Purchased Life Annuity

jamesd

Yes, I'm also waiting until after the Budget to do my final planning.

You might look at some of the newer P2P players that offer higher rates. I rather like Ablrate and their 11% or so combined with the good security they have on the lending. Maybe not for the bulk but perhaps for £500 or so spread over the year.

TH1878

Boltonlass wrote: »

I am now looking at P2P, I am risk averse but it seems to me that the risk is acceptable and it will give me a monthly income on the £4250. I can afford to lose the capital if it comes to the worst case scenario.
My initial inclination is to spread it over the three main P2P companies, Zopa, Funding Circle and Ratesetter. I am happy to fix for as much as 5 years given that we will achieve a monthly income from it.
I don't normally fill in an annual tax return. Is that easy enough to do?

You are not risk averse if you are considering P2P. Or you are, and you don't understand the risks.

jamesd

P2P has risks but they are in general low compared to traditional investments, with most P2P having security or protection funds that will pay out if there is a default. Both Zopa and Ratesetter have protection funds that have so far not failed to protect lenders from defaults.

There is a lot of misunderstanding of P2P risks, though.

Boltonlass

TH1878 wrote: »

You are not risk averse if you are considering P2P. Or you are, and you don't understand the risks.

I believe I do understand what I'd be getting into, in fact I would never put my precious earned money anywhere without thoroughly researching it first. I understand that the p2p market is not protected in the same way as the banks etc but as Jamesd has said, there are insurances in place and a certain safety in numbers with a shared risk.
I have looked at a few of the newer players but reading their forums, there is an element of queuing your money before borrowers take the loan. Zopa and RS have established borrowers. I am also encouraged that the government have seen fit to invest in them and that they are looking at an ISA wrap for p2p.
I have reason to be risk averse. I spent a pretty restless night a few years ago over a certain Iceland bank where I had £35k invested, and I lost money in the tech bubble. I now work on the basis that I don't invest in anything other than a UK FCA protected institution unless I can afford to lose it.

TH1878

Boltonlass wrote: »

I believe I do understand what I'd be getting into, in fact I would never put my precious earned money anywhere without thoroughly researching it first. I understand that the p2p market is not protected in the same way as the banks etc but as Jamesd has said, there are insurances in place and a certain safety in numbers with a shared risk.
I have looked at a few of the newer players but reading their forums, there is an element of queuing your money before borrowers take the loan. Zopa and RS have established borrowers. I am also encouraged that the government have seen fit to invest in them and that they are looking at an ISA wrap for p2p.
I have reason to be risk averse. I spent a pretty restless night a few years ago over a certain Iceland bank where I had £35k invested, and I lost money in the tech bubble. I now work on the basis that I don't invest in anything other than a UK FCA protected institution unless I can afford to lose it.

So you understand some of the risks.

But you are still not risk averse and, to my eyes, look as though you're about to repeat previous mistakes.

TH1878

jamesd wrote: »

P2P has risks but they are in general low compared to traditional investments, with most P2P having security or protection funds that will pay out if there is a default. Both Zopa and Ratesetter have protection funds that have so far not failed to protect lenders from defaults.

There is a lot of misunderstanding of P2P risks, though.

I know that working in financial services can make you cynical but I've heard all this before so I have the below up on my wall.

Boltonlass

TH1878 wrote: »

So you understand some of the risks.

But you are still not risk averse and, to my eyes, look as though you're about to repeat previous mistakes.

Why, I have explained to you my understanding of the risks as I percieve them. Are there further risks that I am not aware of?

Please bear in mind that I am only prepared to take a minor risk on money that I am prepared to lose in the worst case scenario, is that not a sensible way to invest or am I missing something?

Incidentally, I don't consider investing in an Icelandic bank that gave full protection to all savers a 'mistake'. I kept my savings with them at the ceiling of their government protected limit. None of us were to know that the Icelandic government would renege on their contract with us. In fact our government considered the whole situation to be so unfair that they paid all savers back, with interest.

There is a difference in being risk averse and keeping your money under the mattress which is the only way I can think of taking no risk at all (except of burglary!)

TH1878

Boltonlass wrote: »

Why, I have explained to you my understanding of the risks as I percieve them. Are there further risks that I am not aware of?

How much is in the protection funds? What % of P2P projects fail? How many projects would need to fail before the fund is depleted?

Just off the top of my head....

You lost money in the tech bubble, you lost money with an Icelandic bank - what was the reason you invested in each?

Was it the prospect of high returns?

What are you considering P2P for?

Please bear in mind that I am only prepared to take a minor risk on money that I am prepared to lose in the worst case scenario, is that not a sensible way to invest or am I missing something?

So are you prepared to lose it all or just take a minor amount of risk? P2P lending is not a low risk investment.

Incidentally, I don't consider investing in an Icelandic bank that gave full protection to all savers a 'mistake'.

That's not investing, that's saving. But proper research in 2008 would have shown that Kaupthing (and other Icelandic banks) were 30-40 times more likely to fail than any other European banks. Easy to say with the benefit of hindsight but I was advising clients to pull their money out at the time after seeing the figures myself.

I kept my savings with them at the ceiling of their government protected limit. None of us were to know that the Icelandic government would renege on their contract with us. In fact our government considered the whole situation to be so unfair that they paid all savers back, with interest.

Indeed. That was abhorrent for the Icelandic government to do that but a perfect example of the additional risks you should consider.

