Middle groundFirst, compare the potential gains through P2P lending to that of the gains through “traditional” markets such as the FTSE 100. Based on how much risk you want to take, an annual return for P2P lending can range from three to 12 per cent. Goji’s P2P products have returned 5.4 per cent over the year to the end of January, and according to data provider Brismo, the UK alternative lending market has returned 4.1 per cent to investors. Compare this to the the FTSE 100, which was down around 11 per cent over the same period. Of course, all investments are subject to volatility, so Jake Wombwell-Povey from Goji says that investors need to remember that they should be investing over the long-term, rather than just taking a snapshot in time. While equities and bonds held in Stocks and Shares Isas can deliver high rates of return, they also tend to be more volatile than IFISA investments. Indeed, the general consensus is that the IFISA offers more stability because it’s not as prone to huge price fluctuations.
“IFISAs represent an excellent middle ground for investors who have been put off by the increasingly turbulent equity markets or disappointed by the poor returns offered by Cash Isas,” says Andrew Lawson, chief product officer at Zopa. The other point to bear in mind is that P2P investments have low correlation to major asset classes such as equities. “This means you won’t be exposed to sudden changes in markets due to factors beyond your, or the borrower’s, control,” says Julia Groves, partner and head of crowdfunding at Downing Crowd. “This type of diversification can prove crucial during the current volatile market conditions and ongoing political uncertainty.” She also points out that with Stocks and Shares Isas you can sell your investments fairly quickly, but the illiquid nature of IFISA investments means that it might take longer to find a buyer if you do want to cash in.