Investments | Zopa, ISA’s and other investments
Average or Typical?
I read that averages earning in the UK is around 25,000 and average savings per household is about 3,000; but these aren’t typical. Tell this to someone on a supermarket checkout earning minimum wage and they feel a bit hard done by! 3,000 pounds in savings is beyond many people and just a dream. I encourage people to be thrifty and frugal so that you can save, but what do you invest it in then? I like Zopa (Zone Of Possible Agreement) because it’s relatively low risk and you can get returns above the rate of inflation.
If you put 3,000 in a bank at 3% which is fairly typical, you only get 90 pounds in interest while you money can be going down in value by 5% with inflation. You make 90 pounds and lose 150 because of inflation and the government’s quantitative easing!
I lend money using Zopa in lots of 10 pounds so as to spread the risk and mostly lend to the safer markets; borrowers with a A* or A rating. I have had a couple of late payers but no bad debts. I have been getting a return of above inflation and it’s around 6% now on new loans to A* borrowers and more to borrowers with a poorer credit rating. You have to pay tax on the return and so many people are looking at ISA’s, but cash ISA’s often give a poor return. I think 3%, even tax free, is a poor return.
Stocks and Shares ISA’s
I have made a few investments in stocks and shares. When I wrote about buying Premier Foods I said I would be happy if they went to 12p and they did; today they are on 17p and went to 18 p briefly. Not every investment I make does so well. I have read a lot about ISA’s and they can appear complicated. You can have a stocks and shares ISA so you can get your returns tax free and/or a cash ISA. Cash ISA’s aren’t a good investment, but if you open a stocks and shares ISA then you can put in over 10,000 a year and make tax free returns. You basically open an account, put your cash into it and when you’re ready, start to buy shares or maybe buy into a fund. I’m not too keen on funds and often if you buy into a few funds you lose track of what you have really invested in. If fund number one buys BT and so does fund number 2, then you’ve invested in both and you have bought BT twice. It’s bad enough if you have bought it once! Many people buy shares through their bank and you can have a separate account to your usual current and savings accounts. There are a number of ISA providers but it’s worth checking to see if your bank does one. The Halifax does share dealing and ISA accounts and offers research for people using share dealing. You can get emails when a share price reaches your target. There are some videos on YouTube by the Halifax about share dealing that explain things like stop losses. It isn’t as complicated as it sounds. It does pay to learn about share dealing though and so you can start with a ‘fantasy’ account. Look on Yahoo, Google or Reuters for share prices; the latter two do them ‘live’ now. I am looking at buying more shares, maybe this week and so will post a blog about what I buy. So far I have bought Lloyds Banking Group, Royal Bank of Scotland and Premier Foods and they are all doing well; Premier Foods exceptionally well.