One_Show_23_04_2010/

scroll down to around 23 minutes into the programme.

jamesd

thor wrote: »

Who can really trust company reports and forecasts these days?

What do you make of a company that:

1. Removed a guarantee of 10% repayment even if it's investments failed. But didn't bother telling people about it for eight or nine months after it knew it was happening, so people still thought they were getting that protection when they weren't.

2. Removed that protection even for investments that had already been made, retrospectively reducing their expected value at a stroke.

3. Simply stopped saying that various investments were failing and didn't tell anyone about it for months, until asked directly in public why it appeared it was no longer happening.

4. Tells you that your expected investment return is higher than it really is, if you're a tax payer.

5. For years tells people that losses are tax deductible, when they aren't. Then learns better. [STRIKE]But a year later still hasn't told most investors about it.[/STRIKE] But took a long time to tell investors about it and still uses calculations that show them as tax deductible.

How much of your money will you trust a company that does those things with? I like the concept of the company involved but those actions and inactions have greatly decreased my level of trust.

To answer TheProdigalSon, 10.25% isn't great. You can get 8-12% tax free from many funds in a S&S ISA. Or if you use Zopa you could try to match the over 14% before fee, tax and bad debt allowance that my existing active loans are paying.

It would be very foolish indeed to put all of any investment pot into an unregulated investment with no FSCS protection like Zopa. It's fine for the 5% or so of an investment pot that's about the maximum per investment that is prudent for unregulated investments without FSCS protection. It's still not going to come close to the more than 40% I made on £25,000 that I nearly lent out at Zopa last year. It's a good time to be buying equities, near the start of an economic recovery with several years of likely good equity gains to be had.

elbe

jamesd wrote: »

I like the concept of the company involved but those actions and inactions have greatly decreased my level of trust.

.......... Or if you use Zopa you could try to match the over 14% before fee, tax and bad debt allowance that my existing active loans are paying.

........ It's still not going to come close to the more than 40% I made on £25,000 that I nearly lent out at Zopa last year.

But as you say you're still lending there Jamesd so the returns you're getting haven't decreased in line with your trust levels it seems! Oh, and as you're aware some of the instances you quote were outside the control of Zopa.

jamesd

elbe, Zopa is solely responsible for the major issue: not keeping investors properly informed. That's the primary trust decreasing factor for me because I have to assume that Zopa will continue to act in that way. Even more so because the tax treatment of bad debt disclosure (not deductible before tax) is an ongoing issue that is presented by Zopa every time a new lending offer is set up by anyone who pays tax.

An increase in risk level requires an increase in returns (or decrease in lending, or both). I've increased my minimum lending rates on average as a result in part of my decreased trust in Zopa, a systematic risk to all loans. That's had the effect of reducing total lent. If nothing really bad happens that'll increase my returns on money invested.

Just in case you don't know why it's such an issue, over the last couple of years one of the major subprime lenders ended up firing many of the senior management people for not following their own lending guidelines, leading to large losses. It's absolutely essential that Zopa is trustworthy enough not to do the same and actions and inactions like those above undermine the trust that this is so.

Zopa is unregulated for investment and that in itself means that a 5% cap on investment via it is sensible, even if its conduct was exemplary. How much below that to go is where the other factors start to be a factor. 5% is pretty high, above say the emerging markets percentage in many portfolio asset allocations, even though those have greater growth potential than Zopa lending.

elbe

jamesd wrote: »

. Even more so because the tax treatment of bad debt disclosure (not deductible before tax) is an ongoing issue that is presented by Zopa every time a new lending offer is set up by anyone who pays tax.
.

Jamesd, not sure when you last created a new offer but having just checked it's clearly stated that interest is paid gross and that bad debt cannot be offset against interest. So although it may have been an issue at one time I believe it now to have been rectified satisfactorily.

jamesd

elbe, thanks. To check I just used quick lend and said that I wanted an 8.0% rate of return. Just above that it says that returns are paid gross and bad debt losses cannot be offset against interest, which is welcome. When I click on next Zopa tells me that the expected return in the C36 market for a 12.70% loan is 8.0% after bad debt and 0.5% fee.

The actual expected return for a basic rate tax payer with 1% fee, after increasing the loan rate from 12.7% to 13.3% to allow for the 1% fee is:

13.2% - 1% Zopa fee = 12.2%
12.2% less basic rate tax = 9.76%
9.76% less 5.2% annualised bad debt allowance = 4.56%
4.56% grossed up = 5.7%

There's quite a difference between 8% and 5.7%. Or between 8% requested and 3.53% delivered for higher rate tax payers.

Zopa may be saying that the bad debt can't be set against interest but that's still what it's calculations are doing for everyone who is a tax payer.

So no, I don't think that Zopa is providing proper information. Being asked to set the values that will deliver 8% return, saying that 8% return will be delivered, but actually setting the rates to deliver 5.7% or 3.53% return is not the right thing to be doing.

Hopefully at least the mention that the bad debt can't be offset is a sign that Zopa is working to take care of this and use rates that will produce the requested return.

Though it'd be really nice if this whole mess went away, with a tax treatment that is more fair than the current one.

elbe

jamesd wrote: »

Hopefully at least the mention that the bad debt can't be offset is a sign that Zopa is working to take care of this and use rates that will produce the requested return.

Though it'd be really nice if this whole mess went away, with a tax treatment that is more fair than the current one.

jamesd, I believe it's an individuals responsiblity to adjust accordingly for their personal tax liability. Zopa, as you say, make it clear that the return is paid gross etc. Hear hear re the tax treatment issue.

As an aside I also have shares in Emerging Markets, which as you say above have greater growth potential. I view Zopa as a far lower risk investment in comparison to my Emerging Market shares. I also have a balance of 'safe' savings in my portfolio to level my overall risk exposure.

jamesd

Elbe, for the income tax gross treatment I agree it's the individual's responsibility when it comes to taxation of interest after bad debt and fee. Where I disagree is when you ask Zopa for 8% return after fee and bad debt allowance and where Zopa tells you that's what you'll get. I don't think it's adequate to just ignore the tax treatment of bad debt and give expected returns that Zopa knows are too high for almost every investor if the bad debt allowance is hit.

I also have a lot invested in emerging markets and natural resources investment types. Zopa is interesting in comparison with them when it comes to risks, because the risks are of different types.

At the moment for Zopa a lot of my risk component is from the past and current actions of Zopa itself, effectively the management company and its management, rather than the underlying investments. For emerging markets its the other way around, with (usually) decently regulated investment companies, money held in trust and FSCS protection. But even so you can lose a lot of money in cases like say the New Star Heart of Africa Fund where investors were made forced sellers at the bottom of the market.