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  • FIRST POST
    • Fatbritabroad
    • By Fatbritabroad 4th Apr 17, 9:56 PM
    • 149Posts
    • 67Thanks
    Fatbritabroad
    What's higher risk equities or peer to peer
    • #1
    • 4th Apr 17, 9:56 PM
    What's higher risk equities or peer to peer 4th Apr 17 at 9:56 PM
    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
Page 2
    • Thrugelmir
    • By Thrugelmir 15th Jun 17, 10:07 PM
    • 53,787 Posts
    • 46,571 Thanks
    Thrugelmir
    Bear also in mind that £1000 in p2p will be lent to 100 borrowers so your risk of losing everything will only happen if Zopa or Ratesetter etc go bust.
    Originally posted by grumpygardener
    Not so much a question of losing everything. Only requires a % of borrowers to default for the rate of return to fall significantly.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • Malthusian
    • By Malthusian 16th Jun 17, 10:00 AM
    • 2,187 Posts
    • 3,057 Thanks
    Malthusian
    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.
    Originally posted by grumpygardener
    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.
    • EdGasketTheSecond
    • By EdGasketTheSecond 16th Jun 17, 11:54 AM
    • 131 Posts
    • 67 Thanks
    EdGasketTheSecond
    P2P could be the next car crash waiting to happen:

    http://webcache.googleusercontent.com/search?q=cache:3BE9t7OyLL0J:www.altfi.com/article/0131_p2p_and_crowdfunding_could_be_a_car_crash_wai ting_to_happen+&cd=1&hl=en&ct=clnk&gl=uk&client=fi refox-b

    (Use the cached version to get around making a login account)

    "The proposed regime may create a very dangerous situation where a P2P website could essentially be started out of someone's bedroom, by someone that has absolutely no lending experience or understanding of loan underwriting. The proposed regulations do not even provide an obligation on a platform to do the most simple of checks, such as a credit check, nor use any sort of fraud detection system. The regulation effectively allows P2P lending platforms to 'outsource loan underwriting to the masses'."
    • aldershot
    • By aldershot 16th Jun 17, 1:33 PM
    • 130 Posts
    • 110 Thanks
    aldershot
    disclosure: I have no p2p in my portfolio (and no regrets). I do have corporate bonds.

    If the masters of the universe mispriced correlation risk so badly in 2007-2008, then I have no confidence that the average p2p lending platform can price it correctly now.

    I think the default risk is far more digital then others do. Either it's all Ok and everyone can pay their (sub prime) loans, or the economy takes a dive (quite possible in the next few years) and whole swaths of borrowers cannot repay at the same time and the defaults sky rocket. It won't be a contained drip. Just my 2c.
    • eskbanker
    • By eskbanker 16th Jun 17, 3:00 PM
    • 4,770 Posts
    • 4,509 Thanks
    eskbanker
    You are making the classic mistake of assuming that because they don't tell you the charges they don't exist.
    Originally posted by Malthusian
    ....as well as the classic mistake of assuming that, after making a loss on a single stock, investing in equities, etc, must therefore be risky/expensive/unreliable/difficult as a general principle rather than spotting that said loss is only symptomatic of poor investing by not diversifying in the first place!
    • Malthusian
    • By Malthusian 16th Jun 17, 3:19 PM
    • 2,187 Posts
    • 3,057 Thanks
    Malthusian
    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.
    • Marine_life
    • By Marine_life 16th Jun 17, 3:51 PM
    • 765 Posts
    • 1,273 Thanks
    Marine_life
    I suspect that if you compare a single share in one company to a P2P investment it will be relatively eaiser to say which is the higher risk. However, if you look at a balanced portfolio it would be much more difficult as you'd need to understand the composition of the portfolio.

