I want more

jimbotot

Thanks for all the advise, I have decided that an IFA is not the route, so maybe Stocks and shares ?????

How do I go about building a portfolio

Jim

harrys_dad

All investment is about the balance between risk and reward. The greater the reward (interest) the higher the risk (of losing some or all of your capital). Only you can decide where that balance lies. What is not possible at present is to get higher interest rates or reward (>3% as you ask for) without risking your capital. If you could we would all do it.

grizzly1911

jimbotot wrote: »

Thanks for all the advise, I have decided that an IFA is not the route, so maybe Stocks and shares ?????

How do I go about building a portfolio

Jim

read these:-
Tim Hale - Smarter Investing, summarised in Slow & Steady Steps from Debt To wealth, John Hutton and also Monkey with a Pin, Why you may be missing 6%.. - Pete Comley.

Have a look here monevator.com too.

merlingrey

quotememiserable wrote: »

...although that's a mother of a big difference.

True but there is no collateral, so the rating is all junk.

Each borrower has a rating but even if it is A,B or C does not matter, it's just different types of junk.

Zopa is one big collective junk bond, but you do not even get junk rates it's like 5%.

For junk i want 12-15%

edit: i remember zopa paying 12% about 6 yrs back so the fact it is now 5% (in a more risky environment) suggests defaults are increasing.

bowlhead99

merlingrey wrote: »

Each borrower has a rating but even if it is A,B or C does not matter, it's just different types of junk.

Zopa is one big collective junk bond, but you do not even get junk rates it's like 5%.

For junk i want 12-15%

This is true. My Lloyds irredeemable pref shares have gone up hugely in value in last couple of years since it became clear they were going to start paying again but even at current prices are still paying me a yield of 7.5-8% p.a. in nice 6-monthly chunks. Now granted it's eggs-in-one-basket and is not even a junk bond - the divi ranks below bondholders and could get pulled temporarily in a catastrophe as it has before - but the basket holding my few thousand eggs has an equity market capitalization of 40 billion or so, and the pref holders get their money back before any equity shareholder (both in terms of periodic dividends, and on a winding up which I'm hoping never to see).

5% for unsecured personal loans to individuals over 5 years, with no FSCS protection and a 'Safeguard' which is "not a guarantee or insurance product, just good sense for savers" is just not cutting it for me. Quality of the underlying assets is poor, and you are still taking a punt on the continuing existence of Zopa and the adequacy of their bad debts reserve, so to an extent it's eggs in one basket despite the underlying spread of risk amongst individual borrowers.

And I'd wager their pockets are less deep than Lloyds - while the Lloyds product of my choosing is paying twice the premium over a savings account, vs Zopa's 5%, and therefore could afford to miss a couple of years' divis and still be in the money over 5 years.

In this low interest environment, high street lenders like the Derbyshire, Sainsbury Bank, Tesco Bank or Nationwide will give their most reliable customers, or new customers with a great credit score, a loan of 7.5-15k at 5%, 5%, 5.1% or 5.9% respectively. At least according to their representative rates advertised on their own websites and here. With Zopa, borrowing 12k over 3 years costs 6.2% representative. Why would people be seeking out a less mainstream "peer to peer" option to borrow if they were a good enough risk to borrow at <6% with Nationwide or Tesco?

My concern would be that the people applying are not of the credit quality to get the best high street rates, and are probably not the best home for my cash. Nationwide lends to its most valuable customers at 5.9% and spreads risk over hundreds of thousands of loans to keep bad debts manageable. If I lend to less safe customers, through this one company, and perhaps only 200 underlying customers for a 2k deposit, what should I seek as my return? Something a lot more than 5%, I'd say.

Oh and I have to pay tax on this and can't hold it in an ISA or pension tax free? Well that's just great. Excuse me while I go away and think long and hard about it.

Nope.

pqrdef

Lloyds is 40% owned by a single shareholder which might choose to dump at any time, for all the wrong reasons. It's got the consumer regulators all over it for mis-selling, and the prudential regulators all over it as well. And the EU. It's being forced to give away 1/3 of its retail business at any price. And its accounts are a fiction.

By any normal standards its impossible to value Lloyds. If the LSE was doing its job and running a proper market, Lloyds shares would have been suspended. Which could still happen.

bowlhead99

That's fair comment, and why the Lloyds equity shares are a lot more speculative and volatile than the preference shares I hold.

But personally I feel that the millions-strong customer base of the reduced retail business once TSB is cashed in will continue to sustain it; the mis-selling that was endemic in the industry some time back is well known and the corrective costs provided for; the government holding of 40% equity (equity ranking behind prefs) means that it will continue to get support of some sort due to the embarassment factor of allowing the equities to collapse. Of course, further govt support and the fallout from it (dilution and covenants) could damage my interests.

This is why those particular shares are only a portion, not the entirety, of the fixed income component of my portfolios. They were a lot more attractive at 9%, 10%+ last year than 7.7% now, and if the yield fell a lot further I'd be out. Of course they're risky, and this isn't a sales pitch - but at twice the yield premium over a cash ISA than I'd get from unsecured lending at Zopa, I'm more comfortable with these than a book of p2p loans. Others might have quite different views of course.

A key observation is that these pref shares, along with other traditional fixed income stuff like holdings of corporate bonds or bond funds or even non fixed income like reliable dividend paying equities, are valued by the market, daily. LLPC yields 7.5-8% because the range of views which make up the market say that it should. Tens of thousands of market professionals acting on behalf of institutional portfolios, as well as minnows such as myself can decide daily if they want it at this price and as such it probably approaches fair value for what it is, in terms of risk and yield.

By contrast, the return from Zopa is the price offered to largely retail customers looking to beat a headline cash savings rate. There is a supply and demand element to it but the yield is driven by what they can get mug punters to bear and not what the aforementioned tens of thousands of market professionals think the debt is worth given the risk involved. You can get 2.5% from Nationwide with FSCS protection, or 2.25% from National Savings with a cast iron guarantee, inside an ISA. 2.5% net corresponds to nearly 4.2% pre-tax for a 40% taxpayer or more for a payer of higher marginal rates (big earner or tricky tax band). If you're willing to take risk, you can get income funds within S&S ISAs yielding quite a bit higher.

So ~5% pre tax for a junk bond collateralised on unsecured personal lending to less than top tier creditworthy individuals is just not enough IMHO. Yes it's double the headline rate of some banks. But it's not the same product and for serious sums being risked should be compared against other investment opportunities and not savings opportunities.

atush

jimbotot wrote: »

Thanks for all the advise, I have decided that an IFA is not the route, so maybe Stocks and shares ?????

How do I go about building a portfolio

Jim

Don't go for stocks and shares when you are just starting out, go with funds instead. Higher diversification, and lower risk than single shares.

There are some good articles on the net about portfolio building, let google be your friend. Look for Motley Fool and moneyvator.