In 2013, I looked at my shares in Tesco (the UK’s largest retailer) and thought: ‘This is crap. Tesco is kind of crap. I don’t even like shopping there, so I’m gonna sell my shares. Also, Tesco has a mountain of debt (debt to capital ratio of 50.76%), so I want out’. So, I sold my shares. Turns out, this was a very prescient decision, since Tesco has undergone major woes over the last few months. And when I say major woes, I mean their share price is probably going to end up at less than a third of what I originally paid for the shares… their lowest low of the last 15 years. This is due to some kind of an accounting scandal, in addition to the ongoing pressures in the UK grocery retail market – in that the discounters Aldi and Lidl are starting to eat up market share. Strangely, the upper end of the market, mostly accounted for by Waitrose (part of the John Lewis Group) has also stolen market share from Tesco. How the mighty are fallen! They once took 1/6 of all retail money spent in the UK. So, I guess I can say I’m pretty thankful that I took the decision to sell.
I really find it hard to sell shares sometimes. Tesco were not doing that badly when I made the decision, but I just kind of felt bad about them. I much prefer Sainsbury’s to Tesco, even though they too have had their price dragged down, largely due to the enormousness of Tesco’s problems dragging down the entire grocery retail sector. But then I had to think about what to do with the money I’d got back from selling the Tesco shares. I could have bought something boring like Royal Dutch Shell, but in the back of my mind I had other ideas circulating.
I already knew p2p lending is worth doing…
I knew about p2p lending (peer-to-peer), as I had dabbled with ZoPA before going back to education as a mature student. I used it to boost my (somewhat miniscule) savings a bit so that I would have a rent deposit and money to buy stuff I needed for art school. I didn’t want to do ZoPA again, purely because by the time I was selling my Tesco shares, I was really interested in entrepreneurship, startups, and small businesses. So I looked into Funding Circle instead, and soon decided to put the Tesco money into funding small businesses.
What helped me make that decision, were two things. Firstly, the way that you can spread your risk into lending companies batches of £20 – so you can, if you want, minimise your risk quite well in this way. The interest rates after fees and bad debt estimates were also pretty good – 5% upwards for ‘safer’ loans. I decided to play it pretty safe and stick to A+ rated businesses in my latest attempt at investing through p2p lending. I am happy to say, that I have earned an APR of interest at 6.4%. It could have been a bit higher, had I included lower rated businesses, but I am pretty happy with this level of interest. The second decider for me was seeing regular money coming into my lending account. This is not a necessity, but it helps me, psychologically, to see that my money is growing on a regular basis, even if it is only by very small amounts. This goes a little way to smoothing out wonky cashflow, which is kind of a bummer when looking at my income from dividend shares.
Conclusion: Is p2p lending worth doing? For me, YES!
Anyway, this whole p2p lending malarkey has been quite successful so far. My question is therefore: ‘Do I put more into p2p lending to small businesses? If so, how much? Do I do this p2p lending stuff regularly, alongside my share portfolio, or just whenever I like?’ So, it’s over to YOU. What would YOU do? Is P2P lending worth doing in your opinion?
Let me know your thoughts, leave a comment below 🙂