After identifying the potential candidates to invest my money, the next job was to select one of the four available to me (Money Spot, Rate Setter, True Pillars & Wisr). Below is my assessment of the four different providers. I have focused on the following key areas
- How the investment logistics works,
- What are the minimum investment terms
- What are the fees involved
- What is the historical performance
Money Spot – the
target market is short duration (up to 90 days) loans. As such, you don’t fund individual loans but you
money is pooled with other investors and you receive an average return on the
pooled fund performance. It also had a
minimum $1,000 buy in and six months investment term before you could access
your capital. According to the website
the annualised fund return for the June through August 2018 ranged 12.47% to
12.95%. Fees that are payable are 1.075%
Management Fee and a 1.025% Expense fee.
Rate Setter – Has
the lowest starting value of $10 has different term options to invest your cash. You select your risk profile and term and
they match you with an anonymous loan.
In the event of a default you may be able to draw on the provision fund
to cover your loss. At time of writing
this Rate Setter website indicates the 2018 default rate (Actual lifetime bad
debt rate) was 0.37% of total loans issued this year. According to the website the 2018 returns
performance has been 7.69%. Fees that
are payable are a 10% of all interest earn on loans plus interest earnt on your
funds waiting to be invested.
True Pillars –
Focus on loans to small and medium businesses. Although the minimum investment
to open an account is $100, you can bid on a new loan in $50 lots. The provider has two markets. The first is to bid on new loans when they
become available and the second is to buy an investor’s loan portion they are
prepared to sell. In the platform you
see some general description of the business and the purpose of the fund as
well as the overview of the Profit and Loss statements and Balance sheets to
help you make an informed decision on the company to invest. There is no provision fund if the business
defaults. According to the website the
average rate of return to date has been 12.02%.
Fees that are payable are the first 2% of the interest rate (eg if the
borrower interest rate is 10% - you receive 8% on your investment) plus
interest earnt on your funds waiting to be invested. In addition if you on sell a loan portion to
another investor, the sale costs you 0.5% of the value.
Wisr – was previously
called Direct Money and looks to work similar to Money Spot where your money
forms part of a pool. The minimum term
is 36 months and takes 36 months from when you make the decision to withdraw
funds paid out over monthly instalments.
According to the website the average rate of return to date has been 7.57%
since inception May 2015. Fees that are
payable are an investment management fee of 1.79375% per annum and a fund
administration fee of 1.045% per annum.
Provider
|
Fees
|
Min Investment Term
|
Historical Performance
|
MoneySpot
|
1.075% Management Fee
1.025% Expense Fee |
6 Months
|
12.95% (1)
|
RateSetter
|
10%
of all interest earnt
|
1
Month
|
7.69%
(2)
|
TruePillars
|
2% of the interest rate offered to
the borrow
|
1 Year
or on sell loan
|
12.02% (3)
|
Wisr
|
1.79375%
Management Fee
1.045% Fund Admin Fee |
36
Months
|
7.57%
(4)
|
(1) Performance based off annualised July 2018
results
(2) Performance based off year to date in 2018
(3) Performance based off all loans since June 2016
(4) Performance based off all loans since May 2015
As an observation, MoneySpot and Wisr work as an investment
of a fund meaning that loan risks are worn by everyone while Ratesetter and
TruePillars you are invested in individual loans and are subject to their performance. In these cases it is up to you to create your
own diversification to spread your risk.
Just something to be mindful of when selecting your own investment provider.
As a first pass I ruled out Wisr due to the large capital
and longer investment terms. It was not
what I was looking for to test the waters and understand the investment I am
making. As such I’ve also ruled out
MoneySpot with its $1,000 starting point. Based on the remaining two providers,
I have chosen TruePillars as my first Peer to Peer lending experience. While both have low entry points, the thing I
liked best about TruePillars was that you have good visibility and choice of
the loans you are investing into. That
was important to me to help know where my money was going and allow me to feel
like I have a hands on approach to where my money is invested.
While I recognise there is a potential diversification
risk with investing in single loans, I look the challenge of exploring how easy
it is to achieve my own diversification and what other strategies I can
implement to minimise the risk. Now sit
back and join us on the highs and lows as this investment journey sets
sail…
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