P2P Lending – Are you Saving or Investing?
The terms saving and investing tend to go hand in hand, but the two activities are actually very different and we believe it is important to understand why.
From a financial perspective, saving is setting aside money not to be spent. Your primary objective is to preserve what you have rather than grow it significantly. This money is often saved in case of an emergency or for a specific future purchase, like a holiday or a new car. It is low risk, low reward, and is usually restricted to cash deposits held by banks and building societies, which are protected by the Financial Services Compensation Scheme (FSCS).
Investing means putting money somewhere with the expectation that it will rise in value allowing you to make a profit/capital appreciation. It is a longer term commitment than saving, whereby investors allocate money they will not need in the short term, to increase their net worth. It is higher risk, higher potential reward than savings, and can include shares, bonds, property, warrants, and funds.
When it comes to Peer-to-Peer Lending (P2P Lending), it is often not clear whether you are saving or investing, as many products look like cash savings deposits and are incorrectly marketed as such. Let’s be clear, P2P investing is NOT saving!
At Proplend we have always been clear, when you lend money through a P2P Lending platform, whether it’s to an individual, business or property, you are making an investment. You should be prepared to invest for the longer term and be aware that your capital is at risk should a borrower default, however, for accepting the added risk, you are rewarded with higher returns. Proplend also tries to minimise that risk by supporting the Loan Investments with a first legal charge over income producing commercial property. When you invest in UK commercial property loans through the Proplend platform, you can earn between 5-12% pa* depending on the level of risk you wish to accept.
Not all investments are the same. Shares have a very different risk profile to government bonds, investment trusts, warrants and direct lending through a P2P platform.
Even within P2P Lending, the risks can be quite different from platform to platform and from loan to loan. There are a number of ways you can minimise your investment risk: diversifying your loan portfolio, investing in asset backed loans (e.g. property) and ensuring there are additional forms of security including debentures, personal guarantees, interest reserves and provision funds.
Proplend offers asset back security in the form of a first legal charge over an income producing UK commercial property with further security taken on a loan by loan basis. The Proplend platform not only gives you the opportunity to choose the loan you invest into but also the level of risk and return you want to take via the pioneering Loan Tranche Model.
Click HERE to learn more about the Proplend Tranche Model and how it can tailor loan investments to your own risk and reward profile.
Confused and in Cash!
The Financial Times and Boring Money recently reported on the UK’s investment culture. The key findings were that over 20m people are sitting on cash and confused about where to put it, primarily concerned with not losing money rather than the return they are getting.
A lot of the confusion is surely to do with the terms savings and investing and the different levels of risk and return within investing itself. So, it’s time for these people to look to P2P investing and in particular, the Proplend Tranche A investment for better risk-adjusted returns.
You can see the full Proplend summary of the Financial Times and Boring Money report on our NEWS page.
*After fees, but before bad debts and taxes