Whether you are thinking about starting investing or you have some experience in investment, a guide is always helpful to make better decisions. It is important to learn what kind of alternative finance options are out there other than the traditional savings account.
Alternative financing options like peer to peer lending is the most popular one which is used by most of the investors. When it is about money, you should start on the right track by learning a few useful tricks.
Now we are going to share ten essential tips to help you invest better:
- Never put off eggs in one basket! Manage risk
One of the easiest and best ways to manage risk is to spread your investment across several different projects, businesses, and asset types. This is the most important thing that you must do, no investment strategy ensures a win, but by doing this, your money becomes less vulnerable in case the borrower and business losses or market fluctuations.
If you like a more hands-off approach, then there are many platforms like peer to peer lending can automatically diversify your money across different investments.
- Compare all the options available.
The peer to peer market is still young and growing. There is a variety of platforms available, and the market is not efficient yet. The returns promised to investors can differ by as much as 6% p.a. for loans with the same risk profile. Therefore, make sure that you compare platforms and the returns available to go with the best option.
- Keep updated with market trends.
If you invest through a company where all loans are secured against UK property, then it is vital to know how the UK property market is doing. You don’t have to be an expert, keep track of the latest news to have enough information. You can also check online reports published by real estate agents like Rightmove and Foxtons.
- Remember to look beyond the returns.
As an investor, you want to get most out of your money, and most platforms attract new investors with a high headline rate. But, make sure that you completely understand the security in place, the company’s credentials, and the risk involved.
- Take advantage of sign up bonuses.
Most of the leading companies in the UK offer sign up bonuses that are credited to customer accounts. Rewards can either be a percentage of the money you invest (generally 0.5 to 1%), or it can be a fixed amount (typically £50-100). This is a great way to boost your returns early on.
- Favour secured loans
Secured loans offer more stable returns compared to unsecured loans because they have low rates of default and high rates of recovery. Therefore, we believe that most of the loans offered within a peer to peer investment portfolio must be secured by property or other assets like jewelry, vehicles or machinery, etc.).
- Learn the common Vocabulary
You will find a lot of helpful information online for different opportunities like security charges, loan to values, and valuation reports, to decide if you are getting into the right investment. Most information is simple, but they all use specific terms that you may not be aware of as a new investor. So, don’t get disappointed, do your homework, and learn standard terms used for investments.
- Always Be tax efficient.
Several peers to peer companies offer services that allow loans to be acquired using tax-efficient ISA (savings account), Innovative Finance ISA (IFISA), and SIPP (pension) schemes. Some p2p companies also provide tax planning by permitting the creation of sub-accounts for family members and spouses who might have lower marginal tax rates compared to lead investors. You can also consult a tax advisor to make sure you can capture all these benefits.
- Do Your Research
Before you invest with a platform, gather experiences from others who have to test the company. It’s even better if you know someone and can talk to them. If not, then there are several online forums that provide reviews on different platforms. All this data can help you make an informed decision.
- Have a strategy for the duration
Often investors buy loans with duration ranging from a month to several years. However, a short duration portfolio is more liquid and can create reinvestment risk. We believe that there is a high risk of falling returns in the future, as more investors compete to buy loans. Hence, buying some long-duration loans reduces reinvestment risk and guarantees some future returns.