February 6, 2017
The usual definition of a Millennial is someone who has reached adulthood since the year 2000. Also known as 'Generation Y', these people generally have birth years ranging from the early Eighties to the early Noughties.
Big business and social researchers are both fascinated by Millennials, because they're part of a second and even bigger 'Baby Boom' and also as they include the first individuals to grow up entirely in a digital age. In other words, they are the first generation to regard the internet -- and particularly social media -- as very much part of their everyday life and activities.
As the first 'online generation,' Millennials are highly confident with digital technology, having grown up using personal computers, laptops, smartphones, tablets and other connected devices. As a result, they very much prefer to research and carry out everyday activities online, from shopping to socialising.
Peer-to-peer (P2P) lending involves lending to businesses (via secured or unsecured loans) and/or individuals (via unsecured loans). Returns for P2P lenders typically range from 3.5% to 7.5% gross a year (before tax and any loan losses not covered by loss-provision funds). Generally speaking, the higher the lender interest rates on offer, the riskier P2P loans will be.
Please note that peer-to-peer lending is investing and not saving, so invested money is not 100% safe and you might get back less than you put in. Also, P2P lending is not covered by the Financial Services Compensation Scheme (FSCS). This government-backed safety net protects 100% of the first £85,000 of cash on deposit per person per UK institution, but not P2P loans.
Especially for Millennials, here are the attractions of P2P lending:
1. How long has P2P lending been around?
P2P lending started in March 2005, with the launch of online lender Zopa. After 11½ years, there are now more than 80 different UK-based P2P-lending platforms. In other words, P2P lending is cutting-edge, high-tech investing for the 21st Century.
2. Can I conveniently lend online?
P2P lending is also known as marketplace or online lending and, as these names suggest, it's all done online. That's great for Millennials, since staying connected and working online lie at the heart of their lives.
3. What’s involved?
Nobody likes paperwork and form filling. It goes without saying that online admin is faster, more efficient and delivers what you want, when you want it. With our state-of-the-art P2P-lending platform, regular investing can become no harder than buying stuff from Amazon.
4. You don't need to be rich
The younger investor can struggle financially, thanks to zero hour’s contracts, high house prices and low wages in our post-crash economy. That's what makes 'micro-investing', which involves investing small amounts of money frequently so attractive. With Assetz Capital, you can invest in P2P loans with as little as £1, so you don't need to be a billionaire to give it a go.
5. Cash interest rates at an all time low
‘Generation Y’ have never reaped the double-digit savings rates of the past. Indeed, they've witnessed the lowest savings interest rates in recorded history. Today, locking away your money in cash for five years will earn you a mere 2% a year before tax. For those who understand and accept the risks, investing in Peer-to-Peer can offer an alternative to traditional savings and investments.
(As with all forms of lending, sometimes P2P loans 'go bad' when borrowers fail to pay interest or capital repayments on time. Defaults and bad debts will likely reduce your returns over time, so do make allowance for this 'breakage' when lending.)
6. Can I spread the risk?
With many wary of stock-market investing, Millennials aim to spread their money around. The good news is that you can diversify -- spread the risk -- by investing across different P2P platforms, borrowers, sectors, durations and interest rates. This diversification should make the P2P portfolio less concentrated and potential on-going returns less volatile.
7. Passive and active Lending
With P2P lending, you can try a 'do it yourself, pick and mix' investing by assembling your own self-selected portfolio of P2P loans. With this approach, you choose how much to lend, to whom and at rates to suit you. Alternatively, you can invest in P2P-lending accounts that do this groundwork for you by 'auto-lending' your money across a range of different borrowers.
8. Mitigate potential losses
At Assetz Capital, we offer four auto-diversifying accounts that pay up to 7% gross a year (before tax and any loan losses not covered by loss-provision funds). All four of these accounts also include ring-fenced, discretionary provision funds. When borrowers default on capital or interest repayments, these 'backstop' funds may help to reduce loan losses and protect your returns.
9. How easy is it to manage your portfolio online?
Using your personal Assetz Capital Loan Dashboard, you choose whether to reinvest your returns into new P2P loans, keep cash in your account for future use, or withdraw it -- all with just a few clicks.
10. Can you tinker with your holdings?
Most P2P platforms operate secondary markets or aftermarkets to allow investors to buy or sell loan parts (or whole loans) from or to other investors. The more active an aftermarket is, the easier it will be for you to tinker with your loan portfolio. At Assetz Capital, we charge our lenders no fees for trading in our aftermarket.
Summing up, Stuart Law, co-founder and CEO of Assetz Capital, adds, "Peer-to-peer lending is really not that complicated. You lend out money online and, in turn for taking on risk, you get higher gross returns than those paid by deposit accounts. P2P lending is online, flexible and growing strongly, which is why it's catching the eye of so many Millennial investors!"
RISK WARNING: "As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts."