We all want to get the best return on our hard earned investments. Investors today have more choice than ever when it comes to finding an asset class and vehicle that matches their personal risk profile and desired return. Sticking to the traditional may feel reassuringly familiar but when it comes to getting the biggest bang for your buck, alternative products prove to be the better option. So, we decided to compare the recent performance of several traditional and alternative asset classes.
Crunching the numbers
The data selected here is all UK based to create a balanced comparison between asset classes. When looking at historical returns it is important to remember that the performance of investments can go down as well as up. However, the three year UK based sample taken below tells a story.
Traditional savers lose out. With national interest rates at an all time low, returns from traditional bank savings accounts has been poor. This is particularly impactful as the UK CPI peaked at 2.9% in 2013, and was higher than the average saving account interest for over half of this three year period – a massive blow to individual buying power.
FTSE volatility is bruising. The FTSE 100 total returns figures illustrate the volatility of the market, with more, and larger negative annual swings in recent years than ever before. If long term (10 year plus) investment is your intention, stocks remain a valuable choice – but in the shorter term, volatility on an unprecedented scale is a concern.
Property is gradually climbing. The UK property market is slowly recovering after its collapse. However, property as an asset class has significant barriers to entry, is subject to the whim of local tax regimes, and can incur significant ongoing costs, meaning few small investors can access this growth.
Alternative finance is growing. For investors seeking ease of entry, and looking to take personal control of their investments, peer lending is a valuable option. Buying into multiple loans allows even small investors to diversify, and match their portfolio to their personal risk profile. Those looking for the greatest historical return in the industry have turned to Bondora.
Where the difference in yield really becomes striking is when modeled to show the cumulative compounding effect on a lump sum. Investing is a long term strategy and reinvesting returns over time is the best way to see accelerated growth.
This analysis really shows the potential power of alternative investments. Taking the UK (as the largest alternative finance market in Europe), the average peer lending product return is 4.4% over the past 3 years, with Zopa returning slightly better than that and RateSetter quoting five year pre tax return rates of 6.1%. This is in comparison to bank savings rates which have offered sub-2% returns – often beneath inflation, so effectively eroding your buying power over time.
Even more impressive – with Bondora, over the past three years, an average investment of €10,000 could have turned into over €17,000, compared to the return in a savings account of less than €500 interest accrued. In fact, over the past three years, over 45% of Bondora customers who have invested more than €10,000, have made in excess of 20% returns. With investment open to any EU citizen (as well as those from Norway and Switzerland), and accredited investors globally and almost €55M of loans already disbursed, Bondora is one of the leading platforms in cross border peer lending.
1. Property information is taken from Halifax House Price Index (HPI) data – Annual UK house price growth 2012-13, 2013-14, 2014-15.
2. Shares information is taken from FTSE 100 Total Returns.
3. Interest rates on savings accounts UK from data is taken from the UK Building Societies Association.
4. Zopa annual returns is taken from their homepage.
5. “P2P offers average three year returns of 4.4%” in the UK (The Guardian newspaper, March 2015)