Low Risk - 5% or more return?

N1AK

Roland_Flagg wrote: »

I've tried peer-to-peer before (zopa) but found it confusing and had a lot of defaulters.

P2P lending like Zopa definitely isn't lowest risk, however both Zopa and Ratesetter have mechanisms to protect investors from defaults now.

lozzy1965

bowlhead99 wrote: »

True but often the ones that appear to be paying higher percentage dividends can turn out to not be sustainable in the long term. Take Morrisons for example, if they cut the dividend to reflect their declining profit that will not be great news for you getting a continuing 5% on your original investment, nor for your capital position until they hopefully get back on track in the future.

So, as you say, normal stock market warnings apply. Selection of stocks (and some would say a good dose of luck) is key. The total value of an investment in the FTSE 100 (i.e. total return including dividends) in December 1999 had declined 30% by the bottom of the credit crunch in March 2009. The dividends are very handy because the pure index value had fallen 50% (!)

So, whether you are looking at 1.5 years from Oct '07 or the 2.25 years from Dec 1999 or the 9.25 years from Dec 1999 there can be some intimidating losses on a basket weighted to the largest and most 'blue chip' FTSE stocks and you have to be able to hang on during the years that follow to wait for a recovery. With a smaller basket of stocks personally cherry picked, you are less likely to get the 'average' loss but you could do even worse.

Or you have to be able to avoid the stocks that don't hold their value. If you had picked a nice high yielding dividend-paying stock like Lloyds Banking Group in 2007/8, you might have been somewhat disappointed to see the price go from 500p to 20p.

What you say is of course true, but just to redress the balance a little, there are many more examples of companies paying sustained dividends, and maintaining or increasing their share price, than those that fall flat on their faces. On average, over time, the stock market out performs other investments, and the op was prepared to lock their money away for 5 years, and is looking for income. It can all go horribly wrong, but to get 5%+ income, one must take some risk, I happen to think a high yield portfolio gives the best chance of 5%+ income with the lowest risk, with proper diversification. Cue a stock market crash...:)