    Logic suggests that P2P is more risky as there is always a risk of platform failure and this is still a relatively immature market. However, FCA regulation means that should become less of an issue.
    Make it idiot proof and someone will make a better idiot…
    • elephantrosie
    • By elephantrosie 16th Jun 17, 6:23 PM
    • 316 Posts
    • 77 Thanks
    elephantrosie
    p2p is riskier than funds and bonds anytime, but p2p is less riskier than individual company shares
    Getting bored of my 9 to 5 job.
    • Thrugelmir
    • By Thrugelmir 16th Jun 17, 6:27 PM
    • 53,787 Posts
    • 46,571 Thanks
    Thrugelmir
    p2p is riskier than funds and bonds anytime, but p2p is less riskier than individual company shares
    Originally posted by elephantrosie
    In any investment class there are any number of inherent risks. Broad comparison simply isn't meaningful.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • Flobberchops
    • By Flobberchops 16th Jun 17, 7:20 PM
    • 506 Posts
    • 347 Thanks
    Flobberchops
    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.
    I work for a UK bank, but any comments made on this forum are solely my personal opinion. Caveat Emptor!
    • Thrugelmir
    • By Thrugelmir 16th Jun 17, 7:30 PM
    • 53,787 Posts
    • 46,571 Thanks
    Thrugelmir
    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.
    Originally posted by Flobberchops
    One of the biggest failures of amateur investors is to cut their losses by selling up totally. Once in serious decline the true value of a business is a lot less than it's balance sheet worth. Let alone market worth.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • bigadaj
    • By bigadaj 16th Jun 17, 9:39 PM
    • 9,157 Posts
    • 5,851 Thanks
    bigadaj
    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.
    Originally posted by Malthusian
    I'm increasing my p2p investments currently, no money in Ratesetter, Zopa, fc or Lendy. Ther return isn't high enough for the first two (after my£100 bonus at Ratesetter) and the due diligence poor and defaults too high at the latter two.

    As with any investment you need to view all the links in the chain, and teh credibility and history of teh platform as well as security and track record of borrowers need to be viewed together.
    • elephantrosie
    • By elephantrosie 17th Jun 17, 8:41 AM
    • 316 Posts
    • 77 Thanks
    elephantrosie
    In any investment class there are any number of inherent risks. Broad comparison simply isn't meaningful.
    Originally posted by Thrugelmir
    it is my personal opinion.
    Getting bored of my 9 to 5 job.
    • Plus
    • By Plus 17th Jun 17, 12:28 PM
    • 215 Posts
    • 170 Thanks
    Plus
    After mulling this thread for a bit, I signed up for Ablrate just to see what it was like.

    Things I like:
    • Secured lending: loans are secured on some kind of collateral, so there's a means of recovering some part of the investment if it goes sour. I don't think this has been properly stress-tested though (see below).
    • Secondary market: loans are priced like bonds, so it's possible to buy on a premium or a discount, and it seems fairly liquid (if not massively large). This means it's possible to pick up 'old' loan parts, and an escape route if you need liquidity.

    Things I don't like:
    • Due diligence: to diversify, you should spread across many different loan parts. There's just too much paperwork to read. As a beginner P2P investor I'd be putting say £100 in each offer - it isn't worth the time to read the documentation.
    • People not doing due diligence: when new loans have been offered recently, they have been snapped up in seconds. Since the paperwork is only available at the time the loans go on sale, people clearly aren't reading it. Not only does it mean that people are going in without their eyes open, they are out-competing those who do.
    • Stress testing: there was an episode where a borrower defaulted (something to do with shipping containers). I didn't follow the ins-and-outs but it seemed like the process was messier than it might have been - in particular there were allegations that the platform had made mistakes. The thread was long and I didn't read it all so I could be wrong. But the point stands that everyone understands the process when a mortgage borrower defaults - the process should be tested enough with secured lending borrowers too. Defaults will happen, and so smooth handling of default should be a central part of any platform's offer, not an extraordinary event that's worked out on the fly.
    • ISA: the terms of the ISA haven't been announced, but I'd find it difficult to use without being a Flexible ISA - with P2P you often have money hanging around waiting for the right loan to turn up. If you're locked into depositing without being able to withdraw during quiet times then that would get awkward.
    • Filter risk: most of the discussion seems to be on their private forum. That means they can censor, filter or otherwise shape opinions to suit their purposes and we wouldn't know. This makes it difficult to know if there are conversations that we can't see. The forum is essentially the company newspaper. (There's a board on P2P Independent Forum that might pick this up, but maybe more subtle influence would go unnoticed). This is not an issue more with this platform that any other, and I see no evidence whatsoever this is happening - but another thing to consider when everything is centralised on a proprietary platform.

