With share prices struggling and cash at the bank paying next-to-nothing, how are investors to get a decent return?
For Natasha Langdon part of the answer is to seek out "alternative" ways of investing. Shehas some of her savings with one of the peer-to-peer (P2P) lenders where her money is earning more than 8 per cent - earning about $1000 more a year than if she had the money in a term deposit at a bank, where the rate is about 3 per cent.
As someone who works in funds management in Melbourne, Natasha knows that higher returns come with higher risks.
She only has a small portion of her self-managed super fund with RateSetter; an online marketplace that matches lenders with borrowers.
"I like the transparency of it; where you can go in [to the website] and see what sort of loans have been approved and what sort of volumes there are and how much money lenders have got on the market.
"As a lender, you get to choose how much you want to lend and at what interest rates," she says.
Natasha says she knows nothing about the borrowers; though RateSetter says it checks the creditworthiness of borrowers as part of loan application process.
"I do not see it as any riskier than investing in shares," she says.
To help manage the risks, Natasha has her money spread across loan terms, from one month up to five years. And she only lends a maximum of $500 to any single borrower.
She has been with RateSetter for 18 months without any problems.
The business model of many financial technology – or "fintech" – companies, including P2P lenders such as RateSetter, is to match buyers and sellers of financial products and services through online marketplaces.
Others are really e-commerce businesses that match up buyers and sellers of financial products – from home loans to energy providers.
Others match investors with start-up companies and with small businesses looking for capital to take their businesses to the next level.
Advances in the technological sophistication of investments platforms are making a wider range of investments available to ordinary investors.
For example, fund managers are able to offer access to infrastructure investments like water and power services from around the world to small investors.
Before the development of the latest investment platforms, the costs of these investments were prohibitively high for small investors.
Peer-to-peer lenders
No two P2P lenders work exactly the same way. Some are like auction sites where borrowers make an offer on what interest rate they will pay and lenders bid to supply the money.
They tend to offer unsecured personal loans only.
RateSetter was started in Britain in 2010 and in Australia in 2014 and most of the borrowing is for car loans and "debt consolidation". It is pitched at small investors and the trustees of self-managed super funds.
The appeal for borrowers seeking unsecured personal loans is that they pay lower rates of interest than they would on bank loans, while lenders stand to earn higher interest than they could get with a bank term deposit.
RateSetter's website says the last "matched" rates include a one-year loan where the investor is paid 5.1 per cent, after fees. That is almost twice the one-year term deposit rates available from banks.
Some other P2P lenders, such as SocietyOne and MoneyPlace, are currently open only to "sophisticated" investors (defined at someone with assets of $2.5 million or an income of $250,000 a year) and self-managed super funds.
All use risk-based pricing so borrowers with the best credit scores are offered the lowest interest rate while those with lower classifications pay higher interest rates.
Sharemarket floats
On Market Bookbuilds is an online exchange that allows ordinary investors to obtain shares in new "floats", or initial public offerings, on the sharemarket.
Of the 13 floats on the Australian sharemarket during the first quarter of this year, first-day returns averaged 9.2 per cent.
There is a reason that often new sharemarket listings can be very rewarding for investors who get in on the ground floor.
Typically, what happens with a float is that those who are floating the business want those investors who have backed the company early to have a good experience.
That means the shares sold in the company just before it lists, called the "bookbuild", are priced so that there is a good chance an increase in the share price during the first days that it floats.
Returns like these create high demand for the shares in floats in which there is an expectation of a "stag" or short-term profit.
Last year, Malcolm Turnbull launched the On Market Bookbuilds' website and app, which aims to provide better access to initial public offerings and share placements for a wider group of investors, including those who normally do not get a look-in.
It is an example of what has been called the democratisation of finance.
Lend to business
There is a great need for small businesses to attract money to fund their growth.
TruePillars allows small investors to lend as little $50 to a small or medium-sized business where lenders can spread their investment over as many businesses as they like.
John Baini, the chief executive of TruePillars, says investors have the choice over where their money goes.
"It means people can choose to invest in their local community, particular industries or according to their own ethics and values," he says.
The idea is that investors browse the marketplace and bid for portions of the loans they select.
