When raising a family, there are many other things to worry about than current affairs and developments in the global stock market. But since the New Year celebrations have died down, it’s been hard to miss the fact that things are rather unstable out there in terms of the global economy and stock markets.
For me, it’s really important that we secure our family’s financial future as much as we can, and we look to save as much as we can each month, with particular focus on our retirement. The problem is that saving for something like a pension is only half the battle. What do you do with money in your portfolio these days? With all the current turmoil in stocks and shares, it seems like a bit of a minefield for the average layman to negotiate in terms of investing. After doing the hard work of squirreling cash away, you obviously don’t want to lose it.
But the alternative – putting money into a savings account or ISA – is hardly attractive either. It’s secure, but the interest rates are appalling, and they aren’t about to get any better. So… what to do?
The emergence of peer-to-peer lending
It was interesting stumbling across a new type of investment, peer-to-peer lending. I hadn’t heard of it before, but it essentially involves creating a platform for consumers to lend extra money directly to fellow consumers, thus removing the need for an intermediary like a bank. So that means putting your money in, with it being spread across multiple borrowers, and them paying you back each month at an interest rate usually around 5-6% per annum.
Compared to rates on savings, it’s clearly superior by some distance. You also have the flexibility to take these monthly repayments as an income, thus aligning it with the virtues of a pension, but with a better return. In fact, if you are considering making P2P lending the focal point of your retirement fund, you can even get a good estimate of your long-term yield, and resultant monthly income, from putting your money into a platform such as Lending Works.
The big fear in all this, of course, is that the people you are lending to may default, thus leaving you exposed given that money lent through peer-to-peer isn’t covered by the Financial Services Compensation Scheme – as is the case with money in the bank.
But it is obviously in the interests of platforms to counter this in order to boost investor confidence, and they have done so by introducing very strict screening processes on loan applicants, thus ensuring only those with good credit histories are approved. In addition, it is now standard for them to have a segregated reserve fund to cover any arrears and defaults that lenders encounter. And Lending Works take this a step further, with an insurance that pays out in the event of borrower default for typical reasons such as unemployment, accident or illness, or even more sinister causes such as fraud or cybercrime.
A safe option for retirement finance
Such safety is the reason that no lender has lost a penny since 2011 when investing with a reputable platform, and why Government has shown it further recognition by including it within the ISA framework from April this year. The added tax efficiency certainly makes it even more appealing.
But deciding what to do with your precious extra money is a very personal choice. How you define value in risk and reward is completely up to you, and clearly P2P lending is not without its risks. However, when raising a family, it’s so important to keep your eyes on all the balls in the air, and long-term financial security is one of the hardest to juggle. It’s good to know that, even in these challenging times, there are alternatives out there which can help you achieve it.
When retirement approaches, you may feel your purse strings start to tighten, as your working income is cut off. If you do not think you have enough money to live comfortably when you retire, a loan might be the answer, but not just any loan. The loan that can help you is called a reverse mortgage and is only available if you are at least 62. To get it, you have to live in the home listed on the agreement and agree to continue paying taxes and upkeep as you retain home ownership. If you qualify, you may only borrow a portion of the total value of your home, determined by a reverse mortgage calculator. The advantage of a reverse loan over a normal home loan is there is no repayment schedule. You can take as long as you want to pay back what you owe, as long as you do not move out of your house.