    So I'm still staying out, but it did feel a slightly better fit than other P2P models. Still not for me, though.
    • bigadaj
    • By bigadaj 17th Jun 17, 3:02 PM
    • 9,157 Posts
    • 5,851 Thanks
    bigadaj
    The world is full of different opinions and I don't think anyone would recommend that someone invests abive their risk profile.

    Due diligence is an issue, and some platforms undertake this better than others. It is hassle to diversify, certainly initially, but depend on your mindset, I find the research quite interesting. The secondary market on any platform s allows an investor to invest quickly and diversify so that's a potential solution.

    Your statement about loans being snapped up in seconds is wrong
    - there was a time this was a problem on moneything and possibly for smaller pawn loans on collateral, but most platforms now have plenty of availability on loans. With specific reference to Ablrate then all the loans I've seen for the last eighteen months have taken days and typically weeks to fill.

    With respect to defaults then again that's a test for the platform to pass. Some platforms handle this poorly and that knocks confidence, and there is sometimes a question over valuation reports but that's down to the investor to assess.

    The point with respect to flexible isas has been made to several platforms on the p2p platform and acknowledged, whether platforms progress with this remains to be seen. Obviously this wouldn't necessarily toe you into any loan more than a non isa investment, you can always sell and stay in cash, wit for a suitable loan. Withdrawing would of course reduce your isa allowance for the year.

    Don't understand your last point on 'filter risk', platforms may limit information to those registered or partaking in a particuLlr loan but I don't see anything wrong with that.

    Most debate happens on the independent forum I find. The better ones when challenged take on lender comments regarding legal processes and respond, similarly valuation reports may be produced for the borrower rather than the platform which leads to a question about both conflict of interest and liability.

    The platforms don't reveal what they are charging the borrower, so they could be charging a boorrower18-20% on loans that pay individuals 12% or more or alternatively 8% or less.

    P2p is far from perfect, but in a world where cash earns nothing, equities are in the second longest bull market in history, bonds are set for a fall as soon as interest rates rose from record lows, property valuations are stretched across much of the U.K. Then I'm happy for it to make up a small amount of my investment.
  • jamesd
    "The proposed regime may create a very dangerous situation where a P2P website could essentially be started out of someone's bedroom, by someone that has absolutely no lending experience or understanding of loan underwriting. The proposed regulations do not even provide an obligation on a platform to do the most simple of checks, such as a credit check, nor use any sort of fraud detection system. The regulation effectively allows P2P lending platforms to 'outsource loan underwriting to the masses'."
    Originally posted by EdGasketTheSecond
    That was written back in February 2014 before the FCA started regulating P2P lending. Good luck with getting the FCA to authorise such a platform to operate. You have approximately no chance of getting it authorised. The regulations don't have to be explicit, the FCA sets the competence and experience thresholds that it will accept.
  • jamesd
    Short history of P2P
    Originally posted by Malthusian
    A nice fairy tale but a P2P platform is required to ensure that it's loan descriptions don't mislead investors and I don't know of any UK P2P platform that doesn't do checks of at least some sort. There are some failures to do that which get discussed here from time to time, notably for platforms that I do or would recommend against using.
  • jamesd
    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.
    Originally posted by Flobberchops
    An example bottom line from a P2P platform I tend to favour:

    Annualised return above 20% if bad debt recovery is total.
    Annualised return above 19% if bad debt is total loss.

