First published 16 October 2017 • Updated 01 March 2018
Online platforms are creating more and more ways for people to invest their money. But when you come across a new type of investment, how can you tell whether it might be right for you? And how can you be sure it’s a genuine opportunity, and not a high-risk gamble or even a scam?
A good financial adviser will keep up with all genuine investment trends, so if you see something online that looks interesting, ask your adviser’s opinion first. Here’s a quick overview of some of the developing trends in the investment world.
Peer-to-peer (P2P) lending lets you loan your money directly to individuals or businesses through online platforms which match borrowers and lenders. P2P platforms can offer up to 7 per cent return on your investment, or even more, which is significantly better than interest rates on regular savings accounts or cash ISAs. However, higher-interest loans invariably mean taking more risk with your money.
Some P2P platforms pool your money with other investors’ and invests across a number of loans, to minimise the risk that your money isn’t paid back to you. Other platforms give you the opportunity to choose who you’d like to lend your money to.
You can even invest in P2P loans and receive tax-free growth, by using an innovative finance ISA.
P2P maximises your return by cutting out the middle man – the bank. This does mean that many P2P loans go to people who have been rejected for a bank loan because they are seen as a higher credit risk. So although there are good returns on offer, the risks are higher than with cash savings. P2P loans are not by default covered by the Financial Services Compensation Scheme (FSCS), which compensates holders of bank accounts if their bank fails. The FSCS only covers P2P lending if your received independent regulated advice to put your money on that platform.
Investing in property can be very lucrative, if the market is growing. But buying an entire property is very costly, meaning that many struggle even to buy a home to live in. But investing in property can still be possible in these circumstances, through property crowdfunding.
Property crowdfunding platforms allow you to pool your funds with other investors to invest in a buy-to-let property. This allows you to benefit not just from any growth in the property’s value, but also from the rental income – without the need to find a large lump sum deposit or take out a buy-to-let mortgage.
However, there are high fees to invest on such a platform, due to the number of overheads involved. Liquidity (i.e. the ability to get at your money) can also be an issue. Typically your money will be locked up for at least five years, so if you need to cash out early you must find someone to buy your share of the property. Talk to a financial adviser about whether this kind of investment will suit your strategy.