Today we take a look at the Financial Conduct Authority’s guidelines for individual investors on how to appraise an investment. The commentary it offers is clear, simple and full of common sense. Here’s the first instalment of a two-stage browse through the FCA guidelines.
All investments carry some element of risk but the higher the return, the higher the risk. So, if you are considering an investment that offers high returns, ask yourself if you can afford to lose all the money you invest.
It may not always be clear what level of investment returns might be considered ‘high’. A good place to start in comparing possible rates of return is to compare your investment opportunity with the best cash savings rate you can find. You will see that the return on these products is much lower, and by default, the risk is significantly less…
Make sure you take steps to fully understand what you are investing in and what different types of risk are involved. For example, an important question to ask is how ‘liquid’ is the investment? Can you get your money out when you need to? Is it easy to sell the investment on if you need to? Would people be willing to buy the investment from you? If you wanted to cash out, would you need to get the investment provider’s agreement?
High risk investments are often complicated and may have complex structures that are hard to understand. For example, with mini bonds, your investment may be lent to, or invested in, a different company from the company that issued the bond. Your investment may also be subject to various fees and charges taken by multiple parties. This may affect the ability of the investment to deliver advertised high rates of return.
Yes You Can, rated B, for £30,000 with an 11 per cent fixed yield over five years, is now filled. Project Rhapsody rated A+, with an 8 per cent fixed yield for three years is also filled. More loan offerings will land on site soon.
Historical Performance And IFISA Process Guide
That figure is the result of over £20 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.