    By annualised return I mean XIRR calculated from the time money is paid into or withdrawn from the account, including all of the time when the money is at the platform but not invested, for the 2.5 years I've had an account there.
    Last edited by jamesd; 18-06-2017 at 9:24 AM.
  • jamesd
    Iefreshingly free of the fees, charges and commission that stockbrokers are synonymous with..
    Originally posted by Flobberchops
    Those fees do exist, though most platforms don't disclose them. One of the welcome exceptions is Ablrate, which usually discloses what it takes in the deal proposal. That's normally about 2-5% up front and about 0.375% a month while paying lenders about 1% a month. One of the jobs of the ongoing monthly payments is to help cover the cost of administering the loan if the platform failed. I don't know of any other platform that is as open.
  • jamesd
    Due diligence: to diversify, you should spread across many different loan parts. There's just too much paperwork to read. As a beginner P2P investor I'd be putting say £100 in each offer - it isn't worth the time to read the documentation.
    Originally posted by Plus
    That would be reasonably safe at Ablrate or MoneyThing but not generally. At those two places the platform will respond to issues raised by lenders and adjust if needed.

    People not doing due diligence: when new loans have been offered recently, they have been snapped up in seconds. Since the paperwork is only available at the time the loans go on sale, people clearly aren't reading it. Not only does it mean that people are going in without their eyes open, they are out-competing those who do.
    Originally posted by Plus
    One recent case of that but it's not normal for that to happen. In that case it was impossible for those who invested to have had time to check.

    Stress testing: there was an episode where a borrower defaulted (something to do with shipping containers). I didn't follow the ins-and-outs but it seemed like the process was messier than it might have been - in particular there were allegations that the platform had made mistakes. The thread was long and I didn't read it all so I could be wrong. But the point stands that everyone understands the process when a mortgage borrower defaults - the process should be tested enough with secured lending borrowers too. Defaults will happen, and so smooth handling of default should be a central part of any platform's offer, not an extraordinary event that's worked out on the fly.
    Originally posted by Plus
    The person who was most critical didn't have a clue about what really happened and jumped to the wrong conclusions. Ablrate couldn't effectively correct them at the time without excessive risk to what they were doing.

    The platform knew what to do and did it, going to the high court for an injunction and freezing order that among other things resulted in the individual owning the borrowing company having their personal bank account frozen except for reasonable living expenses. That's the most determined collection activity that I've ever seen from a P2P company and it was justified by the outrageous actions of the individual concerned, who both took and sold containers still owned by the platform and used the threat of defaulting improperly. Legal proceedings take a while but later this month the borrowing company appears likely to be wound up with the owner made personally liable for its debts. It'll still take considerable time for the rest of the legal process to be worked through.

    No charge was registered against the borrowing company for one set of containers because they were still owned by the platform at the time they were taken, so no valid charge could exist.


    ISA: the terms of the ISA haven't been announced, but I'd find it difficult to use without being a Flexible ISA - with P2P you often have money hanging around waiting for the right loan to turn up. If you're locked into depositing without being able to withdraw during quiet times then that would get awkward.
    Originally posted by Plus
    It will be a flexible ISA with no additional charge compared to non-ISA investing. Transfers in will be accepted as well.


    Filter risk: most of the discussion seems to be on their private forum. That means they can censor, filter or otherwise shape opinions to suit their purposes and we wouldn't know. This makes it difficult to know if there are conversations that we can't see. The forum is essentially the company newspaper. (There's a board on P2P Independent Forum that might pick this up, but maybe more subtle influence would go unnoticed). This is not an issue more with this platform that any other, and I see no evidence whatsoever this is happening - but another thing to consider when everything is centralised on a proprietary platform.
    Originally posted by Plus
    Ablrate doesn't have a private forum. One of the others does and you are probably mixing those two up.

    There is a Q&A section for each loan but that generally has nothing not already discussed in public but it needs to be there for those who don't see the other discussions. Also people don't always discuss in forums, the can and do directly email platforms with questions and opinions and the results of that can show up there.

    There definitely are lots of private discussions between lenders and between lenders and platforms going on. As you'd expect, people use private messages and emails and phone calls and whatever else takes their fancy to discuss their investments. Including discussions here.
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