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  • FIRST POST
    • adam81
    • By adam81 17th Jul 17, 2:59 PM
    • 209Posts
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    adam81
    P2P diversification
    • #1
    • 17th Jul 17, 2:59 PM
    P2P diversification 17th Jul 17 at 2:59 PM
    Hi,

    So I've read a lot of threads on P2P and the merits of diversifying. So keen to find out to what extent others diversify?

    For now ignore platforms, assume min 2-3 platforms. What I'm interested in is diversifying against bad debt on any one platform. I saw Jamesd mention in one of his threads he will aim for 10% after bad debt. To my mind that means a lot of little chunks.

    Assuming £1000 investment, with a average loan return of 12% the holy grail is £120 interest per year. So to achieve the 10% after bad debt we need to return £100. Assuming you only get one bad debt in the year that would mean loan chunks of £20, or 50 separate loans for a £1000 investment.

    Do people split their investments this small? At present I have around £1500 in P2P with the average loan around £70 (as opposed the £30 suggested above. I do have a couple above £100 and less than £30 which skew the average and of course leave me open to large bad debt.

    It just seems a little difficult to start on new platforms and easily achieve this level of spread quickly.
Page 1
    • justme111
    • By justme111 17th Jul 17, 7:45 PM
    • 2,790 Posts
    • 2,671 Thanks
    justme111
    • #2
    • 17th Jul 17, 7:45 PM
    • #2
    • 17th Jul 17, 7:45 PM
    50 loans does not seem that many on 2-3 platforms. Amongst 2 or 3 platforms you could easily have 50 l9ans on secondary market at any given time without having to wait even a day for new loans
    • bigadaj
    • By bigadaj 17th Jul 17, 7:48 PM
    • 9,939 Posts
    • 6,346 Thanks
    bigadaj
    • #3
    • 17th Jul 17, 7:48 PM
    • #3
    • 17th Jul 17, 7:48 PM
    It obviously depends how much you're putting into p2p, not unusual for some people to have six or even seven figures.

    I've generally got three figures in individual loans, four figures to particular borrowers and platform and low five figures in the asset class, slowly building to a target of mid five figures over time, assuming availability and no apocalypse.

    Theree plenty of availability on most platforms on the secondary market to get quickly invested and diversified, either at par or discount/ premium.

    Diversity is key in my opinion, no different to individual bonds or shares as opposed to oeics or onvtsment trusts.

    The default in collateral on the car loan seems to have panicked some and opene d those previously scarce loans open to opportunities.

    Dyor as ever.
    • TheShape
    • By TheShape 17th Jul 17, 9:39 PM
    • 1,017 Posts
    • 772 Thanks
    TheShape
    • #4
    • 17th Jul 17, 9:39 PM
    • #4
    • 17th Jul 17, 9:39 PM
    It would be nice to diversify to the extent that you've got no more than 2% in any one loan but the problem might be finding, at least initially, enough loans to invest in. Obviously, at the moment you make your first investment, that investment makes up a full 100% of your p2p investments, which obviously falls as you invest in further loans.

    I've got approx £18k invested in p2p. I've recently suffered a default on one loan of approx £50 but with approximately £300 lent to that borrower. The nature of the loan means the full £300 is at risk. As a percentage of my lending on the relevant platform it represents approx 5% of my holding but only approx 1.6% of total p2p lending.

    More by chance than design that it represents just 1.6% (I have larger loans) but it does seem around the right level of diversification for me. It helps that my total return on p2p is currently around £350 as a full loss of £300 capital does not leave me with a total loss overall. It's probably a good idea to consider whether the full loss of capital of your largest loan would be something you are prepared to accept and if not, reduce it.

    Assuming £1000 investment, with a average loan return of 12% the holy grail is £120 interest per year. So to achieve the 10% after bad debt we need to return £100. Assuming you only get one bad debt in the year that would mean loan chunks of £20, or 50 separate loans for a £1000 investment.
    10% is perhaps your long-term aim. If you get a very early default or multiple defaults you'll be playing catch-up but not every default will necessarily result in a 100% capital loss so the greater the level of recovery, the greater your capacity for defaults overall.

    The default in collateral on the car loan seems to have panicked some and opened those previously scarce loans open to opportunities.
    It's certainly prompted me to review my loans. I've brought my total lending to AE on MoneyThing down from approx £850 to £500, spreading the money from the sale more evenly across my other loans.

