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Take stock: No coffee shot for US economy

STOCK markets in the US climbed a bit higher last week after the Fed released minutes from their pow-wow in January which suggest that they feel pretty positive about things.

This, in turn, tells us an interest rate rise could be on the cards. Policy makers use interest rates like caffeine. A sluggish economy gets a double shot when interest rates are cut, encouraging us all to spend. And if it looks like overheating, a rate rise will calm us down like a chamomile tea.

If interest rates go up, we normally see bond prices fall and share prices go up. In the States, the ten year bond yield is just under three per cent. That means if you buy a $100 bond you get an ‘interest rate’ of $3. Given that you’re locking your money away for 10 years, it’s not that exciting.

Stock markets were up and traders were very cautiously positive although it’s still a jittery environment.

Going up

What happened?

Zopa, the UK’s largest peer-to-peer lender warned that projected defaults are on the rise. And the company has revised estimates of defaults on its 2017 loan book to 4.86%.

Does it matter to me ?

Peer-to-peer lending captured people’s imagination as a tangible way to attract potentially higher interest rates by lending to peers or small businesses. Trouble is there is ‘no pain, no gain’. In 2016, the company began lending to riskier people to be able to offer higher potential returns to customers. The potential returns are only higher because the risk of the loan not being repaid is higher too, so you need to be compensated for this extra risk.

What happens now?

With about £3billion of loans, Zopa is the most established player in the UK. The platform has recently re-opened after having a waiting list, when it was unable to find enough borrowers to satisfy wannabe lenders. But with defaults on the rise some customers will inevitably get their fingers burned.

Going down

What happened?

New research published at Boring Money this week identifies that just 29% of DIY investors are women. About 3.6million Brits have investments, or personal pensions, online but this remains a predominantly blokey game.

Does it matter to me ?

Well, if you’re a woman, then yes it does! We’re living longer, we’re paid less and we tend to hug cash. Over the last five years, £1,000 invested in the main UK shares index would have made about £135. Interest rates have hovered at about 0.5%, generating very little for savers, especially after inflation.

What happens now?

Shares are for at least a five- year time frame and aren’t for everyone. But if you are one of the many (men and women) turned off by jargon, lack of trust and fear of risk, maybe set aside ten minutes to read up on how you can invest from as little as just £1 these days.

Holly Mackay is founder and CEO of Boring Money, boringmoney.co.uk