photo credit: Petrick2008

The media have been relentless in their discussion of the current state of the economy. Many Americans have been paying very close attention to economic news headlines, and they’ve been fretting about their declining investment portfolios. This painful recession has prompted many to take step that are tantamount to putting their hard-earned money in a coffee can and burying it in their backyard. Obviously, mattress-stuffing is a safe way to go, but that lazy cash will definitely lose value over time, its value eroded away by inflation. This economy has everyone worried about their investments, but there’s no need to panic. There are still safe places to invest your dollars:

* Gold – Since the global financial crisis began back in 2007, investors have been looking for safe places to grow their money. Institutional and individual investors have been buying gold, both the metal and stock in companies that mine and process gold. The price on gold will almost certainly increase into 2009 and probably into 2010 as well. The federal government has reacted to the triple threat of a) the real possibility of a deep and protracted recession b) financial market turmoil and c) the threat of deflation by dumping vast quantities of cheap cash into the American banking system, and all this cheap money will eventually make its way into the economy. When that happens, inflation will rear its ugly head, and investors will buy even more gold, as a hedge against rising prices.
* Peer to Peer Lending Networks – Peer to Peer (P2P) Lending Networks like Lending Club have been gaining in popularity as individuals and businesses find it virtually impossible to secure financing from banks and other financial institutions. If you’re interested in a short-term investment and you’re willing to take on some risk, investing in P2P lending may be an option for you. Research the network you’re planning to lend with. Find out the average loan default rate and carefully consider whether it’s a system that you are comfortable with. Most lending networks allow you to provide micro-loans to borrowers, which you can use to get your feet wet.
* High Yield Certificate of Deposit – A certificate of deposit (CD) is a type of deposit account that invariably offers a higher yield than a standard savings account. CD’s are considered relatively safe and provide a decent return on your investment. Before investing in a CD, use your favorite search engines (don’t rely on Google alone! Yahoo! has a great search engine too!) to research the financial institution you plan on using. If you find complaints about fraudulent activity or poor customer service or worse, then stay far away from that particular financial institution. Credit unions have weathered the financial storms of recent months well. If you can join one, it’s a great idea to buy a CD with a credit union (a CD at a credit union is called a share certificate.)
* Debt Reduction – Reducing your debt should at the top of your financial to-do list regardless of the state of the economy. Carrying an oppressive debt load during a recession can bring ruin to a once thriving household, and nobody wants to be forced into moving back with their parents. If you are looking for a safe and smart place to invest your money, consider investing in your financial future by reducing your debt. Every balance you reduce or pay off will increase your monthly cash flow, and that liberated cash can be used for investing.
* Stocks – Experienced investors know that a recession can bring great opportunities to make fast money. With real estate and stock markets plummeting globally, the biggest losers are, generally speaking, small to mid-sized companies and fast moving consumer goods (FMCG) stocks. Companies that have had a substantial market share for more than 25 years are far more likely to survive this and future recessions. It is important to diversify your portfolio and sell stocks of companies that are unlikely to survive the current crisis.

U.S. Treasuries are also extremely safe. Even if everyone in the United States failed to pay their taxes, the federal government has the power to simply print more money to meet its fiscal obligations. In the current economic environment, however, Treasury bills, notes and bonds are in high demand, which in turn has caused their yields to drop dramatically. Bottom line: there’s almost no point in investing in e.g. a 12-month Treasury bill when the yield is less than 1%.

It’s always a good idea to have a strong cash position during an economic downturn, but overdoing it can seriously compromise your plans for a comfortable retirement. Investing during a recession can be tricky, but with knowledge and some courage, even the most cautious investor can invest with confidence and, most importantly, stay ahead of inflation.

For help with debt reduction, visit the Debt Help website.

Keep up to speed about the latest interest rate news at the LIBOR website.

photo credit: AmandaLouise

With banks constricting their lending opportunities for borrowers these past months, The New York Post’s video about the benefits of person-to-person lending is a short but incisive analysis of the credit program. The concept is simple: financial intermediaries are eliminated but the firm manages to match borrowers and lenders together minus the additional cost charged by banks in traditional lending schemes. The online transaction allows a borrower to seek lower interest rates, bypassing the services of a bank while in the comforts of their home.

