This week I completed on the sale of some properties I had invested in, leaving me with a large bank balance and a very good problem to solve. Where shall I invest this money?
Normally my strategy is pretty simple:
I max out my ISA each year on the Vanguard 80% ACC Lifestrategy Fund, a low-cost fund that owns a bit of most large companies in the world. Then I put whatever I have left into 5-year loans on Ratesetter*, a peer-2-peer lending platform with good rates and easy access to my cash.
But we are living in uncertain times and I really want a decent amount of money not tied up in long-term investments. To both protect me and make the most of whatever happens.
- Because I wouldn’t be surprised if there is another recession or stock market crash.
- And because I want to have money available in case some great opportunities come up.
What do I mean by a great opportunity? Well if there is a big stock market or housing crash I want to be able to benefit and buy up assets cheaply. Or I might come across some great business opportunity created by Brexit, maybe an arbitrage in whatever trade deal is reached.
It would be a right waste of time if my dream comes true and house prices half only to not be able to invest because my investments have also halved.
Should I Keep It All In Cash?
No. For a whole host of reasons keeping my money just sitting in a bank account is a bad idea.
Probably the most likely thing to happen with Brexit is that things will just continue as normal. The stock market and the housing market will keep climbing and my money will just be losing value from inflation.
Or even worse we could see something happen that really devalues the pound and makes my money sitting around not worth very much. Maybe super high inflation or an exchange rate crash.
Short-Term Inflation-Beating Investment
What I am looking for is some sort of easy access investment where I can close out and withdraw very quickly if needed. But an investment that will still make me money and at least beats inflation.
My first thought was the peer-to-peer lending company Ratesetter* who have an easy-access fund that pays about 4%. Normally you can get your money out in a few days and in excessively turbulent times then within 30-days. 30-days is plenty of time to act on any opportunities that appear.
EDIT: It turns out Ratesetter have recently changed the way the rolling market works which makes it a bit more annoying. Now instead of getting all your money back every month and then having it reinvested, your money stays matched, meaning in a bad recession it could take much longer than 30 days to get the money out. It still seems worth it for me but makes the Assetz Capital* offering I talk about below even more appealing and means I will be sending more money there than to Ratesetter.
But it does come with some risks. There is a risk that the company might fold which would make it a real hassle to get your money back. And there is a risk that a debt crisis could lead to some money not being paid back from Ratesetter’s insurance fund being overloaded. And the investment is not protected against currency fluctuations.
So here are my caveats. This is a dynamic investment. In case of super high inflation or a debt crisis, I would quickly take my money out and move it elsewhere.
I also started looking around for other P2P lending companies so I am not too exposed to just one company. Plus they have sign-up bonuses so it’s worth having an account at all of them. Zopa* is the obvious choice being the best-known one. But it also has lower rates than Ratesetter* and no easy access account.
My new find is Assetz Capital*. It is another large company and has a 30-day access account currently paying 5.1%. They also have a promotion on at the moment that gives you a 2% cashback on any funds invested by the end of October. That means that a year invested I would see a 7+% return. On a quick access account that is pretty unheard of.
What Happens If Everything Shoots Up In Value?
I will also continue investing in the stock market and will keep my London flat investment. That means I’ll be protected if everything just keeps going up in value.
I also think that stocks and shares are the best long-term investment and while I want a large sum available to invest in case of great opportunities, I still have a long-term plan. My goal is that the income from my investments will cover all of my expenses – giving me complete financial freedom.
I won’t put all the money into the stock market at once but will drip feed it in over a year. This is called dollar-cost averaging and is generally recommended for investing in something as volatile as the stock market.
A Complete Portfolio
So here is how I am investing my new found wealth.
- 30% in stocks and shares (Vanguard 80% ACC Lifestrategy Fund).
- 30% in Ratesetter*.
- 30% in Assetz Capital*.
- 10% in Zopa*.
That would bring my overall asset allocation to roughly:
- 10% property.
- 50% stocks and shares.
- 30% peer-to-peer lending.
- 10% investments in my own businesses.
I am not a professional investor and the above should not be taken as advice. It is just what I am doing with my own money. If you want to read some of the stuff that inspires me, I recommend:
- This post by Monevator on the Vanguard Lifestrategy Fund.
- Broker comparison table by Monevator. (yeah, Monevator is my favourite UK investment blog)
- The Intelligent Investor by Benjamin Graham. A great book by the mentor of Warren Buffet.
- Rent vs buy calculator. A really in-depth calculator to help you work out if it is cheaper to rent or buy (it’s in $ but just pretend it’s £).
* – A star represents a refer-a-friend link. Ratesetter has a £100 bonus if you invest £1,000 for a year. Zopa has a £50 bonus is you invest £2,000. Assetz Capital has a £50 bonus if you invest £1k for a year.