Saving in Changed Times

AnotherJoe

I thought the main issue was that, initially yes you might have given out a long loan but you could always sell it on within days to a few weeks if you wanted to get out of it.
Now, given the very long times to sell on loans, 6 months or so, a long loan is looking more and more irrevocable. Quite a different proposition for what many signed up for.
This is just my view from the outside based on posts I've seen here.

Dandytf

@cotta

Help2Save 2nd year complete next April
4 years max.
Think I'll consider an ISA next or if Fixed Term saves return with useful rates.

quirkydeptless

Cotta wrote: »

Hi All,

With interest rates for regular savers dropping dramatically what are people opting for as alternatives?

For example are outlets like Funding Circle and even Premium Bonds now serious options?

My magic money tree currently maintains an interest rate of 3-3.5% but I anticipate that will drop to 2-2.5% when my 5% savers are ripe and harvested.

This year I've been seeding it with some more fixed term savings. Not a lot attractive here. So far I took a 1 year at 2.1 (Aldermore), 18 months at 2.25% (BLME) and 2 years at 2.32% (Al Rayan).

I'm only into P2P for sign up bonuses, and I find the rates on Premuim bonds unattractive, although I keep £25 there for nostalgia.

steampowered

The obvious answer, at least to me, is that you invest.

The average long term return generated by the major stock markets is 7-8% per year. Plus you can get that tax free (if investing through an ISA) or an instant top-up from the tax man (if investing through a pension).

Reaper

steampowered wrote: »

The average long term return generated by the major stock markets is 7-8% per year.

There is a feeling about we may be facing a downturn so you would might not see returns like that in future, you must be prepared to invest for the long term and not panic sell if it happens. If you are willing then perhaps a high income fund might be something to consider.

Malthusian

Reaper wrote: »

There is a feeling about we may be facing a downturn so you would might not see returns like that in future

Until the very long term (10-20 years and more). Investing a lump sum just before a crash drags down your personal observed return initially, but the longer you wait, the closer it tends to the average.

For perspective, if you'd invested a lump sum in the FTSE World TR in 2007 (the previous worst possible timing), never touched it, and then each year looked at the annualised return you'd made over the whole period, here's what you'd see:

2008 -16%pa
2009 -2.8%pa
2010 1.2%pa
2011 0.4%pa
2012 3.2%pa
2013 5.9%pa (yay, finally out of "why did I bother" territory)
2014 6.6%pa
2015 5.6%pa
2016 8.3%pa
2017 9%pa
2018 9.5%pa
Today 9.3%pa

If the stockmarket crashes tomorrow by 33%, that would reduce the annualised growth rate to around 5-6%.

It is sensible to not rely on returns of 7-8%pa, but lower inflation, a lack of low-hanging fruit and a potential clampdown on carbon emissions are the main reasons that growth in the future might be lower than growth in the past.

Anyway, the OP should certainly be considering a diversified stockmarket investment if they are considering the much more risky option of being a potential bagholder in Funding Circle.

lifemagic

To answer the question: dividend stocks.

I've been waiting nearly three months to make a withdrawal from Funding Circle; not recommended.

bowlhead99

lifemagic wrote: »

To answer the question: dividend stocks.

I've been waiting nearly three months to make a withdrawal from Funding Circle; not recommended.

With a portfolio of dividend stocks, how long might you need to be waiting to be able to withdraw the amount (or more than the amount) you had invested?

I would suggest perhaps it could be twenty times as long as the 'nearly three months' you have been waiting.

So it doesn't seem to be an alternate solution to 'saving', even in 'changed times'.

Reaper

Malthusian wrote: »

Investing a lump sum just before a crash drags down your personal observed return initially, but the longer you wait, the closer it tends to the average.

I don't think a crash is inevitable. In my experience the worst ones come out of the blue rather than when everybody is expecting it.

If markets do fall then high income (but not Value) funds tend to weather it better, hence my suggestion. But you are right, it would be better to drip feed in rather than lump sum it.