How to beat inflation? P2P lending, crowdfunding, bonds & REITs

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The world is awash with cheap money and almost everyone is chasing it. But as anyone who has experienced tight and inflation-adjusted cost of living will know, cash doesn’t always stretch that far. Inflation may be a hidden cost of everything from housing to health care, but it has a direct effect on the value of your savings and your retirement plan.

With interest rates at historic lows, the threat of losing purchasing power due to inflation is real, especially for people with their money locked up in fixed deposits and annuities. 

Fortunately, there are several ways you can beat inflation and enjoy greater financial security as a result only if you make you savings work better.

1. P2P Investments

Minimum investment amounts:  £10-100-1000

Profitability: Depending on the platform – 18%, 4.4 – 13%, 6-7%

Access: Company Platforms

Investing in peer-to-peer platforms is straightforward, unlike using a bank as an intermediary. Peer-to-peer investing involves people sharing financial resources with one another and as a result of active portfolio management, investors take on additional risk and borrowers take on less. Investors and lenders are directly connected, with investors providing the loans and borrowers seeking them. Klear Lending, a Bulgarian company, operates on this principle. Investors money is put into new loans through Klear’s platform, and people who invest can access the borrower’s file directly. Investors may earn up to six percent annually by investing in peer-to-peer lending. Investors do not, nonetheless, receive personal information.

Peer-to-peer lending platforms do not finance ventures; they just provide investors with the option to invest in loans provided by third parties, such as non-bank lending firms, credit companies, and other regulated businesses known as credit originators. Iuvo works with nearly 20 originators, including Bulgarian EasyCredit, VivaCredit, AccessFinance, Axi Card Spain, and iCredit Romania, among others, to provide investment peer-to-peer loans. 

It is determined by the amount of interest an individual can earn on a loan, the credit rating of their recipient, the number of payments left, and the amount of money they have to invest. A loan portfolio or a scheduled investment plan can be created. The likelihood of return is calculated based on this information. In addition to having a yield (return on investment) of 1.5%, or 18% annually, it has a higher return than competitors and only works with a few originators, but has pre-calculated return, making the P2P lending space different from investing in say the stock market. 

Government-backed bank deposits are protected against all sorts of losses, but peer-to-peer investment platforms seek to minimise these dangers for their clients. For example, if a creditor does not repay the money within 60 or more days on Iuvo, the investor’s investment is refunded with the original sum plus interest. Iuvo offers an immediate deposit service with between 5 and 7% interest rates, depending on the duration of the deposit.

Investing on peer-to-peer platforms is straightforward and clear, but often requires more commitment and knowledge from investors. It’s beneficial for everyone to learn the regulations before investing. Bondora, Mintos, Viainvest, PeerBerry, and other European platforms are great platforms for P2P investing. Some of them also offer appealing incentives to attract new users, cash-back programmes, bonuses, and others.

2. Crowdfunding investment in real estate

Minimum amounts for investment: £10-100-2000

Profitability: Depending on the project – between 4 and 15%+

Access: Company Platforms and Sites

The property sector’s recent boom has spurred interest in real estate crowdfunding (REC). Many people don’t have the resources to invest in an entire real estate project or a home for investment purposes, so this P2P alternative is tempting. The platforms allow people to invest small amounts of money in real estate crowdfunding. Multiple investors typically fund building projects, and mortgage-backed loans are frequently created. The profits come after the project is realised, as well as from the interest on the loaned funds. This method generates profits and each platform offers target returns.

The EU’s platforms are growing and Reinvest24, Bulkestate, EstateGuru, EvoEstate are just a few. Spotifinance, for instance, provides investors with a 16 percent return for 14 months (13.7% for 12 months) in addition to completed projects with a 22 percent profit, according to their website. Spotifinance raises capital for smaller residential projects, real estate acquisitions, and RES projects.

Some platforms publish the expected profitability of each project along with a detailed description, and other platforms provide average profitability based on previous deals. 

It’s important to note past profitability is not a guarantee the same will be earned in the future. These investments may lose money if the real estate market cools down as a result of an impending economic recession, or if some projects are delayed.

3. Investment in real estate or land fund

Minimum investment amounts: The price of one share

Profitability: Depending on the project – between 4 and 15%+ per year

Access: Through an investment intermediary and stock exchange platform

The profitability of REITs (Real Estate Investment Trusts, with shares traded publicly), which are required to distribute at least 90% of their profits as dividends, makes them a good source of returns over the years. 

The real estate market, which is a cyclical business, affects their profits as well. REITs investment criteria can offer an average yield over the last five years of 3.61% to 4.13%.

According to real estate fund trading on the stock exchange, the dividend yield is not as high to beat current inflation but with time and accumulation, it functions as a good anchor against consumer price increase. 

The “Advance Terrafund” fund distributed 45 million in dividends this year, creating a yield of 15.1%. 

In the last 5 years, the largest REIT for agricultural land distributed 35% in dividends on average each year, in addition to generating a profit of 20% from an increase in its stock exchange trading price. 

A GBP 5,000 investment made in the summer of 2017 would have generated GBP 2,250 in profit by the end of the year. An average yield is calculated based on the share price at the last ex-dividend day in every year, and for those who purchased shares five years ago, the yield is higher – well over 60% of dividend and capital gains.

There are a large number of profitable REITs that meet the 90% payout requirement by law. Remember that, while they may generate profits, they are also sensitive to changes in the real estate market, which is cyclical in nature.

4. Indexed government bonds

US Investment Amounts: Min. $25 to $10,000 per year

Yield: 9.62% fixed annual coupon for the first 6 months

Access: Through the US MoF website or the Yotta fintech app

Governments issue indexed government securities for citizens with an interest rate changing with inflation. Countries tend to avoid indexed government securities because they are hard to administer and because they incur higher interest costs, potentially failing during high-inflation times. Still, this is one of the good ways to protect your savings from inflation, but it is difficult to administer. For example, according to Bloomberg data, the so-called US Series I savings bonds were sold to individuals in June alone for an interest increase of 950%, an increase of 3.5 billion dollars.

The interest on their bonds is 9.62% for the first six months and is then adjusted for inflation. The US consumer price index was 8.3% in August, so the guaranteed return above that is safe and government-backed. 

Conclusion

Many macroeconomic conditions unfold that impact your savings and investments. Inflation is a result of monetary policy and you just have to deal with it in the best manner possible. When you buy a product today, one out of two things can happen: either you pay the same amount as you did last year, or you pay more … the reverse is quite unseen.

Inflation is a hidden cost that can have a major impact on your retirement plans and your ability to retire well-off. With the current reality, the real value of your money will decline every year. 
It likely doesn’t make sense to save in the future, but investing that same savings, in an educated way, can make the difference. While you can’t control inflation, you can control how your money works for you and your family. Diversifying & following those carefully selected strategies will not just help you beat inflation, but help you sustain your wealth.

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