When the mainstream falters, alternative finance attracts greater attention from investors. Today, we look at a piece run by our friends at P2P Finance News. The article deals with alternative investment, based on numbers from a player in the alternative investment market.
Investors cautious about the uncertain buy-to-let market could seek better returns in alternative investments such as Innovative Finance ISAs (IFISAs), jewellery, fine wine and classic cars, Sourced Capital has claimed.
The peer-to-peer property lending platform looked at the best alternative investments for those wary about entering into the buy-to-let market because of the Covid-19 pandemic leading to mortgage holidays and a government freeze on evictions.
At present, the average UK property provides a rental yield return of just five per cent, or 4.2 per cent when investing in bricks and mortar in the capital.
Meanwhile, Sourced Capital’s IFISA gives returns of up to 12 per cent.
Since 2005, investing in jewellery has proved a better option than buy-to-let, with an average annual return of 6.7 per cent and vintage watches have made returns of 8.4 per cent per annum.
Furthermore, fine wine has seen an average annual return of 13.2 per cent since 2005, while classic cars top the list with a return of 16.4 per cent.
Historical Performance And IFISA Process Guide
That figure is the result of over £23 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.