Crowdfunding And Peer-To-Peer For SIPP And SSAS
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We're delighted to present an article written by Rezaah Ahmad, the CEO of WiseAlpha, a service that could enable you to access the senior secured and high yield corporate bond and loan market.
WiseAlpha’s revolutionary fixed income marketplace gives cash, SIPP and SSAS investors the chance to invest with the financial elite.
Our vision is a fairer investment world where everyday investors aren’t shut out from accessing the biggest and best investments.
Rezaah Ahmad, CEO, WiseAlpha
How You Could Benefit From Institutional Grade Investments
Paltry interest rates, lofty inflation, and poor yields from retail bond funds have made it difficult for retirees and wealth builders to grow their real wealth. Additionally, wavering property values are also a concern. With this in mind, some brave souls have turned to peer-to-peer lending and ‘mini-bonds’ to bolster their income. But what if there was a bigger, better access point for individuals to invest in fixed income?
While individuals have been struggling to find quality fixed income, global banks and pension funds have been quietly ploughing away trillions into the senior secured, high yield and perpetual/hybrid segments of the corporate bond market, where average coupons are between 3 to 11 per cent from large, established corporates. In a market where a single default seems to be a big deal, it’s a far cry from the peer-to-peer lending market where defaults are par for the course.
Unfortunately, the corporate loan and bond markets are almost exclusively institutional and aren’t easily available to everyday investors. It’s because of the big-ticket minimums of £100,000 to £1 million per investment and the relationship nature of the market.
WiseAlpha’s revolutionary platform gives investors the chance to get exposure to individual institutional corporate debt via its regulated online marketplace. Minimum single investment sizes of £100 make this an accessible form of investment for many.
The Most Asked Questions About Corporate Bonds
What Are Corporate Bonds?
They are an alternative, and sometimes more lucrative way to invest in a business compared to buying shares. Bonds are a form of borrowing and investing in a bond is a form of lending. They pay interest every 6 months, with capital repaid at maturity.
While a small selection of corporate bonds are made available to retail investors, many are restricted solely to institutional investors. WiseAlpha has changed that and opened up access to bonds from some of the biggest UK corporates to normal investors. Examples include Virgin Media, the RAC, McLaren, Barclays and Pizza Express.
Why Not Just Invest In Shares?
Shares are an important part of a portfolio of investments. However many investors tend to over-rely on shares for dividend income as that is all they know and can access. But what happens when the music stops?
Many of us remember the share falls in the last financial crisis when those looking forward to retirement suddenly found it more difficult to recoup their capital losses, whilst also having contend with a doubtful dividend outlook. Having a larger allocation to fixed income as you are entering retirement can potentially give greater certainty of capital returns.
What Do You Need To Think About When It Comes To Investing In Corporate Bonds?
Long-Term Stability Of A Company
The feeling of comfort is probably the most underrated consideration when it comes to investing of any kind. Who wants to be kept up at night agonising over investments? Companies that can demonstrate long-term stability are usually the ones to go for.
For those who are short of time and don’t want to spend all of their time trawling through presentations and accounts, WiseAlpha provides key financial data in a nice summary, and an automated investing option, Robowise, where investors can choose from a balanced or adventurous income portfolio.
Start With Firms You Know
When investing in corporate bonds, start with market leaders and brand names that you are familiar with. Companies whose products you understand, and even use, and where there is plenty of news about them, as it makes it easier to keep track of performance.
That said, some of the biggest UK companies, who are also market leaders, have bonds too, but retail investors may never have heard of them. If the return is attractive, it’s worth taking a closer look.
Diversification Is Crucial
Diversification is a fundamental aspect of all investing. You may not need to invest in over 100 companies, like in peer-to-peer lending, to mitigate the risk of capital loss, but having a healthy portfolio of at least 10 and over 50 is sensible.
You can draw comfort by knowing that you are investing alongside big banks and pension funds that will have a much bigger investment at stake. But, remember that sophisticated investors always diversify their portfolios to spread risk, so it’s worth doing the same.
Assets, Liquidity And Cashflow Is Key
Looking at company’s financial position, particularly its assets, cash and available liquidity is important. Solid cash generation and a healthy cash balance protects bondholders in the event of weak financial performance or negative events. Knowing that an owner has significant equity at stake if things go wrong is also comforting.
Take A Long-Term View
Investing with a long-term mind set and being prepared to hold a bond to maturity is in my view the most sensible way to invest in this asset class.
As with all investing, your capital is at risk. WiseAlpha (FRN: 751087) is regulated and authorised to trade by the Financial Conduct Authority. WiseAlpha offers Notes, which correspond to fractions of corporate bonds issued by major corporates. WiseAlpha products are not covered by the Financial Services Compensation Scheme.
Learn More About WiseAlpha
To discover whether investing your SIPP or SSAS money on WiseAlpha is appropriate for your circumstances, please visit our WiseAlpha page.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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Crowdfunding And Peer-To-Peer Risk Warning
When a platform has been assessed and approved by a SIPP or SSAS operator, this does not imply that any loan or investment opportunity is endorsed in any way. A SIPP or SSAS operator's due diligence review is limited to ensuring the processes and procedures of the platform are in line with both FCA and HMRC principles. It's entirely your responsibility for carrying out your own due diligence on any loan or investment opportunity before agreeing to lend or invest your pension money on a platform. As a SIPP or SSAS operator will continually review platforms from a regulatory perspective, it's possible for a platform to become 'unapproved' if something changes.
With peer-to-peer lending, your capital is at risk if you lend to individuals and businesses. You may lose some or all of the capital lent if the borrower defaults and is unable to meet its liabilities. Historic loan default rates are not necessarily indicative of future default rates. In addition, lending is an illiquid investment, which means you may not be able to access the capital you lend for the duration of the loan period, even if the platform offers a secondary market. Investing in any business involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdfunding is generally targeted at investors who are sufficiently sophisticated to understand the risks and make their own investment decisions, based on their knowledge, experience and financial capacity. Neither crowdfunding nor peer-to-peer lending is covered by the Financial Services Compensation Scheme. The tax treatment of your investment is dependent on your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of crowdfunding investment or peer-to-peer lending, you should consult a suitably qualified independent financial adviser.