There is a way to ensure a reliable income stream without the volatility of the share market.
Retirement is around the corner. Or maybe it’s already here. You’ve been reliably topping up your super and managing some additional investments – but are you sure you’ll have access to the income that will make your retirement plans come to life?
Retiring with inadequate wealth may mean missing out on the experiences that count: travelling, connecting with distant friends and relatives, or avoiding the drudgery of frugal living at a time when life should be relaxed.
Three key risks retirees’ wealth and investments are vulnerable to are:
1. The low rate environment
In most instances, term deposits won’t keep pace with inflation (therefore reducing your wealth in real terms). Investors should consider whether alternative investments can meet their risk appetite and overcome the low-rate curve.
2. Global trade disputes have rendered volatility the only certainty for equity investors
Equity investing may be worthwhile if you have time to spare, appetite for risk, can make adjustments in response to market shifts and don’t have a specific investment timeframe. However, if you know you need to extract capital over coming years, you may be considering exposure to investments other than equities which provide you more liquidity.
3. Superannuation isn’t the be-all
With adequate top-ups, your superannuation may be healthy but there are federal caps on concessional and non-concessional top-ups limiting its contribution to your portfolio.
Fixed income vehicles beyond savings accounts, such as fixed-income exchange-traded funds, can function as a useful way to plug the gap from riskier or low-yield investments. It’s questionable, however, as to whether they are sufficiently removed from equity fluctuations to give you peace of mind.
This complex environment means investors may need to look beyond the traditional for meaningful passive income. In that context, it’s no surprise retirees are turning to innovative solutions like peer-to-peer (P2P) lending as an alternative income source.
How does it work?
P2P lending can offer a middle ground for investors who want to earn returns on their investments, without the volatility of a share market.
Reasons why P2P lending could be right for you include:
- Gaining access to a stable asset class: P2P investors can invest in consumer loans – one of the world's largest and best-established asset class. Consumer loans have historically demonstrated remarkable resilience even during economic downturns. This is because they’re usually tied to essential purchases, such as vehicles, home repairs or education. Previously, only banks and select institutional investors could invest in this asset class. P2P lending has now opened up access to everyday investors.
- Attractive returns: Consumer loans have a solid track record of providing investors with attractive risk-adjusted returns. Investing with RateSetter could earn up to seven per cent per year.
- Regulation: Most Australian P2P lending platforms provide investors with access to loans via a registered managed investment scheme. ASIC regulates these operators. Under Australia's financial services and credit laws, providers of marketplace lending products generally need an Australian Financial Services (AFS) licence, and an Australian credit licence for consumer loans. This all means P2P lending is well-regulated.
*Annualised asset class returns as reported by Morningstar for the 5-year period to 31 December 2019. RateSetter data not provided by Morningstar.
^Bonus terms and conditions apply
All figures stated represent the RateSetter Lending Platform only unless stated otherwise
** Warning: Past performance is not a reliable indicator of future performance. Different investments reflect substantially different risk profiles.
All investments come with some risk and you should investigate any provider’s Product Disclosure Statement before investing. RateSetter uses a risk provisioning model where borrowers pay a fee into an independent trust (the ‘Provision Fund’) which may be used to help protect you in the event of borrower default. To date, no RateSetter investor has lost a cent on any principal or interest owed, however the Provision Fund is not a guarantee or insurance product and capital is at risk.
General information only. Consider the PDS at RateSetter.com.au before investing.
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