What's higher risk equities or peer to peer

Fatbritabroad · 4 April 2017 at 9:56PM

Hi just gauging opinion really for my own interest as I don't actually think there's a right or wrong answer on this.

how do people view cash vs equities(in this case meaning funds rather than individual shares ) vs the more well known peer to peer sites (rate-setter zopa funding circle) in terms of risk of capital loss. And has people's view changed since p2p has come under the fca

I personally find peer to peer hard to gauge. I see some people counting it as part of their 'cash' savings and others saying the risk of platform fraud and defaults mean they are higher risk over long term (ten years) than equities (given that your investments in funds can 'never' go to zero) I'm actually leaning towards the list going cash, equities then peer to peer (accepting you can diversify across platforms)

Having fixed my mortgage at a low rate for ten years I'm free to start really ramping up my savings (I already put a decent amount in pensions) and weighing up the cash vs peer to peer vs equity split I may do.

So. Thoughts welcome. Have at it

george4064 · 4 April 2017 at 11:11PM

Cash, P2P, equities.

In order from lowest risk to highest risk. Just remember that within P2P there are a big variance in risk from loans rated A all the way down to E rated.

I think what might be more fruitful is to look at your savings/investments as a whole, as there is a place for all three in an individuals overall wealth portfolio.

TheShape · 4 April 2017 at 11:14PM

I don't know the answer.

Current values for me are: £40k cash (£27k of that stoozed funds), £13k S&S ISA, £7k p2p.

Defaults and especially platform failure/fraud are my big concern with p2p, when the money is gone, it's gone and the returns you can enjoy on that money would go with it.

Less concerned about a diverse S&S ISA fund as even with a significant fall in value, you'd still own the same number of units in your fund(s). Indeed, it would likely be a good opportunity to increase your investment.

My plan going forward was to keep cash at the level it is now (it's at about the level that fills most of the available 3%+ accounts) and continue to grow the S&S ISA and p2p.

I had in mind a 3:1 investment ratio (not scientific) between S&S and p2p with the idea that if equity values were to fall, I'd divert investment towards that to take advantage of lower equity prices. I've not been disciplined enough for that though as p2p keeps enticing me to invest so that ratio is already off. I've set up a regular monthly payment to my S&S ISA though, so that should help.

On my spreadsheet p2p is listed with cash as to me it seems more 'cash-like' than equities.

Fatbritabroad · 4 April 2017 at 11:20PM

TheShape wrote: »

I don't know the answer.

Current values for me are: £40k cash (£27k of that stoozed funds), £13k S&S ISA, £7k p2p.

Defaults and especially platform failure/fraud are my big concern with p2p, when the money is gone, it's gone and the returns you can enjoy on that money would go with it.

Less concerned about a diverse S&S ISA fund as even with a significant fall in value, you'd still own the same number of units in your fund(s). Indeed, it would likely be a good opportunity to increase your investment.

My plan going forward was to keep cash at the level it is now (it's at about the level that fills most of the available 3%+ accounts) and continue to grow the S&S ISA and p2p.

I had in mind a 3:1 investment ratio (not scientific) between S&S and p2p with the idea that if equity values were to fall, I'd divert investment towards that to take advantage of lower equity prices. I've not been disciplined enough for that though as p2p keeps enticing me to invest so that ratio is already off. I've set up a regular monthly payment to my S&S ISA though, so that should help.

On my spreadsheet p2p is listed with cash as to me it seems more 'cash-like' than equities.

I don't think there is an answer it's just interesting to see people's opinion. Plus I just that to look up stoozed funds so thanks!

Plus · 5 April 2017 at 12:42AM

I think it depends on what kind of P2P and what kind of equities. Both are on a risk scale, and they likely overlap.

My take on P2P is that people don't properly understand the risks. Why would anyone take a P2P loan at 12% when they could use the MSE top picks at 3%? Maybe the bank is a donkey, but maybe they're taking 12% because nobody else will offer them something lower - that's priced for their risk. If so that is well into 'junk' territory if it were a bond. For some reason investors are wary of junk bonds, but some P2P investors seem to be happy to pile into that when they wouldn't even touch an equity tracker.

At the other end I think some providers are underpricing their risk. On some P2P platforms you get paid 3%. You can get up to 1.8% on a gilt (if I read the DMO numbers right). I don't believe the P2P is only slightly more risky than a government bond.

