Interest rates are still very low in the UK. The bank rate is still 0.5% and so banks are offering meagre returns on their accounts. They try to make them acceptable with bonuses, but most people find the rates unacceptable and are looking for a better return on their money. Peer to peer lending has become safer and more popular. Leading the peer to peer lending movement is Zopa.
I’ve been lending money through Zopa for sometime. The money that I invested has been lent out and paid back a few times over. I have had bad debts, but the bad debts are very low. I also have some late payers, but again it’s not a big problem. Even allowing for bad debts and late payers the return is still well above inflation. The return isn’t as good as it used to be, but now you can get your money back easier with ‘rapid return’ and there is a fund for bad debts on newer loans, so it’s a safer investment. It might be covered by the government compensation scheme soon and better regulated too.
Zopa can also be useful as part of a portfolio of investments. Your investments might be a current bank account to pay bills and manage day to day finances. Then there are interest bearing accounts, that are safer because of government guarantees. Zopa isn’t quite so safe, but it offers a return above inflation.
You can also invest in commodities and have a few silver and gold coins in your coin collection in case of economic collapse or really serious economic problems. The price of gold is low now and so it’s a good time to buy gold bullion coins.
Your own business
Many people want a better return on their investment and this can mean investing in your own business. Buying the tools to do a particular job or provide a service. The return is then based not only on the investment you put in in monetary terms, but you get a return on the time and hard work you put in too.
You can also get together with other people to invest your time, money and skills in a business. You can set up a limited company fairly cheaply now and most of the administration can be done online. Working with other people gives you access to more skills and knowledge. The formal rules of a limited company means you need to have board meetings and the formal rules can mean fewer disagreements about how the company operates. The setting up of the company also identifies the goals from the outset. You can also invest in private companies, but not be involved in the running of the company. In that case your liability is limited as a shareholder.
The stock market
You can also invest in companies through the stock market. There are numerous share dealing services, many of them run by banks such as Lloyds, the Halifax, and so on. The fees can be complicated and there isn’t much competition between share dealing services. You can have a online ‘fantasy’ portfolio, to see how you would do buying and selling shares, before you try it for real. Yahoo offer a service and you can monitor your real or imaginary portfolio on London South East too.
An ISA is an individual savings account and allows you to save tax free. I view cash ISA’s as poor value, because they offer pathetic interest rates. Investment ISA’s allow you to invest up to £11,520 (half can go into a cash ISA) tax free. Watch out for annual charges and dealing charges can be quite hefty too. The service will try to get you to invest in their funds and then they decide what you invest in. Don’t expect a great return from their funds. You can make better returns if you decide your own investments, but it takes time to learn and gain experience.
Deciding which companies to invest in
I’ve been investing for a while and so have some experience, but I’m no expert. I write a blog post each time I invest. I wrote three last year, as I invested in Solo Oil, Taylor Wimpey and I bought the shares in Royal Mail Group too. Solo Oil was a risky investment and relies on them finding oil to be successful. I’m still hopeful, but so far I’m losing money on it. I’m making about the same amount of money on Taylor Wimpey and this is the reason to diversify. You tend to lose on one and gain on another in the short term. I was allowed to buy 227 shares in the Royal Mail Group and so made over £500 on those, so far. When I say I have made money, you don’t actually make any money, until you sell the shares. You just make money ‘on paper’ or on a computer screen. The price of Premier Foods dropped last year and then more than tripled. That was great until Halloween and then it dropped sharply again by more than a third. I expect that the Christmas sales figures will send them up again and they have plans to boost sales of their Sharwood’s range for Chinese New Year. Watching the financial news can help you make investing decisions on the stock market.
The main reason for investing is to give you financial security and peace of mind. You can invest in many ways. Even paying the line rental on my phone 12 months in advance saved me £60 a year and so was an investment. What do you think? Please share your thoughts in the comments box. You can also follow me on Twitter.