There is a difference in being risk averse and keeping your money under the mattress which is the only way I can think of taking no risk at all (except of burglary!)

That's the riskiest thing you can do because you're guaranteed to lose money in real terms. Assume inflation of 2%, your £100 will only buy £98 worth of goods in a year, £96 in year 2, £82 in year 10, £67 in year 20 and so on.....

You're talking about investment risk. I'm talking about investment risk, default risk, inflation risk, liquidity risk etc etc.

By all means, invest money you can afford to lose in it, but just do yourself a favour and do some more research.

I'm not having a go at you but saying you are risk averse and choosing a P2P investment is like me saying I'm Vegan and then eating a 10oz rump steak.

jamesd

TH1878 wrote: »

How much is in the protection funds? What % of P2P projects fail? How many projects would need to fail before the fund is depleted?

How about going and reading for yourself instead of spreading FUD? Zopa and Ratesetter are not primarily about "projects" they are primarily peer to peer lending in the form of personal loans. So far as fund comparisons go, Zopa started in 2005 and in its worst year, 2008 originated loans, lenders who were reasonably diversified still made a profit even though there was no protection fund at that time.

TH1878 wrote: »

You lost money in the tech bubble, you lost money with an Icelandic bank - what was the reason you invested in each?

No UK resident individual depositor lost money in Icesave.

TH1878 wrote: »

So are you prepared to lose it all or just take a minor amount of risk? P2P lending is not a low risk investment.

There is no significant chance of losing all of the money in Zopa or Ratesetter. P2P risk ranges from low to quite high, depending on the particular form chosen, with the crowdsourcing and equity side the higher end of the risk spectrum and the lending side like RateSetter and Zopa the lower risk side, a split that the FCA recognised with its decision to regulate the two parts differently.

If you want facts about how well UK investors have done during the closures of UK P2P businesses I suggest you have a look around Defunct P2x Platforms. All exits were reasonable, with outcomes ranging from a takeover by another P2P firm to lenders getting all of their outstanding money back. All but one UK closure was before FCA regulation and its mandatory winding up plan and minimum capital reserves requirements.

If that's not the risk you're claiming exists, how many high credit rating consumers do you expect to default? If you want real data, including that rather sever 2008 test, Zopa provides it in its default figures history and data dump for all loans made.

TH1878 wrote: »

You're talking about investment risk. I'm talking about investment risk, default risk, inflation risk, liquidity risk etc etc.

Oddly enough, I have considered all of those risks and more.

TH1878 wrote: »

I'm not having a go at you but saying you are risk averse and choosing a P2P investment is like me saying I'm Vegan and then eating a 10oz rump steak.

Let me know your theory for how a lending-based P2P investment can be expected to suffer a 40% capital value drop once or twice a decade and 20% drop two or three times, like UK equities. Hopefully you're not going to propose long-dated government bonds as a low risk alternative, given pricing in that market.

For the small places theft by insiders one the potential way to suffer a substantial loss. That's substantially harder for the bigger ones but not impossible.

Systematic abuse by the underwriting team is also a risk and outside P2P we've seen cases where collusion between senior underwriting people caused a loan book to have higher risk than desired while they where chasing volume-based bonus targets.

Within P2P I think that one non-UK but FCA regulated provider has engaged in investment mis-selling, lending to people who didn't meet its announced criteria (only under 25s who were young professionals, actually lent to under 25 tellers, fitters, shop assistants and such) but the resolution for that is in the future, you know the sort of remedy the FOS or FCA will require and it's not going to be losses for the investor.

For all loan-based P2P there's the risk of resale at a loss if interest rates increase, if sold rather than held until maturity. The usual bond type of risk, though lower than bonds because of the capital repayments along the way and what that does to the average duration of the money being lent.

For any involved in consumer lending there's the risk of getting mandatory paperwork wrong and the platform having to refund all interest. That could test the solvency of a platform but the assets of the lenders are segregated from the assets of the P2P firm. If the big players became insolvent for that reason it's effectively certain that another player would take over the business without substantial loss to lenders.

There's also risk like Zopa telling lenders that bad debt could be deducted from interest before tax, an incorrect claim, at least before 6 April 2015. Correcting that coincided with the 2008 events and some classes of borrower showing default rates twice as high as provided for. Even so, the interest rates were sufficiently high that those with reasonable diversification still made a profit, me included.

You clearly have some knowledge but I don't think that you have as much knowledge as you should have about this particular class of investments. If we were discussing the crowdfunding end of P2P the risks are substantially higher, with the normal startup outcomes suggesting that as few as 30% or less of startups will succeed. Security can help in those cases but it's still quite likely to be unpleasant for those who don't know the failure rates.

Boltonlass

TH1878: So is your suggestion that I invest somewhere else? I wouldn't touch the stock exchange at the moment with a chance of a Labour/SNP debacle of a government as a possibility. I can't even start to imagine what will happen to stocks and shares in that event.

You haven't convinced me that p2p is a high risk investment and you are at odds with a lot of other forum contributor's opinions.
Martin Lewis refers to p2p as the next resource when ISA's are maxed out, and "a little extra risk".

Both Zopa and RS have sufficient in their prospective insurance funds to cover their current bad debts.

I'd be genuinely interested in what you would consider to be a less risky investment than p2p, given that we will be maxed out on our ISAs this coming financial year.