An affordable investment

I came across an article for peer to peer lending, purely by accident and decided to do a bit more research. I found several sites that managed P2P Funding. Most wanted over $1,000 to start but to my surprise I found one here, right on my doorstep in little ol’ New Zealand that ticked all my boxes.

I suppose, like me, when someone says the word “High Yield Investment”, you immediately imagine you’re about to see some great idea that you can’t afford, probably run from Queensland. An idea that will need a thousand (or usually many thousands) of dollars to start off and as a result makes the rich, richer. When they start talking returns on your investment, with percentiles well into the double digits after tax, when the banks can’t offer you 5%, well you start to think it’s a fairy story.

When I discovered this P2P lending investment back in March 2016, that even I could afford, I decided I’d test it. I have to say at the time, it sounded too good to be true but I couldn’t see any reason it wouldn’t work. Writing consumer articles, I set out to research this apparent scam from the inside, by investing $25.00 in it.

I had a few questions so I rang their help line and spoke to a human (with no Indian or Filipino accent) who in addition to answering all my questions, went to great lengths to explain the risks, explaining that having only one note invested, did mean a single default could wipe out my entire investment portfolio. If on the other hand I had ten notes, one going bad would be more than offset by the returns on the other nine. Expecting a sales pitch to come, I was disappointed when he simply said that his advice was to get a few more notes ($25 investments) happening as soon as I could afford them. By the end of March I had invested another nine lots of $25.00. After all, to be fair in my review, I needed to give them a fair go right?.

Just for the record, I’m not a financial consultant or involved in the financial industry in any way. I am not in any affiliate program or any other arrangement to receive a commission or any form of reward for the information that follows. If you copy what I did, I will receive no benefit at all.

I have some shares in a “blue chip” company that has done better than a lot of other “blue chip” companies but they are currently yielding only 3% ROI (given the performance of the ASX that’s not doing too bad). You don’t hear stories of fortunes made on the stock market any more, do you?

If I was going to retire on anything except abject poverty (because my superannuation was used up when I was retrenched) I had to work some kind of investment magic. High interest bank savings accounts were so bad that even the banks didn’t call them that any more! Experience had taught me that unless you had thousands to invest, the only people who come out better off are the investment advisers.

Like 99% of people out there, I needed to find some investment with a high interest rate, that didn’t require a lump sum to start off and would accept small deposits. As a contractor, my wage was up and down like a yoyo, so I couldn’t rely on making regular deposits. That ruled out any investment in a trust fund and the ones I knew were yielding much lower returns than this promised.
It sounded too good to be true.
You be the judge:

1. A high interest return (starting at 19.99% and going upwards beyond 30%)

2. Did not require a lump sum to start up.

3. Could be fed with small deposits (a minimum of $25.00) on a drip feed basis.

4. Did not lock me in to regular payments. It would accept intermittent payments.

Realistically when it comes to any form of investment the risks are proportional to the returns. If you want high returns from a high interest rate, you have to be prepared to take a high risk. However, given what else was out there, I didn’t think the risks were that high. Spreading many tiny investments over many different contracts was a good way to reduce the risk of failure.

The organisation I discovered is Harmoney (there could be others too but I stopped looking) and here’s how they work:

  • Someone wants to borrow money, so they approach Harmoney for a loan.
  • Harmoney vets them the same way a bank does and gives them a score from A1 (lowest credit risk) to F5 for the highest chance of defaulting during the life of the contract. This determines the interest rate they will pay on the loan.
  • They then divide the loan amount into lots of $25, called “notes”. So a $5,000 loan will become 200 notes and publish the borrower’s details, enough to give you some idea, without disclosing the borrower’s identity, like age, location, marital status, owning or renting, years at their current address, monthly income, purpose of the loan, monthly repayments and of course their credit risk score and interest rate.
  • You as lender, can buy a note in that loan and when 200 notes have been bought, the loan becomes official.

Because they are not a bank with a huge administration with a parasitic management, shareholders, overpaid board members and hundreds of branches, nearly all of the interest is returned back to you.

Once you have opened an account and they have verified who you are, you can start with just one note at $25.00 if you want. They only lend for 3 or 5 years so your money is not tied up too long.
This is no get rich quick scheme and there are risks and in the next installment we’ll look at those risks.