    I saw Jamesd mention in one of his threads he will aim for 10% after bad debt. To my mind that means a lot of little chunks.
    I expect that for Jamesd it means lots of big chunks.
    • Thrugelmir
    • By Thrugelmir 17th Jul 17, 10:50 PM
    • 55,160 Posts
    • 48,361 Thanks
    Thrugelmir
    • #5
    • 17th Jul 17, 10:50 PM
    • #5
    • 17th Jul 17, 10:50 PM
    So to achieve the 10% after bad debt we need to return £100. Assuming you only get one bad debt in the year that would mean loan chunks of £20, or 50 separate loans for a £1000 investment.
    Originally posted by adam81
    Perhaps spend a little time reading a little about the loans before investing to avoid the potential of bad debt. Than simply throwing darts willy nilly. There's no shortage of people who'll happily risk other peoples money rather than their own.
    “ “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
    • Bravepants
    • By Bravepants 18th Jul 17, 10:37 PM
    • 246 Posts
    • 270 Thanks
    Bravepants
    • #6
    • 18th Jul 17, 10:37 PM
    • #6
    • 18th Jul 17, 10:37 PM
    I think the issue is that the average Joe in the street has no idea of how to assess loans. The "experts" in Bankland have all sorts of resources and experience available to help identify risk. This is why sites like FundingCircle have autobid to automatically spread 0.25, 0.5 or 1% of your cash among hundreds of loans. The minimum chunk on FC is £20, assuming you have £2000 in your account, that's 1%.

    The theory is you don't need to be a loan expert if you diversify across at least 100 loans. Autobid exists to save Joe Punter sitting for long hours infront of a screen deciding where to put each of their £20 chunks.

    If you take an hour to decide where to place your £20 and the interest rate is 10% per annum that means your pay rate for your single hour's work is £2, and the interest comes in over the year at 0.02 pence per hour.

    Compare that the UK's £7.50 per hour minimum wage.

    Personally, I'd like to have enough invested in P2P to pay my monthly contribution to my partner's and my housekeeping costs! I would need about £50k invested at at least 12% to do that, and then I would have to pay tax on anything above £1k if I have no other savings interest coming in.
    Last edited by Bravepants; 18-07-2017 at 10:41 PM.
    • takesyourchances
    • By takesyourchances 18th Jul 17, 10:46 PM
    • 427 Posts
    • 252 Thanks
    takesyourchances
    • #7
    • 18th Jul 17, 10:46 PM
    • #7
    • 18th Jul 17, 10:46 PM
    I think the issue is that the average Joe in the street has no idea of how to assess loans. The "experts" in Bankland have all sorts of resources and experience available to help identify risk. This is why sites like FundingCircle have autobid to automatically spread 0.25, 0.5 or 1% of your cash among hundreds of loans. The minimum chunk on FC is £20, assuming you have £2000 in your account, that's 1%.

    The theory is you don't need to be a loan expert if you diversify across at least 100 loans. Autobid exists to save Joe Punter sitting for long hours infront of a screen deciding where to put each of their £20 chunks.

    If you take an hour to decide where to place your £20 and the interest rate is 10% per annum that means your pay rate for your single hour's work is £2, and the interest comes in over the year at 0.02 pence per hour.

    Compare that the UK's £7.50 per hour minimum wage.
    Originally posted by Bravepants
    When I first started P2P, I did use autobid on Funding Circle, but would I do it again on FC? ....no and I sold out of it. It is lending blindly against unsecured loans and the defaults are common. A few £20 hits on £2000 etc affects your returns, within a short period I had flags and defaults and the returns for me was not worth the risk.

    Persoanlly I prefer to select my loans now on other platforms that have a higher rate of return for leading my money.

    FC etc helped me learn and dip my toes in P2P but I learnt for me to sell out and that part worked well.
    • Bravepants
    • By Bravepants 18th Jul 17, 10:57 PM
    • 246 Posts
    • 270 Thanks
    Bravepants
    • #8
    • 18th Jul 17, 10:57 PM
    • #8
    • 18th Jul 17, 10:57 PM
    When I first started P2P, I did use autobid on Funding Circle, but would I do it again on FC? ....no and I sold out of it. It is lending blindly against unsecured loans and the defaults are common. A few £20 hits on £2000 etc affects your returns, within a short period I had flags and defaults and the returns for me was not worth the risk.

    Persoanlly I prefer to select my loans now on other platforms that have a higher rate of return for leading my money.

    FC etc helped me learn and dip my toes in P2P but I learnt for me to sell out and that part worked well.
    Originally posted by takesyourchances
    Yes indeed. I have now switched autobid off and am running it down slowly rather than selling out. I also have some cash in Moneything, and Lendy.

    I have 4 loans on Lendy that are approaching the 300 days overdue mark and the properties are being sold off etc.. I cannot sell and interest is accruing, I hope that they recover most if not all of the capital. It's a risky business this P2P, and the interest rates should give a clue to that. But the experience has been very valuable.
    • takesyourchances
    • By takesyourchances 18th Jul 17, 11:17 PM
    • 427 Posts
    • 252 Thanks
    takesyourchances
    • #9
    • 18th Jul 17, 11:17 PM
    • #9
    • 18th Jul 17, 11:17 PM
    Yes indeed. I have now switched autobid off and am running it down slowly rather than selling out. I also have some cash in Moneything, and Lendy.

