The IFISA: Taking risk for safety in uncertain times

Written by Rebecca Jones on 29th Jan 2019

This article is taken from the Downing Crowd Guide to the Innovative Finance ISA, produced in collaboration with Good With Money, and which you can download, HERE

 

More than any other period since the global financial crisis, 2018 demonstrated with undeniable clarity the importance of having a diverse range of investments.

As concerns over Brexit and the US China trade war mounted, respective UK, European and US markets tumbled. In the UK, the index tracking our biggest companies – the FTSE 100 – shed 16 per cent from its May peak to its December trough, while the US’s respective benchmark, the Dow Jones Industrial Average, plummeted 18 per cent from January to December.

The beginning of 2019 saw a notable rally in both markets, particularly in the US. However, as I put keyboard to word processor, Prime Minister Theresa May has just suffered the worst defeat in Parliamentary history and Labour is calling a general election. Meanwhile in the US, a sitting President is under investigation by the FBI as a suspected Russian agent.

And so, it is perhaps safe to say that we are living in very uncertain times; and faced with such uncertainty, investments in sectors that have nothing to do with main markets become some of the safest around – turning the traditional idea of risk on its head.

And these are just the types of companies and projects that investors can hold within an Innovative Finance ISA. From short term bonds in an established solar farm, to a twenty year investment in the UK’s first ever offshore tidal project, to lending to a community impact project: the IFISA gives investors access to a range of projects that are anything but normal.

As debt investments that target a return over a period of time, IFISA holdings can also provide some regularity, helping those that need an income to plan their money over coming years. This is one of the reasons the IFISA has proved so popular with retirees – again defying old rules and definitions around ‘de-risking’ when we reach 65.

Indeed – market volatility aside – in a decade when interest rates have remained glued to the floor, the biggest risk for many has been inflation, with the rising cost of living eating away at cash balances and portfolios stuck in government bonds. Again, this isn’t a situation that looks set to change anytime soon, with Bank of England Governor Mark Carney warning he may have to slash rates and turn the money taps on again in a disorderly Brexit.

And so, as we head into another uncertain, rock bottom interest rate period, an IFISA bond paying 5 per cent or more remains highly attractive to income seekers, longer-term investors and, of course, those that want to do Good with their money.

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