If you’re a regular reader then you know I opened an account with Zopa in 2011. It doesn’t make me a fortune, but the return has been more than from the banks. The current return for investing over 3 years is about 4.5% after fees. On the savings the average household in the UK has, that’s about £90 a year.
It doesn’t sound much does it? But after paying out for housing, food, council tax, telecoms and water many families have around £1,800 left for those little luxuries. £90 on top of that is like getting a 5% rise. I know others have far more left for luxuries, but much of that money goes on interest payments to the bank. It’s much better to have your surplus income, that money left over when you’ve bought all the essentials added to with interest rather than spending it on interest.
Investing on the stock market offers higher returns on investment, but you need to know what to invest in. There are lots of pundits who will advise you, but most are either on commission or trying to influence the market in their favour. I just tell you what I’ve been doing and I did lose money when I first invested on the stock market; you have to pay to learn. Just after I put money into Zopa, I bought shares in one of Britain’s largest food companies. They were heavily in debt and the investment was called a ‘death or glory’ investment not long afterwards. I paid 4p each for shares in Premier Foods, there was a share swap later of 10 for 1 shares, so it was the equivalent of 40p a share. They went up quite well and were 18p at one stage when people told me to sell. Investing tends to be long term though, only speculators buy and sell quickly. Today they are 94.75p and so I’m making 137.5% on them so far. I think they will go up even further as they pay off debts and restructure the company. Many analysts have a buy rating for the shares now. I bought those in October 2011 and so that’s not a bad investment. I bought Lloyds Banking Group in November 2011 and I’m 150% up on those. So they are an even better investment!
You do have to be cautious and so I waited and wanted to buy something in another sector, but Royal Bank of Scotland looked cheap and they still look cheap. I bought those at around 28p and they’re up just over 13%, not such a good gain but I’m happy with that. I think they are still very much under priced. Banks are now returning to profit and I was tempted to buy Barclays. The buy now, pay later culture in Britain is alive and well. I think interest rates will rise eventually and that will hit people with mortgages and other forms of debt. It’s a good idea to save and invest, because the economy is almost bound to go through a phase of higher interest rates and higher inflation.
What will I buy next? I do want to diversify more and buy oil, pharmaceuticals, mining and maybe energy. I’m not too keen on the really safe FTSE 100 shares, many are overpriced, because they are seen as safe in a recession. There are lots of bargains in the AIM market and these shares can now be bought as part of an ISA. The rewards can be better in the AIM market, but spreads can be much larger and the risks tend to be higher. Watch the spreads carefully. When a lot of people are selling the market makers drop the price that they are buying at, but often delay the price drop for the price they are selling at. Wait until that price drops and then buy!
Over 50% of Britain’s households are struggling to pay the bills. Much of the money goes on the depreciation on a car they probably couldn’t afford, paying interest on the credit cards because they just can’t wait for that new toy, buying new stuff in an attempt to keep up with the Joneses and last, but not least, consoling themselves with expensive takeaway food or booze. Rein in all those expenses and suddenly you aren’t struggling any more and have spare money to save and invest.
What do you think? Which would you rather have a few thousand in the bank or a shiny new car on the drive? Please comment and share your views. You can also follow me on Twitter.
- Zopa CEO: the banking industry has forgotten who its customers are (wired.co.uk)
- Should you put Aim shares in your Isa? (telegraph.co.uk)
- Isa investors can now take aim at the Alternative Investment Market (theguardian.com)