One big issue is that the secondary market is controlled by the platforms. The lack of stockmarket-style pricing masks volatility - you can hide volatility by restricting secondary sales or only occasionally publishing prices. This also means P2P has illiquidity risks. Unlike bonds, users aren't exposed to daily price fluctuations as the market decides how likely they are to pay up. While psychologically comforting (nobody likes to see their holding going down), it means the price you pay may not reflect the current realities of the risk.

I don't believe P2P has been tested through a decent downturn: while a few platforms had got started just before the last one, we haven't had a full tide-turning-while-swimming event. My wariness is that it's the platform that makes the credit rating decision and the platform that sets the rate (in many cases, in others the auction is no better). In the last downturn we discovered the havoc that can happen when ratings were incorrect. Here there is little transparency - we just have to trust the platform. It could happen here too.

At the end of it, I think investors are seduced by the lack of volatility, when actually there's plenty of risk and volatility behind the scenes. It might operate like a deposit account - it really isn't one.

Fatbritabroad · 5 April 2017 at 5:51AM

Plus wrote: »

I think it depends on what kind of P2P and what kind of equities. Both are on a risk scale, and they likely overlap.

My take on P2P is that people don't properly understand the risks. Why would anyone take a P2P loan at 12% when they could use the MSE top picks at 3%? Maybe the bank is a donkey, but maybe they're taking 12% because nobody else will offer them something lower - that's priced for their risk. If so that is well into 'junk' territory if it were a bond. For some reason investors are wary of junk bonds, but some P2P investors seem to be happy to pile into that when they wouldn't even touch an equity tracker.

At the other end I think some providers are underpricing their risk. On some P2P platforms you get paid 3%. You can get up to 1.8% on a gilt (if I read the DMO numbers right). I don't believe the P2P is only slightly more risky than a government bond.

One big issue is that the secondary market is controlled by the platforms. The lack of stockmarket-style pricing masks volatility - you can hide volatility by restricting secondary sales or only occasionally publishing prices. This also means P2P has illiquidity risks. Unlike bonds, users aren't exposed to daily price fluctuations as the market decides how likely they are to pay up. While psychologically comforting (nobody likes to see their holding going down), it means the price you pay may not reflect the current realities of the risk.

I don't believe P2P has been tested through a decent downturn: while a few platforms had got started just before the last one, we haven't had a full tide-turning-while-swimming event. My wariness is that it's the platform that makes the credit rating decision and the platform that sets the rate (in many cases, in others the auction is no better). In the last downturn we discovered the havoc that can happen when ratings were incorrect. Here there is little transparency - we just have to trust the platform. It could happen here too.

At the end of it, I think investors are seduced by the lack of volatility, when actually there's plenty of risk and volatility behind the scenes. It might operate like a deposit account - it really isn't one.[/QUOTe

Great reasoned post and that's exactly my thoughts on this. I'm 36.. I will probably my keep my peer to peer lending under 10k. I've personally got about 18k in cash. 20k in equities (although I count it as 120k as I view my S and S isa as the taxed upfront part of my pension which helps me cope psychologically with volatility) and 1000 in p2p with ratesetter at 3% to get the bonus. Considering putting a couple of k at a 5 year term or maybe diversifying to funding circle. Seems a decent enough risk and I won't lose my shirt if the world ends. Going to get my cash back up to around 30k over the next few months and maybe use some of this to pay lumps into the same and s isa as I go

Fatbritabroad · 5 April 2017 at 5:53AM

Oops must have taken the quote marks out lo

chockydavid1983 · 5 April 2017 at 10:06AM

I'm currently debating this myself.
My current thought is that the less risky P2P isn't enough above cash interest rates and the higher end is too risky for the expected gain over diversified equities long term.
Still investigating all this though, not really looked at P2P much so far.

Eco_Miser · 5 April 2017 at 4:50PM

Fatbritabroad wrote: »

Oops must have taken the quote marks out lo

Hit the EDIT button on the faulty post, and add a ] after [/QUOTe

Cogs44 · 5 April 2017 at 6:32PM

Equities are more volatile, higher probability of capital loss on investment, but well known risks, regulated and little platform risk.

P2P is less volatile, lower probability of capital loss on investment (in a diversified portfolio), but unknown risks, in-progress regulation and higher platform risk.

In the short term I see P2P as lower risk. By spreading across several accounts with all the new customer bonuses you can beat the 'market rate' for a higher risk-return and leave some out in cash.

Fatbritabroad · 5 April 2017 at 9:01PM

Eco_Miser wrote: »

Hit the EDIT button on the faulty post, and add a ] after [/QUOTe

Tried that its greyed out cant edit it

What's higher risk equities or peer to peer

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