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This article was originally written by and for Grownups.co.nz

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

While ‘millionaire’ may not apply to the majority of Kiwis out there, Robert G. Allen definitely had a good point when he mused that savings accounts just don’t work hard enough.

You deserve so much more, which is why we’ve decided to explore a new option called Zagga, an exciting new peer-to-peer (P2P or marketplace) lending platform that exists to connect real Kiwi investors with goal oriented borrowers. Not only does the marketplace lending model unlock higher returns on secure investments, but more importantly it helps good, honest New Zealanders get the money they deserve.

Want to know more? Read on as we put marketplace lending head to head with term deposits, shares, managed funds and a handful of other conventional investments. And don’t forget, we’re all about keeping the best interests of our readers at heart which is why we’ll always strive to be as honest and transparent as possible.

Marketplace lending
First things first, let’s take a look at the model that’s launched the lending revolution. Powered by everyday people, p2p lending is quickly garnering a reputation as the new alternative investment. Platforms like Zagga are spearheading the movement, with custom-built technology designed to seamlessly match the investment risk preferences of registered investors to the credit risk of approved borrowers. Loans are typically secured by a registered mortgage over property which keeps things safe and risk-mitigated through the option of selling the property if anything went wrong. The Zagga marketplace is also underpinned by a big focus on ease and flexibility which means that whether you’re borrowing or investing, you’ll always feel empowered.

Term Deposits
If you’re looking for guaranteed returns and total peace of mind, bank backed term deposits can be a great solution. That said, per annum rates tend to be pitifully low which means that unless you have a healthy chunk of cash to invest you’ll generally be making less than $100 a month on investments worth over $50,000.

We thought we’d dig a little deeper into this one, given that a recent poll revealed that 78% of readers are currently invested in term deposits. This comes as no surprise, as there’s no arguing with the fact that term deposits are not only easy but also incredibly reliable. But from a profit perspective they simply don’t deliver. That’s why we love the idea of alternative assets like P2P lending, which are designed to empower everyday Kiwis with higher returns on the cash they’ve worked so hard to save.

Shares
You don’t have to have seen the Wolf of Wall Street to know that playing the stock market can come with both dizzying highs and gut-wrenching lows. While some blue-chip shares tend to hold their value and are relatively risk free, temptations like ‘penny stocks’ and speculative shares can leave investors reeling.

Managed funds
As the age-old saying goes, safety comes in numbers. Managed funds take this mantra to heart and pool your cash together with other investors to create bigger returns. An investment manager then buys and sells shares or other assets on your behalf, with payments generally distributed periodically. If you’d rather let someone else take the reins this is a great option, though for some investors the lack of control and the fees are a major turnoff.

Bonds
The original money-spinner, bonds are debt investments that see investors loan cash to an entity (typically corporate or governmental) for a defined period of time. Profits come in the form of variable or fixed interest rates. Seasoned investors love a good bond diversification, attracted by the fact that even in the face of low interest rates bonds are still able to hold their own against share market and real estate crashes. Of course, there are some drawbacks to bonds. They’re typically burdened with higher expense ratios which means that more of each dollar goes to management fees as opposed to a comparable stock mutual fund.

Property
From first time homebuyers to property tycoons, real estate enjoys a golden reputation of being able to hold its value. In some cases, this rings true. But in others this blind trust can leave investors high and dry. Exhibit A: the Auckland property market. Depending on who you ask, Auckland is either an absolute goldmine or a disaster waiting to happen. For some critics Auckland is on the brink of a tumble, and could potentially lose all capital gainsit’s made in the last 12 months. To others the City of Sails harbours one of the hottest property markets on the planet, with prices now outstripping the likes of London.

The value of diversification
Ask any savvy investor and they’ll likely preach the same advice: diversification is key.

Success is all about dispersing your eggs into different baskets and gradually building a portfolio that can hold its own in today’s volatile marketplace. Peer-to-peer lending definitely has a role to play, especially for those looking to make their cash work harder.

The need for performance really starts to show when life stage needs and requirements begin to change. For example, a couple in their early 50s are more than likely still working, still saving for retirement and are still supporting kids at home. In comparison, a couple in their late 60s have retired, no longer have an income and are in need of investments to support the lifestyle they want and deserve. While reliable yet paltry term deposits may have cut it back when salaries were rolling in, this new life stage calls for something a little more lucrative.

Yes, it’s always worth bolstering your portfolio with deposits, shares and other traditional investment models. But if you want to bring the overall performance of your portfolio up diversification is essential.