Investors who bid successfully and hold "loan units" are entitled to monthly distributions of capital and interest, derived from the monthly loan repayments which are made by the business borrowers they successfully bid on.
The higher the riskiness of business, as assessed by TruePillars, the more the investor can expect to receive in interest.
TruePillars has only just started business and is taking loan applications from businesses and will soon release the first loans into the marketplace.
Invest in the next big business
There are great opportunities with start-ups but also great risks. For every 200 new ventures only one will become large enough to float on the sharemarket, or be bought by a larger company.
Current laws restricts investment in new ventures to high net-worth individuals who qualify as sophisticated investors. Retail investors are only allowed in if the business is raising less than $2 million from fewer than 20 people in any given 12 months.
A bill currently before parliament could change that to open up start-up investment to anyone. This would allow online platforms such as VentureCrowd and OurCrowd, which act as matchmaker between start-ups and equity investors, to open their doors to ordinary people.
To help protect investors from shysters, the government is proposing there be a broker appointed who will be responsible for checking a company's history and financial situation.
Small investors would be restricted to a maximum of $10,000 into a company that has revenue of less than $5 million and less than $5 million in assets.
The new rules would allow ordinary investors to get in on the ground floor of what, they hope, will eventually become a large business.
Sydney software company Atlassian was started with a $10,000 credit card and listed last year on the New York Stock Exchange with a $US4.4 billion valuation.
Alternative investment funds
Technology is enabling not only new online marketplaces for financial products but also is also making normally hard-to-get investments available to everybody.
Managed funds are now available to small investors that invest outside of the usual asset classes of property, shares, fixed interest and cash and into other, potentially more lucrative, opportunities.
These include exposure to investments that in the past have required very high investment minimums like infrastructure and investing in early-stage companies, called private equity.
These investments can also be "illiquid", meaning investors have to tie up large chunks of their money in the investment for several years.
Technology is allowing fund mangers to overcome these restrictions and offer single funds to small investors that invest across several types of alternative investments.
Blue Sky Alternatives Access Fund is one of the more interesting.
As the fund is listed on the Australian sharemarket, it overcomes the liquidity problems of the underlying investments as units can be bought and sold in the fund at any time just as with shares in any listed company.
The Alternatives Fund's aim is to achieve long-term returns including dividends, after fees, of more than 8 per cent a year over the longer term.
Since the fund's inception in June 2014 the fund has returned an annualised 12.8 per cent, including dividends.
Alexander McNab, chief investment officer of Blue Sky Alternative Investments, says the fund has an exposure of about 15 per cent to hedge funds with the remainder split equally between agriculture, real estate, and private equity and capital.
In agriculture, the fund holds investments in Australian water entitlements, water and agriculture infrastructure and capital for agribusinesses.
"With agriculture, for example, the drivers [of returns] are very different to property or fixed income," McNab says.
That means the investments in agriculture are likely to move up and down at different times to the investments held in most investors' portfolios like Australian shares, he says.
Warning on outsized returns
Some of the local fintechs are part of global operations, but many are very small business and have only been in operation for short time.
There is always some risk over the long-term viability of the businesses themselves.
Banks, on the other hand, are highly regulated and highly profitable.
The Australian Prudential Regulation Authority (APRA), which regulates banks and insurers, and others like credit unions and mutuals, recently had this to say: "Many fintech developments will not fall directly within APRA's regulatory perimeter, and hence will not need approvals or oversight from APRA".
The website of one of the P2P lenders, SocietyOne, says "invest like a bank", but investing with SocietyOne or any other P2P lender is not like investing with a bank.
If dealing with retail investors, they need a licence from the Australian Securities and Investments Commission that requires certain minimal levels of disclosure.
But this differs from prudential regulation where, among other things, the business is required to have minimal levels of capital.
Although higher interest rates can be earned by investing with P2P lenders than on term deposits, it's important to understand this is not covered by the government deposit guarantee.
This is where the first $250,000 on deposit with a bank, credit union, mutual bank and building society is covered by the federal government deposit guarantee in the event the institution fails. The guarantee includes all deposits, including term deposits.
That may help explain why one P2P lender, RateSetter, makes a great play on its website of its "Provision Fund", under which "investors may be compensated…if a borrower misses a payment or defaults". RateSetter says there is more than $1.4 million in the fund.
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