P2P lending or stocks and share ISA

rama0927

Hi everyone. I'm 24 years old and working in London, I'm looking for some advice here as for a long time I've been looking into getting a Stocks and Shares ISA, investing in a managed fund.

I currently split my savings like this:
Short term fast access savings £3k: 50/50 split on Ratesetter Monthly (@ ~3.3%) and Ratesetter 1 year (@4.1%)

Long term savings £3k: Ratesetter 3 year (@5.6%), Ratesetter 5 year (@6.2%) and FundingCircle (@6.9% diversified after bad debts)

Currently held ISAs £1.2k: Halifax Help to Buy 4% variable, putting away £200/mo

Pension £unknown: Contribution to company pension ~£110/mo (company matches @150%)

It's a real mish mash if you look at it. However I wanted to offer myself flexibility, which I think the 1 year and 3 year bonds have offered me, incase any cash needs cropped up. Recently I have put a lot more into the Ratesetter monthly rollover, while I have been deciding what to do savings wise.

Going forward
I want to mature things up a bit, and get things more focused. I am looking at a 3-5 year savings commitment initially, with the popular aim of paying for a house or towards another large expenditure which begins with a "w", which I don't want to think about yet.

Going forward along with my Help to Buy ISA, I want to put away an additional £200/month. Initial investment capital will come from liquidated Ratesetter savings. I am having a real headache deciding whether going with Nutmeg would be a good idea, to open up a 7/10 risk Stocks and Shares ISA fund investment, or investigate another platform (the choice of funds is bewildering), or stick to what I know and stick to P2P, but with a higher emphasis on fundingcircle! My girlfriend (an accountant) isn't one for P2P and thinks I'm stupid using this platform, instead of a traditional one.

I am someone who takes an active interest in my money matters, so if it makes any difference this is something I would keep an eye on, on a weekly basis.

Sorry about the long post! I hope someone can point me in the right direction. Many thanks for taking the time to read it! I'm going through the forum topics now!

colsten

Common wisdom is that any money that you expect to need in the next 5 years should be kept in cash, not in investments.

There are some marvellous accounts that pay 5% - 6% interest and easily take £200 a month. One or two of these would complement what you already have quite nicely: https://forums.moneysavingexpert.com/discussion/5374614

Eco_Miser

You have ~£1.5k earning ~3.3% on Ratesetter Monthly.
You could have that in a TSB Classic Plus account earning 5% with instant access and a guarantee of no losses. Beats the 1 year figure too.
See https://forums.moneysavingexpert.com/discussion/5374614 for more bank accounts that beat Ratesetter over a year.

Have you read monevator.com? Lots of investment info on there, inculding a comparison of platforms.

If you're saving for a big event in 3-5 years time, stock and shares are not considered suitable.

Search the forum for existing opinions on nutmeg.

rama0927

Thanks for the advice Colsten, I'll take a look at that account as an option, and take a look at the suggestions in the form post.

Also thanks Eco Miser for your advice too.

Sounds like a stocks and shares ISA is not suitable for something 5 years away, but would be more suitable for something 10+ years away and that I can risk losing. I may still open something like this for this purpose.

AlanP_2

Rather than thinking of a S&S ISA as money you can risk losing (see note) think of it as something that will go up and down in value at different times.

The value of the investments may drop 20/30/40% in one year and grow by 70% over the next 5, these things have in the past compensated for each other and overall returns are in the range of 4-5% a year above inflation.

The problem with using them to save for a house deposit or an event starting with "w" is that you may need access to the cash at the point it is 40% down as opposed to 70% up.

NOTE - This does not apply if you start investing in single company shares as you could lose everything that way, particularly if you only held one companies shares.

Maelwys

JackTheWelshman wrote: »

Initial investment capital will come from liquidated Ratesetter savings. I am having a real headache deciding whether going with Nutmeg would be a good idea, to open up a 7/10 risk Stocks and Shares ISA fund investment, or investigate another platform (the choice of funds is bewildering), or stick to what I know and stick to P2P, but with a higher emphasis on fundingcircle! My girlfriend (an accountant) isn't one for P2P and thinks I'm stupid using this platform, instead of a traditional one.

Since you appear to be willing to try P2P lending, have you looked into some of the more popular secured loan platforms such as Ablrate, Savingstream and Moneything?

Each of those sites offer secured lending (asset-backed and typically in the region of 50-70% LTV depending on platform/loan) and a mixture of short term and long term investments, but at a much higher return than you quoted (a fixed 12% per annum for Savingstream and Moneything, and anywhere from 6.5-14% for Ablrate depending on the loan. Occasionally you get extra incentives depending on the loan). The secondary markets on all three platforms are also extremely healthy, meaning that if you need to access your invested money quickly you'll generally get it freed up within a few days maximum instead of waiting for the end of the loan period. Savingstream also maintains a provision fund to make up any potential shortfall in the event of a default, which makes it a particular favourite for investors.

The only issue is you'll generally have to wait a few days/weeks between loans. Moneything tend to be a bit easier to invest in, simply because new loans get snapped up so quickly (typically in minutes of going live for smaller loans!) on the other two platforms.

Rebuildingsociety is another option, it's not asset-backed but offers much higher returns (typically 15-19% per loan). The difference is that you bid for what you're prepared to pay for each loan part rather than paying a flat rate... and borrowers pay off both capital and interest per month so the money you get "paid" each month will gradually decrease in line with the remaining capital the lender needs to pay back.

From April 2016, you'll not need to pay tax on the first £1000 of interest - including P2P investment returns. The risk of P2P lending (aside from defaults, which are very few and far between on secured lending platforms) is mainly the trading platforms going belly up. Thus far this shows no signs of happening for the three I quoted above, and there are a few additional safeguards in place for it depending on platform!

The return from a Stocks and shares ISA can in theory beat 12-14% annual return from such secured P2P lending, but you'd be depending on it being a very strong year. Typical return is closer to 7% over time on average, and you run the risk of a market crash and your holdings decreasing. On the plus side, you'd be using up your ISA allowance and completely sheltering any earnings from tax...

Your other obvious option is sticking some money in high interest savings/current accounts. You can get a 5% return on some of these - and your money will fall under fscs protection for the first £75000 per bank.

rama0927

Thank you both for your help, I really appreciate this sound advice. And very thoughtful of you Maelwys.

I now have a much clearer idea going forward. Just need to crack on and find the time to get moving!

Dan83

I've got money in wellasly & Co, I invested £3000 for 18 months at a rate of 4%, I also got a free iPad mini. Which to be honest, as stupid as it sounds was the deal clincher.

Before you invest in P2P look at what you stand to gain and what you could loose.