You've just won Lottery - What next?

Is this a good source of investment for a not needed now but relying on it for later life type sum (dunno, say £50,000)?

Rob

When I looked into this I found it's the bits in the "small print" that you have to be careful of.

The headline interest rate appear to be very good until you look at the commission, bad debt provision and tax. The "typical" interest is paid gross so you also have to factor in tax, if applicable

Current the bad debts is running at around 0.2% (of your money) but a few years ago it was 20 times higher and who can guess at future figures if things like the cost of mortgages rise.

It is also unclear if your "deposit" is protected in the same way as if a bank fails. You are making individual contracts with borrowers.

A Radio 4 program a few years back said that the only thing the FSA were "regulating" was Zopa selling of loan protection insurance (to the lender and not the borrower). This doesn't appear to have changed.

Assuming 1,000,000...

1. Tell no-one.

1. Do not pay off debts. The money has already given you the security, you need a psychological migration with a link to your past and debts are a very important part of that.

2. Do not give to friends. They were friends before, money has no involvement in a friendship.

1. Announce you have won 10% to partner only.

2. Place 100k in accessible accounts.

1. Place 400k in Trust #1. You may want to copy the fund manager holdings.

2. Place 500k in Trust #2 which is not touchable except for income by anyone. It could be invested in NS&I 5yr index linked or whatever, or perhaps a copy of Trust #1 but with a different lawyer.

1. As the income comes in, you spend that wisely.

Go sit in a car park at your old school and thank what matters. It is not money - it is the security that money can provide not the expenditure.

As soon as the trusts are up say £30,000 up on a holding, withdraw it and buy 4x 250g gold bars placing each at 4 banks. Repeat until . Place in safe keeping at 4 banks. This is your final reserve should everything go wrong. Perhaps repeat until you have £100,000 in gold and preferably choose banks at other ends of the country.

Key is forgetting about Trust #2, that needs to be there for future generations - without them knowing. It is not to buy a house or build a failed business, someone must have equity stakeholder in something to understand risk and act responsibly to both money and themselves.

The enemy is rarely debt, it is miss-allocation of capital in investments, spending, family spending. Most of all, money can bring out all that is bad in people to levels which make living with them or oneself very difficult - sudden money reveals all, yet money requires responsibility nearly always developed via accumulation of said money.

Sudden money can be a curse, or a cure - like a drug it is best applied in moderation over time.

It's not the slightest bit unclear. This is 100% risky way of saving.

As I've said before. ISTM that the returns are too small for most people to bother pledging a small amount of money (say under 5K) and the risk is too great to pledge a large amount of money

tim

re Zopa:

A pal of mine stuck £1000 into Zopa to see how it works, with a view to investing more if it goes well.

His experience was that he chose the safest (but lowest yield) A and A* rated markets, and his £1000 stake was quickly lent out, for 5 year terms to 100 borrowers. That was six months ago, and so far not one bad debt.

A lot of the money has been returned quickly by people cancelling their loans after a shortish term. Maybe a lot of people get a loan to, say, buy a car. They then get the car, and then sell their old one, and then pay off their loan within a month or two. Or maybe they refinance with a lower rate from another Zopa lender!

If he allows his incoming money (interest and capital repayment and loan clearance) to be automatically lent out again, then this money starts a new 5 year term - so the money is essentially tied up indefinitely by this churning effect.

He thinks that if interest rates rise in the "outside world" (which will eventually happen) his borrowers will hang onto their low rate loans for the full term, and he would not be able get his stake out to invest elsewhere, so the forecast for the future returns is not so good. Its like a ratchet effect: if rates drop, folks get a new loan, and cancel their old one, if rates rise they'll hang onto their old loan to term.

His strategy now is turn lending off and wait for interest rates to rise, before offering loans again.