How does Zagga compare to other investments?

We’re often asked where Zagga sits in comparison to other investments – sometimes clients want to know, “Is it better than other investments?” The answer is that almost all investments are both ‘better’ and ‘worse’ depending on what you’re measuring. But let’s have a crack at giving you some perspective on how a Zagga mortgage secured investment stacks up against other common investments.

Zagga vs term deposits

ReturnsZagga loans are higher than term deposits
RiskTerm deposits are lower than Zagga loans
LiquidityBoth lock in funds for a short-term set time period
VolatilityLow for both

A Zagga loan will provide a much higher return of around 8%, which pays the investor for the higher risk they take of a borrower defaulting. A term deposit pays a lower return, currently between 3% and 5%, because investors can be extremely confident that nothing will happen to their money.

Zagga vs shares

ReturnsS&P 500 traditionally returns around 8% a year, so returns are similar
RiskLikely to be similarly risk over the same time period
LiquidityShares are more liquid than Zagga loans
VolatilityZagga loans are less volatile than shares

Comparing anything with ‘shares’ is almost impossible because there’s are millions of options when it comes to this investment class. But let’s take the S&P 500 as an example – it has returned an average of around 8% historically, which is likely to be similar to the return on a Zagga loan. The share market is considerably more volatile than a Zagga loan, so returns might be dramatically better or worse than a Zagga loan over the same time period, depending on which shares you’re comparing.

Zagga vs a rental property

ReturnsZagga loans have higher regular returns, but leverage and equity growth can boost the financial advantages of rentals
RiskRental properties require a lot of management and have risks associated with tenants and maintenance – Zagga is very likely to be less risky
LiquidityZagga is much more liquid than a physical property
VolatilityZagga is less volatile, but property values are uncertain until realised

Rental property takes time, expertise and effort to manage. Done well, it can be extremely profitable in the long run and returns should be higher than you would achieve on any Zagga loan. In the short term, however, it can present considerable costs and risks. Growth in house prices and the ability to leverage can maximise investment gains, but the regular return from rent is currently quite low.  The national average rental property yield was 2.6% in June 2022, and the highest-performing properties yielded around 5% – much lower than the 8% an investor might typically achieve with a Zagga loan. In many ways, Zagga is investing in property, where the investor actually owns part of the mortgage on the underlying security property for the investment. The upside of a Zagga loan is regular payments, a shorter term and a hands off approach.

Zagga vs managed funds

ReturnsZagga loans typically have higher returns than funds that are recommended for a comparable timeframe
RiskA diversified fund is less risky than a Zagga loan over a 5 year + period
LiquidityA managed fund is more liquid than a Zagga loan
VolatilityZagga is less volatile than a managed fund

Comparing to a managed fund is tricky because the funds with higher returns are only suitable for long-term investment horizons of at least five years, or preferably 10. A Zagga loan is likely to have a two-year time horizon at most.

So a balanced or growth fund will have a higher return than a Zagga loan in the long run, but in the short-term it could be negative. A conservative fund should protect an investor’s balance more effectively but is likely to have a lower return than a Zagga loan.

Investors need to create a portfolio that meets their needs

Every type of investment has a place in someone’s portfolio, and every investor needs to strike the right balance between risk and reward. When you’re building your investment portfolio, it’s essential to think about when you need your money and how much risk you’re willing to take.

If you want more information about Zagga loans, we’re here to answer all your questions

If you’re looking for advice on investing, speak to a financial advisor for tailored guidance.

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