However, the rates won’t keep getting lower. Lenders naturally have to base their interest rates with that of the central bank’s and other zero-risk investment opportunities’. After all, alternatives for newer lending practices such as P2P are always available and can be substituted at a more secured return from the government.

Prosper.comhas gained popularity with its low-fee, no prepayment penalty, and fixed-interest rate proposal. Borrowers set the maximum interest rate and lenders bid on the best rate that they can offer in return. The lowest bid wins and the borrower then receives the loan directly to his bank account. Other online lending firms like Lending Club and Loanio have their separate marketing schemes as well.

Why Choose P2P?

Borrowers strapped of needed cash can avail of loans with lower interest rates. This makes it ideal for those needing urgent financing. In fact, some institutions may offer collateral-free programs provided that potential borrowers meet certain criteria in their credit standing.

Most programs also offer fixed interest rate loans that can secure borrowers against fluctuating rates in the market. Other fees also remain low primarily because firms save from expenses on office infrastructure and funding costs.

The Drawbacks

Zopa.com in the United Kingdom is not regulated by the government but by a different agency according to one a study . Regulation in the United States has to be firmly laid out yet to assure lender confidence in their P2P transactions since this type of lending only began in 2005.

Risk assessment is still another issue that most of them have difficulty perfecting. While borrowers can be referred by friends, colleagues and former borrowers in the lending institutions, the lack of more effective credit investigation measures possessed by universal banks is another setback in their screening methods. This view is however opposed by The Economist in its issue a year ago. They see this weakness in asset-backed commercial papers issued by banks instead.

Lastly, the rate of return is not always guaranteed as many borrowers have defaulted and eventually brought down an entire company. Lenders and borrowers need to verify the fines against late payments and defaults so they can be aware of lender protection in a specific firm.

Into the Crisis

P2P Lending aims to benefit both borrower and lender. In fact, those who have lower FICO scores but manage to obtain credit in select P2P firms can improve their credit scores eventually. Now that banks have pulled their lending reins, borrowers can seek refuge to this alternative lending offer. It is sensible however to keep in mind that greed played a large factor in the excessive loan sales that spawned the crisis that we are currently experiencing. As such, proper regulation and oversight in the activities of these firms must be set uniformly much as banks do get constant monitoring as they improve risk profiling and transparency among the borrowers.

Andy Denton of http://www.Realty.com

photo credit: karpov the wrecked train

In the past getting a loan used to be a pretty intimidating process, getting dressed in your Sunday best, looking your best and venturing into town to the bank for a date with the Bank Manager. Once there you used to have to throw yourself at the mercy of the manager and plead for them to lend you money, getting declined for a loan was often a demoralising and embarrassing process.

These days applying for a loan is much more stress-free with the decision on whether you get given the money being based more on details such as your income, credit report and other factors, but still people can get turned down for reasons other than a poor credit record. In light of the recent credit crunch many banks are being more cautious about whom they lend money to and in some cases have ceased offering unsecured loans.

Luckily there is another option for those turned away, and no it isn’t visiting the local mafia! Peer to Peer Lending is a recent phenomenon in the lending business where organisations bring people looking to borrow money together with people who are willing to lend money. Companies such as Prosper, Zopa and Lending Club offer this service and have proved popular.

These personal loans are a bit of a hit and miss though with some lenders sticking to a high Interest rate in order to make their investment worthwhile, lenders are warned that the larger the amount they are willing to lend is, then the more risk they are putting themselves into. Obviously all loans from these services are not secured loans and so there is little equity for the lenders to be assured by.

Lenders are urged to check the site’s procedures for getting repayments as in some cases the lenders may default on their repayments and this is to be expected as the type of borrowers this scheme appeals to are mostly people who have been deemed high risk by the banks and refused conventional loans.

If you are struggling with debt and other expenses then maybe consider arranging personal loans for smaller amounts or if you need larger amounts and own property then consider secured loans as an option. As with all loans ensure you are able to make the repayments and consider the APR