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Why negative monthly returns in Plus don’t necessarily mean negative annual returns

18 months ago we launched Zopa Plus, and since then it has been our most popular product for new investments.  We’re pleased with how the loans in Plus are performing overall – the average investor has earned an annual return of 5.9% (after losses).

How to interpret your Plus performance

If you’re tracking your own investment performance in your monthly statements you may see months where losses from defaults are more than your earnings from interest. And we know that can be alarming!

However, it’s quite normal to have months like this, and we factor this into our calculations. Here’s a short video that explains when defaults occur and why:

In fact, you should expect a month where losses are more than earnings once every 4 or 5 months on average.  Individual investors have had different experiences around this – some have had more, some less.

FACT: About 4 out of 5 Plus investors have had up to 3 months where their losses are more than earnings in the first 18 months of their investment. However, that doesn’t mean their investment is losing money overall. On average, these same customers have earned more than 6.4% annual return.

Because the loans default at different times, you’ll get some months with high earnings, and some months with low, or even negative earnings.

These graphs try to explain this in 5 steps.

Step 1: Your loans are paying a fixed interest rate over time…

Graph shows that with Zopa loans your loans recieve a fixed amount of interest over time

 

Step 2: … but your loans default at different times.

Graph to show when your Zopa loans are likely to default

Step 3: So your net returns in each month (your earnings minus your losses) look quite jumpy.

A graph that shows the different net returns you get each month from your Zopa investment

Step 4: But if you look at your total returns earned over time, you’ll see it trends towards the targeted return…

Graph showing your total returns over time trending towards a target

Step 5: …and if you’re re-lending your repayments you should expect to see your investment grow like this

Investment growth when you're re-lending

So it’s important to take a longer-term view when you think about how your Plus investments are doing, as there will be months with losses and months without them.

 What’s coming next?

We’re pleased that Plus is behaving how we expect it to overall. But it’s clear that we need to make it easier for you to understand your total returns, and we’d like to have a much more consistent experience between investors (so more people get the average performance).

So we’re working on better ways to show your returns to date, and where we think it will finish up given the loans you own. We hope to have something ready before March 2018.

Here’s a sneak peek at what we’ve tested so far.

Prototype of new dashboard

In this prototype, which has proved quite popular in tests, we’re showing three things:

1. Your investment performance so far – with a graph showing the growth, and the net cash earnings (after losses)

2. What we expect your total returns to be – we show a range, that narrows as your loans come closer to maturity

3. What your target rate is given the target rates advertised when you made your investments

As always, we’d really appreciate your help in getting to the best way to do this – so we’ll be doing the usual user testing. If you’re interested in helping, email us on usertesting@zopa.com.