Squirrel Money Investment Return

Financial planning Written by , Dec 19 2016

Since launching in 2015, investors in Squirrel Money have received 100% of their capital and interest back, with yields generally ranging from 8% - 9% p.a. - John Bolton

Peer-to-Peer lending is another option you can look at that provides higher yields. It’s not without its risks, but those risks can be well managed. Even if it’s only a small part of your investment portfolio it is worth looking into. 

Peer-to-Peer lending platforms allow investors to invest directly into secured and unsecured loans.

What about the risk?

It’s a relatively new industry so people naturally assume it’s like investing in finance companies. It’s actually quite different. For a start, investor funds go directly into loans and the investor owns their investment via a bare trustee. With finance companies, the investor is exposed to whatever the finance company does on its own balance sheet.

Finance companies also tend to lend long and borrow short which means they can run out of money and that’s what happened during the GFC. With peer-to-peer platforms, loans and investors are matched so there is no liquidity risk. 

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What about borrowers defaulting on their loans?

At Squirrel Money we reduce the risk of borrower defaults by providing a reserve fund. This is similar to the way banks think about their lending books.

Essentially, part of a borrower’s loan repayment is diverted to a reserve fund (called Loan Shield.) In the event that a borrower misses a repayment, provided Loan Shield has sufficient reserves, the repayment is then covered. The reserve fund is typically funded at 150% of expected credit losses and currently has over $200,000 in reserves. 

Even in the event that the reserve fund is exhausted, it can be replenished by diverting more of the borrower interest into the reserve fund, essentially socialising the loss across all investors. Although investors would receive less interest in this scenario, the intention is to ensure all capital would remain protected.

To date, investors in Squirrel Money have received 100% of their capital and interest back. Yields generally range from 8% - 9% p.a.

I’ve invested for 5 years – but I need access to my money!

The most popular loan term in Squirrel Money is 5 years, but investors will naturally be concerned about investing for 5 years. The thing is, it’s not really 5 years.

Here’s why:

  • The loans you are investing in fully repay over 5 years, so in reality about 18% of the principal is repaid in year one.
  • We allow borrowers to repay without cost at any time and many do.
  • We experience roughly 30% prepayment on loans each year.
  • Over a pool of loans, you could reasonably expect to get back around 40%-50% of your principal a year. This can be auto-reinvested or you can take it out of the platform.

We also have New Zealand’s first secondary market for peer-to-peer loans which allows you to sell your investment back into the platform provided we can match it with another investor. Just another way to cash out.

The numbers

There has been over $7 million invested in loans through the Squirrel Money platform. The top 14 investors have invested on average $210,000 each. There are currently 283 active investors on the platform with an average investment of around $20,000.

The information provided in this post is for general information purposes only. It does not constitute and is not a substitute for professional or financial advice.


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