Safer returns on your cash
Last week I looked at the safest haven of all for your cash in today’s turbulent financial markets. Boring and all the better for it, National Savings and Investments are that rare deal - a bank that CANNOT go bust. That’s because they are underwritten by the UK Government.
Safe certainly, but the price you pay is rock bottom rates of interest. But even in today’s chaotic markets, some principles remain. And the prime tenet of ANY investment portfolio is to have a balance of risk. Your banker investments deliver security and minimal growth, while at the other end you want riskier investments that will multiply each year. So assuming you have some money you can afford to risk, I look at some alternative places you could be stashing it this year.
An interesting punt could be on zopa.com. This social lending website puts together those who want to borrow cash with those who want to lend it, cutting out the banks. This ‘peer to peer’ lender launched in March 2005 and allows you to lend from as little as £10. Since the website opened, more than £26m has been lent (and of course borrowed). Go onto the website and you’ll see people looking for loans and other people offering money to borrow. You decide the rate of interest you want and the level of risk you choose (higher risk goes hand in hand with a higher return of course). Zopa borrowers are graded by how risky they are. And between borrower and lender a market is made. Many people like to lend this way because they know they are helping borrowers out directly and quickly. And of course it’s a very efficient way to get money moving around. But self interest plays the greatest role, reasonably enough.
With the shortage of money available on the financial markets, interest rates on unsecured personal loans have been rocketing. And that’s meant that the average rate of interest on Zopa has rocketed from around 8% to 10% in the last year. Your risk is reduced, as loans over £500 are spread across at least 50 borrowers.
Gold and silver are traditionally seen as safe havens for cash, though languished rather until recent years. Uncertainty in the markets always sees people piling back into precious metals though, and gold hit $1000 an ounce this year. It’s fallen back a little since, though every blast of bad news sees the price spike a little. The argument against gold is that it has no intrinsic value. Then again … somebody will always buy it, which is more than you can say for some shares and properties at the moment.
However we’re not going to ignore shares. Who knows where the FTSE 100 will stop falling. I don’t and neither does anyone else. However it’s a fact that lying at its lowest level for four years, it probably has further to climb than to fall. The FTSE currently lies just below 5000 points, yet a year ago it was over 6600. I wouldn’t suggest putting all your money in a tracker (though with dividends reinvested it could give you a solid income), but the pressure down on the stockmarket means a lot of very sound companies have had their share prices artificially depressed. Do your research and buy conservatively and you will pick up some real bargains now. As one pundit said recently ‘Everyone was buying last year when stocks were obviously overpriced. Now they’re all selling when stocks are obviously cheap … work that one out.’
And then there’s the other toxic investment of 2008. Property. Don’t touch it with anyone else’s cash, let alone your own, according to the pundits. Some say prices will fall 25% or more … some say that it already has. But always remember that all property is not equal. Barratte may be slashing the price of its newbuild apartments in northern cities, but then it built far too many of them in the first place. Keep scouring property websites such as rightmove.co.uk and you will find people desperate to sell, and many of them very eager to slash prices. Do your maths, ensure you’ll get a rent that will cover all your mortgage costs, and you could bag some real long term rental bargains. Then forget about the selling price for the next five years and, next time you look, it should be worth more than you paid for it.
Finally, the best investment you can ever make in turbulent times is to pay down your debt. Reduce your borrowings on expensive credit cards for a start. Pay off any personal loans. But most of all, pay off as much of your mortgage as you can. With interest rates still low, it’s easier currently than it has been historically. If house prices do fall, then it’s important to get yourself out of the risk of negative equity. While if they rise (unlikely at present) you’ll be laughing … as you increase your equity.
Related: www.zopa.com, www.rightmove.co.uk
Tags: Safer returns on your cash, Safer returns on your cash article, zopa, safe investing, safe havens, interest, safe returns, returns on investment, personal financial advice
