Investing over four years...

Thrugelmir

Voyager2002 wrote: »

Oh: I have only dipped my toe into peer-to-peer lending and tend to think that the risks of this activity, particularly how it would perform in a downturn, are unknown. Any differing opinions?

If you are "investing" at the higher end of the risk spectrum. Then there's an increased probability of losses. Irrespective of a downturn or not.

Voyager2002

ValiantSon wrote: »

Four years is a pretty short time frame to be considering risking the capital over. Unless the interest rate is so low that even in a savings account they are better off holding on to the £55,000, then paying the mortgage off now and then rebuilding investments with the saved interest payments makes more sense.

I am in precisely that position: using a savings account would make more sense than repaying the mortgage, but the gap between interest on a savings account and probable returns on equities is hard to accept.

Voyager2002

Thrugelmir wrote: »

If you are "investing" at the higher end of the risk spectrum. Then there's an increased probability of losses. Irrespective of a downturn or not.

Yes, that is true. And that is the point of diversification: a portfolio made up of weakly correlated high-risk elements may be low-risk as a whole.

Shimrod

ValiantSon wrote: »

As I see it you are currently in a situation where you have effectively borrowed to invest. Personally, this isn't something I would be comfortable with.

This is perhaps a better way of re-framing the question. Would you borrow £55,000 to invest now, with the expectation of being able clear that debt and make some profit in four years? If not, then pay off the mortgage.

ValiantSon

Voyager2002 wrote: »

I am in precisely that position: using a savings account would make more sense than repaying the mortgage, but the gap between interest on a savings account and probable returns on equities is hard to accept.

I understand that; savings rates are pretty pathetic at the moment, but if it will still pay more than your interest rate on the mortgage then it sounds like the best option. You might as well make some (albeit limited) money on the loan, but without risking the capital. You can get 2.5% on a four year bond with Paragon bank, for example, or fix for a shorter time - 1yr = 1.85%; 2yr = 2.05% - and see if rates are any better in a year or two to maximise your return.

I think keeping it invested in equities is a huge risk.

Thrugelmir

Voyager2002 wrote: »

Yes, that is true. And that is the point of diversification: a portfolio made up of weakly correlated high-risk elements may be low-risk as a whole.

As novice investors we all believe that we can beat the system and find the holy grail. The reality for the majority is that we end up learning from the experience.

Voyager2002

Thrugelmir wrote: »

As novice investors we all believe that we can beat the system and find the holy grail. The reality for the majority is that we end up learning from the experience.

True, but not terribly helpful. And a strategy of diversification is NOT an attempt to beat the system. It only fails if/when all the different sectors turn out to be correlated at the moment when it matters most.

solartom

as i see it £55000 cash i an savings account paying as mentioned is still £55000 +interest in 4 years time
that leaves you with £145000 to do what ever you think is best for you in terms of earning as much interest as possible all safe in the knowledge that your mortgage is taken care of.
peace of mind is priceless
take the hit on the 55k and have a go with the rest
best of luck to you and all other posters and readers of this site in 2018

aroominyork

Shimrod wrote: »

This is perhaps a better way of re-framing the question. Would you borrow £55,000 to invest now, with the expectation of being able clear that debt and make some profit in four years? If not, then pay off the mortgage.

That was our household discussion a few months ago. My wife had sold some inherited investment property and was loathe to use the proceeds to pay off our interest only mortgage which was on a base + 0.5% tracker. I asked if she would take out a mortgage on our house at that rate in order to invest in the stock market. If not, we should (and we did) pay off the mortgage.

Thrugelmir

Voyager2002 wrote: »

True, but not terribly helpful. And a strategy of diversification is NOT an attempt to beat the system. It only fails if/when all the different sectors turn out to be correlated at the moment when it matters most.

My comment was with regards to a portfolio of higher risk investments. Not diversification in general. P2P is as much about the "borrower" as any general economic conditions.