24th April 2018
Although the last tax year has just ended, savvy savers should already start thinking about how to best leverage the opportunities associated with the next 12 months.
From the 5th April, all savers are entitled to a new ISA allowance of £20,000. While it can be tempting to put off using it until the end of the tax year, there are many benefits to investing it right now.
Additionally, this also creates a timely opportunity for investors to reevaluate their portfolios and to make sure that they are maximising their returns by checking whether any mature loan parts need to be reinvested.
Re-Evaluate Your Risk Profile
The first financial resolution IFISA investors to take is to re-evaluate their risk profile. This should be done in line with specific goals. For example, if a target of return was set for the previous year, investors should first check whether this was met. If funds underperformed, consideration should be given to whether the target was too ambitious given the constraints, or whether a less risk-averse strategy may have made reaching their targets more achievable.
This process should also include reviewing your portfolio’s own performance against that of Crowd2Fund’s overall loan statistics. If your overall gross Average APR for the last tax year was less than the platform’s average of 9.84%, your level of risk is likely to be more conservative than the average investor.
The outcome of this exercise should help you to create a strategy to lend funds to businesses that have either a higher or lower risk profile and associated rate of return than the ones you invested to in the prior year. Utilising the Exchange to buy and sell secondary loan parts can be a really effective way to tweak your portfolio if you have changed your risk profile over the last 12 months.
Allocate A Proportion Of Your Monthly Salary Into The IFISA
The IFISA allowance for 2018/19 remains unchanged at £20,000. While investing the entire allocation from the beginning of the year will likely generate a generous return (i.e. £1,740 on an estimated average APR of 8.7%). This is a relatively simplistic approach and assumes that investors have all of the capital to invest immediately.
An approach for most individuals who want to benefit from IFISA returns is to set up a monthly direct debit to transfer money from their salary into their Crowd2Fund wallets.
In order to use up the IFISA allowance in full, this value should be £1,667 a month.
The benefit of smoothing this investment out over the year is that this is likely to enhance the choice of primary investments you are able to make on the platform due to deploying funds over a period of time.
This will help identify businesses and sectors which investors take a specific interest in, as well having the opportunity to deploy new funds to businesses they have invested in before. For example, a business may return to borrow the second tranche of funding.
Don’t Leave Excess Cash In Your Current Account
Whilst it is important to have a buffer within your current account for general living expenses and emergencies, investors should be wary of maintaining an unnecessarily high balance which can punish savers.
Excluding short-term incentives for opening new accounts, both current and saver accounts will typically not offer a return of more than 1%.
In such instances, savers should consider transferring excess funds to the IFISA. This will particularly apply if they are unlikely to be able to allocate the full allowance through a monthly direct debit.
Transfer Historic ISAs
Cash ISAs at present also have historic low returns too, with the best easy access 2018/19 ISA account currently generating a return of just 1.3%.
Therefore investors should consider switching historic ISAs into the Crowd2Fund IFISA to benefit from generating higher returns
This can be done by filling in our online form here, with funds being transferred within around two weeks of the document being completed.
Check To Make Sure Mature Loans Are Reinvested
As Crowd2Fund is now entering its third year of the IFISA, it is possible that some of the loans in investors portfolios have been repaid in full.
In order to make sure that their funds are working for them as effectively as possible, investors should take the time to check their accounts for matured loans and should reinvest them into new campaigns.
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.