    I have 4 loans on Lendy that are approaching the 300 days overdue mark and the properties are being sold off etc.. I cannot sell and interest is accruing, I hope that they recover most if not all of the capital. It's a risky business this P2P, and the interest rates should give a clue to that. But the experience has been very valuable.
    Originally posted by Bravepants
    My first 3 platforms were Zopa from it started, then Ratesetter and Funding Circle. I have sold out of Zopa and Funding Circle.

    I sold out of Funding Circle within a few hours, I have about £80 in defaults, if I don't get any of this back I got out with a profit and learnt more.

    It was in my mind to sell out of ratesetter, but I thought I would hold as it was hands off and I was not adding new money. But the latest email made my mind up tonight so I emailed back for the free sell out. If I can get all out of Ratesetter, I will spread it across Moneything, Ablrate and Collateral. I have a small amount in the default in Collateral, so it will be interesting the recovery against the assets but as it stands if I lost that I am still ok in Collateral at the moment.

    I will stick with these 3 platforms and wait for more up coming loans. I like to read up on what I am putting money into and not the blind lending now and the rates are more attractive for the risks.

    Hopefully you get something back on Lendy on the defaults. I did not fancy that platform. If I get all of my P2P spread across the other 3 I am using, MT, Ablrate and Collateral, I am not sure which Platform I would go for a 4th to diversify a bit more, it is easier to eliminate than to select out another one at this point for me.

    I do enjoy the hands on platforms as well, it is interesting to me as well. Also as you said it is a very valuable experience!
    • Thrugelmir
    • By Thrugelmir 18th Jul 17, 11:31 PM
    • 55,160 Posts
    • 48,361 Thanks
    Thrugelmir
    I think the issue is that the average Joe in the street has no idea of how to assess loans. The "experts" in Bankland have all sorts of resources and experience available to help identify risk.
    Originally posted by Bravepants
    One can reduce "risk" not eliminate it entirely. As with the era of RMBS prior to the GFC. Splicing and dicing loans is nothing new as a concept. Trouble is investors have no idea what they are being invested in by default. Using an autobid system. Investing in similar types of loans offers no protection. As when markets down downwards in a particular sector then the damage will hit hard. Speculative property developers simply run out of cash for example.
    “ “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
    • adam81
    • By adam81 19th Jul 17, 1:49 PM
    • 209 Posts
    • 56 Thanks
    adam81
    Yeah I echo the comments on not being able to assess loans properly. Seems most are diversifying into smaller chunks than I am. So I'll likely look to reduce this, as a default on one of my larger loans would see my return drop dramatically.
  • jamesd
    What I'm interested in is diversifying against bad debt on any one platform. I saw Jamesd mention in one of his threads he will aim for 10% after bad debt. To my mind that means a lot of little chunks.

    Assuming £1000 investment, with a average loan return of 12% the holy grail is £120 interest per year. So to achieve the 10% after bad debt we need to return £100. Assuming you only get one bad debt in the year that would mean loan chunks of £20, or 50 separate loans for a £1000 investment..
    Originally posted by adam81
    There's usually some recovery of money after a default, for secured lending normally by taking the security. If you presume 50% recovery that doubles the potential loan size. You won't necessarily see one default a year, except on loans to lots of consumers.

    I actually aim for more than 10% after bad debt but each person will have different loans and a different experience so 2% gives some margin.

    Personally I've seen so much bad debt over the years that I'm relatively relaxed about it compared to the newcomers I'm normally writing to. Newcomers are far more easily spooked and it's useful to try to keep the potential default amount per loan quite low to deal with that.

    Since I'm more comfortable I'm generally OK with my whole expected annual interest in a loan at once when it seems worthwhile for some reason. In exceptional cases I've gone as high as 10% of my net worth in one loan for a while. The current cashback offer at Collateral for one particular loan is one where I've temporarily gone higher than usual.
    • cjv
    • By cjv 30th Jul 17, 8:00 AM
    • 87 Posts
    • 45 Thanks
    cjv
    I have only just recently opened my first P2P account, it was with funding circle. After reading more and looking into the loans available I decided to sell all my funding circle loans (made a small profit overall ) and now focus entirely on asset backed loans.

    I opened accounts with Assetz Capital, Moneything, Ablrate, Collateral UK and Funding Secure. I have placed a small amount in each to see which platforms I enjoy and how they operate.

    I personally just put minimal amounts on each loan I pick, £20 usually (£25 on funding secure) as I do not have a large amount total to invest.

    I will probably reduce the amount of platforms to 2 or 3 after I decide which ones I like best. I would be happy with 7-8% returns overall so I am hoping this strategy will help me "safely" achieve that and give me a chance to also get higher returns.
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