One of the alternative investments I made late last year which does not form part of the Thomas Value Report model portfolio has over the last three months returned 8.8% annualised.
This is a higher rate of return than I had initially expected from the marketing literature and my desk research so I’m chuffed with the early results so far.
It’s not without risks of course but having studied how other investors have been making solid returns over the years this new investment seemed the perfect fit for a portfolio in need of a little diversification.
Funding Circle – The Lender With High Yields
If you are not familiar with who Funding Circle are then quite simply they are a ‘peer to peer’ online lending platform that pools capital received from private investors and then lends it out to small businesses.
So far 57,779 UK private investors have deposited their cash with Funding Circle who have in turn lent £1,970,542,746 to British businesses.
Globally Funding Circle has lent £2.5 billion.
Unlike a UK bank account, investor deposits at Funding Circle are not protected should Funding Circle go bust which is where the majority of the risk lies.
Funding Circle assesses the creditworthiness of each loan application and then mitigates the risk of investors losing capital by spreading lending across hundreds of businesses so that you end up lending a small amount of cash to each one.
Here’s a video produced by Funding Circle on how they achieve diversification.
When I spoke to one of their their customer service reps she said that the minimum amount to invest in order to properly diversify and lend to lots of businesses was £2,000 but you can start with as little as £10.
The 2008 financial crash and credit squeeze left a vacuum and this British fintech has made it simple for both private investors who want to diversify and are starved for yield and small businesses who do not want to go to a traditional bank but who are looking to expand.
The whole process was as simple as funding my account and clicking on a button called ‘autobid’ which automatically finds hundreds of businesses to lend to on my behalf doing all the legwork for me.
When I first funded the account I was nervous due to the risks inherent to lending/loan defaults and no bank guarantee should anything go wrong.
I would literally log into my account daily for two weeks straight to make sure my money was still there.
Now I check the account whenever Funding Circle email me which is once a month.
The Future Of Peer To Peer Investing
I’d love to be able to tell you how well these loan investments will perform over the short to medium term or how GDP and the state of the economy will/will not have an influence on the amount of defaults investors will face.
The fact is nobody knows.
Funding Circle was launched in August 2010 so P2P investors have not been through an economic contraction which would influence the amount of loan defaults.
In my own mind I have simply written of my P2P investment as a way of psychologically outsmarting myself should things go wrong.
But on a more practical note I am playing the game of diversification and so my P2P investment represents a small fraction of my overall portfolio and 8.8% annualised isn’t too shabby.