Last week marked the start of Spring—the clocks went forward, the days get longer and with a bit of luck, the weather gets warmer!
For many people, spring represents the time to have a good clean out in their homes, but it is a good opportunity to get your financial house in order as well. Your Funding Circle account is no exception, so here are four tips to help you get the most out of your investment.
1. Give yourself the best chance of earning a stable return
Our data shows that investors who diversify by lending small amounts to many businesses are more likely to earn a stable return. From time-to-time some of the businesses you lend to won’t be able to repay their loans, so lending small amounts minimises the effect this could have on your return. We recommend that you lend to at least 100 businesses, with no more than 1% of your portfolio lent to each one.
Every investor who has followed these two steps for at least a year has earned a positive return. In addition, 91% of these investors are earning at least 5% annually after fees and bad debts. More information on the benefits of diversification can be found on our statistics page. You can see the maximum percentage you have lent to any one business in the My Loan Parts section of your Summary page.
2. Make sure your funds are working hard
You can earn great returns by directly lending to businesses through Funding Circle, but your money earns nothing if it is sat idle. Each month you will receive either a principal and interest payment (the amount you lent plus the interest earned), or an interest-only payment from the businesses you lend to. Ensuring these repayments are lent out to new borrowers can maximise your earning potential.
Doing this regularly can be time consuming, however our Autobid tool will automatically lend your repayments out to new borrowers, leaving you to get on with your day!
3. Check your Autobid settings
It’s good practice to review your Autobid settings regularly to ensure they still meet your lending criteria. While logged in, the Autobid page will allow you to turn the tool on or off and manage your diversification options. The Advanced Settings will also allow you to choose which risk bands to lend to and set the gross interest rates for buying loan parts from other investors. Remember, diversification across both risk bands and businesses can help you earn a stable return.
4. Grow your portfolio for the long-term
Setting up a standing order can be done quickly and allows you to set aside a little each month towards your financial future. Making even a modest regular contribution can have a considerable long-term effect on your Funding Circle account. For example, if an investor with £10,000 in their Funding Circle account was to set up a standing for £100 a month, after 30 years they could have an account worth nearly £200,000.*
Remember, past performance is not a guarantee of future performance, and by lending to businesses your capital is at risk.
We hope you have found this useful, and if you have any questions about your account please get in touch.
The Funding Circle team
*Returns are at our estimated annualised return of 6.9%** (as of 6th March 2017), are compounded monthly, and are after fees and bad debt but before tax. Based on this, an account worth £10,000 with a standing order of £100 a month would be worth £199,084.63. Returns are calculated using a compound interest calculator.
**This estimated return is a weighted estimate of the annual return after fees and bad debts that investors could earn from lending money to businesses seeking loans as of 6th March 2017. It is calculated by taking the gross interest rate less fees and estimated bad debts that will occur in the future for each of the last 3000 loans accepted on the marketplace. The average return is weighted by loan amount, compounded and before tax. The return is updated daily. See the full calculation here.