If it was easy to become wealthy, we wouldn’t need experts advising us on how to invest in the first place. People have been trying to find the best return for their investment for ages. There are also so many ways in which to invest these days that it can become daunting for a beginner.
The best way to start is to know that seasoned investors will almost never advise you to put all your eggs into one basket, and you need to weigh up what your risk appetite is because good returns come with a higher degree of risk.
When the world financial crisis culminated in 2008 all bets were off about what we knew as a safe place to invest in. Suddenly, banks were folding and stock markets were tumbling. This evidently also lead to a dry up of available capital both from banks and people found themselves without alternatives.
Then came a crowdfunding phenomenon called peer-to-peer (P2P) lending. The Internet made it possible for platforms to bring together people with money to those who need it. These platforms also helped set the terms that work for both parties. After more than a decade, it begs to ask if it pays to invest on a P2P platform?
What Are Your Options When It Comes to Investing Your Money?
Let’s be fair and state that this article isn’t aimed at a super-wealthy investor that can afford professional help. We’ll look at the most common options for the more common at-home investor.
Bank Deposits
This used to be the most common and well-respected method of keeping your money safe and letting it grow. Problem is, interest rates in many of the developed economies have such low-interest rates that banks don’t offer anything worthwhile.
Depending on where you are in the world, you must apply the same common sense when evaluating the prospect of an investment, which is to look at the return and see what the inflation rates in comparison. Some emerging markets offer incredibly attractive interest rates.
There is a really great website called Deposits that list all the countries with their respective interest and inflation rates, which makes it easy for an investor to see which country offers the best return. The same logic applies: the riskier the country the higher the return, but you will be surprised to find plenty of countries that offer good returns with low inflation rates and stable economies.
All you need to figure out is your desire to invest abroad and what the tax implications will be on your return (because that can be a nasty surprise). Your access to this bank would also need to be looked at. Sometimes foreign banks don’t have a local presence in your country, nor is it easy to open a bank account as a foreigner. The best thing to do is explore which banks offer online options and see if that works for you.
Shares
Many investors believe that anyone should try to dabble at least some of the money they have on the stock market. These days, banks even offer you the option to buy into Unit Trusts where someone professional invests your money in a list of companies, which spreads it and lowers your risk.
One thing about shares is that they go up and down. Depending on the market volatility, it can be confusing to a person starting out. Unless you really know what you are doing, this is best left to the experts. Many local banks offer a share trading service, so consider that along with the advice they give. Just be careful of the fees.
Shares are also more suited for long-term investment returns. Keep in mind that there are commission fees and taxes like with anything else, so be sure to know what you will get out before you sell (both from a stock exchange and broker point of view).
P2P Lending
If you read up on P2P lending enough it is fair to say that it has become one of the most respected options for the average Joe that wants to invest their money into something that welcomes both large and small players.
P2P lending is found across the globe and it offers anything from mediocre returns for very safe lenders up to very healthy returns to riskier ones. Here it’s key to know your platform and how well they screen their lenders. It’s also imperative to know what you will be paying in fees, remittances, and taxes.
Depending on where you live and which platform you want to invest in, this will vary. In the UK, for instance, The Guardian reports that P2P providers offer 4,4% returns versus the 2,5% percent offered by banks for a fixed term deposit. In this market context, it then makes sense.
What’s the Verdict?
P2P lending offers a fair return on your investment, but you still need to do your homework. P2P lending is also not immune to defaults, so the risks are there, and you should never put all your investments into one basket.
In the end, all three options discussed here have attributes that count for and against it. What you need to do is upskill yourself enough so that you can invest in any of them so that it works for you. P2P lending does, however, make it incredibly worthwhile to consider as it’s fast, becoming more established, and easy to use.
