What's higher risk equities or peer to peer

grumpygardener wrote: »

If you want to diversify in equities/ bonds etc, through a fund manager then you pay for him/ her/them mega bucks to advise. I'd never risk doing my own choices, following mega paper loss with Halifax plc. I'm warming to p2p, even more so now that p2p ISAs are available.

You think the people at Zopa and Ratesetter who choose which borrowers get the lenders' money work for free?

You can easily DIY a diversified portfolio of stocks and shares without paying mega bucks to a fund manager. With both equities and P2P you can have a portfolio diversified across hundreds of securities or pick and choose individual ones. With both you can pay someone else to handle the diversification or do it yourself.

You are making the classic mistake of assuming that because they don't tell you the charges they don't exist.

Short history of P2P: Once upon a time some people decided to cut the middlemen out of corporate and personal lending, and set up a platform where people who wanted to invest could lend money directly to people who wanted to borrow. But then some sections of the market (Zopa, Ratesetter and friends) realised then when you cut the middlemen out of lending, a lot of people borrow money and don't pay it back, because the middlemen aren't there to say "no you can't have any money". And that if this happened too often, people might lose their shirt and kick up a fuss about it.

So P2P decided to put the middlemen back into lending. Instead of their customers picking which loans to invest in individually, the platform's middlemen would match lenders to borrowers for them (although depending on platform the customers could still ask the middlemen to pick "high risk" or "not so high risk" loans). Furthermore, the platform would hold some of the interest back from their customers and put it into a "reserve fund" to cover those borrowers who despite the best efforts of the middlemen didn't pay their loans back. Because otherwise P2P would just be the same as a high yield bond fund, and we already have lots of those. Instead, now P2P is a With Profits fund but one that only invests in corporate and personal debt instead of a multi-asset stockmarket portfolio. And thus the future of investment took a brave leap forward into the 1970s.

Of course we still have the other segment of the market - Lendy & Funding Circle etc. - which remains true to the original aim of P2P, to cut out the middleman, and match people who want to engage in corporate lending without due diligence and people who want to borrow money without going through due diligence for no doubt perfectly good reasons.

And everybody lived happy ever after, after allowing a 2% per annum deduction for bad debts.

p2p is riskier than funds and bonds anytime, but p2p is less riskier than individual company shares

I'm a big fan of P2P.

In terms of risk I've noticed that if a stocks portfolio dropped 10% in value, most people would be philosophical and say "it's the nature of the beast, don't micromanage, let the fluctuations even out". But those same people would start panic-selling if one of their ten P2P loans defaulted.

I'm a pragmatist and I like to look at the bottom line - and that bottom is, in my personal experience, P2P represents a fantastic return and refreshingly free of the fees, charges and commission that stockbrokers are synonymous with. P2P is one of the best things you can do with cash, short of spending it on booze and women.

I'll balance that by saying I don't feel platforms like Zopa offering a mere 4ish% are worth the bother. If I'm going to waive FSCS compensation I want it to be worth my while.