Peer-to-peer lending sites: MSE guide discussion

jamesd

Jordan_Stodart wrote: »

With P2P you're (mostly) not exposed to market fluctuations as the loans are non-listed. In my opinion, the stability and use of P2P as a diversification tool within my portfolio has been something I've always appreciated. Less volatility, but, risk in capital loss and illiquidity. It's a tradeoff alright!

I'm currently at over 30% of investable assets in P2P, anticipating over 50% by next summer and onwards up to about 70%.

Historically I've been nearly 100% in equities but I think that bond prices and many equity market ten year cyclically adjusted price/earnings ratios are unfavourable. Since PE10 is well inversely correlated with future returns for ten to fifteen years it looks like a better time to be selling than buying.

At the moment I'm assuming over 10% returns after bad debt from P2P, higher than the long term UK stock market average of about 5% plus inflation. So no real reason to think that I'm missing out in the areas where I've cut back.

bigadaj

jamesd wrote: »

I'm currently at over 30% of investable assets in P2P, anticipating over 50% by next summer and onwards up to about 70%.

Historically I've been nearly 100% in equities but I think that bond prices and many equity market ten year cyclically adjusted price/earnings ratios are unfavourable. Since PE10 is well inversely correlated with future returns for ten to fifteen years it looks like a better time to be selling than buying.

At the moment I'm assuming over 10% returns after bad debt from P2P, higher than the long term UK stock market average of about 5% plus inflation. So no real reason to think that I'm missing out in the areas where I've cut back.

Though p2p hasn't really performed any better than the stockmarket over the last couple of years, certainly worse in 2016.

Maybe the reference to the uk stock market is for ease but surely a comparison with a world index would be better.

jamesd

It's more of an observation that it doesn't cost as much to switch from equities to P2P as it would to switch from equities to gilts. UK is a better comparison for this because it's largely UK P2P so UK equities removes the biggest part of the exchange rate effect that boosted global equities in Pound terms. FTSE All Share index total returns for the last few years have been:

2016 16.75%
2015 0.98% two year total return 17.73%
2014 1.18% three year total return 18.91%
2013 20.81%
2012 12.30%
2011 -3.46%
2010 14.51%
2009 30.12%
2008 -29.93%
2007 5.32%

I've definitely beaten the All Share Index over two and three years from 2014 to 2016 with P2P investing. Not so sure I beat it just for 2016 though I probably did at Ablrate.

Brunnen-G

Ratesetter hitting 7.5% today on 5 year loans for those who fancy it

bigadaj

jamesd wrote: »

It's more of an observation that it doesn't cost as much to switch from equities to P2P as it would to switch from equities to gilts. UK is a better comparison for this because it's largely UK P2P so UK equities removes the biggest part of the exchange rate effect that boosted global equities in Pound terms. FTSE All Share index total returns for the last few years have been:

2016 16.75%
2015 0.98% two year total return 17.73%
2014 1.18% three year total return 18.91%
2013 20.81%
2012 12.30%
2011 -3.46%
2010 14.51%
2009 30.12%
2008 -29.93%
2007 5.32%

I've definitely beaten the All Share Index over two and three years from 2014 to 2016 with P2P investing. Not so sure I beat it just for 2016 though I probably did at Ablrate.

I wouldn't have said that's a valid comparator though, even if it is an easy option.

A poster would be rightly ridiculed for suggesting 100% investment in the ftse all share, so I don't see why that would be a suitable benchmark.

Comparison with say the world index in dollars might be better, and surely if you are a follower of cape then a suitable, alternative would be to adjust your investment strategy to favour those markets which appear to offer better value.

I'm not sure whether you beat a poor comparator with one p2p platform is particularly relevant either, it's a bit like one of my funds or shares has done well and the rest have been mediocre or worse.

Drp8713

I feel safer in Investment Trusts that have been about for decades than I do in P2P, even though crashes are a certainty, I feel confident the trusts will bounce back and deliver in the long term.

With P2P defaults are a certainty, of course you could be lucky enough to not be invested in the ones that default or get at least your capital back if you do. However, if they dont default the fact that a 12% return doubles your money every 6 years is a massive attraction, to know the yield and loan length upfront and to have some background on the company and a secure asset to fall back on makes it a serious competitor to the markets and I can see why people would increase their exposure to P2P.

If your loans dont default, there is no volitility, no crashes, just a known return and maturity date. Its all a bit easy until it goes wrong, then its about how they recover the money.

I have put £2100 into Ablrate at the start of August this year, if I avoid defaults with large capital losses, and the 12%+ loans continue in order to reinvest, then my £2100 will be worth £75k in 30 years when I retire. At average stockmarket 5% over the same period it would only be worth £9k.

The risks are there but the rewards huge.

I have about £20k in the markets in comparison, but if my returns stay above 12% and P2P survives the next financial crisis then I would have to consider increasing my S&S /P2P ratio.

Jordan_Stodart

jamesd wrote: »

I'm currently at over 30% of investable assets in P2P, anticipating over 50% by next summer and onwards up to about 70%.

Do you anticipate increasing investment in existing P2P providers, or are you going to continue diversifying across multiple platforms? How would a one-click solution platform that offered portfolios with multiple P2P providers included in them sound to you?

Jordan_Stodart

economic wrote: »

agree. i have around 3% of my net worth in p2p and will maintain this amount. i feel 3% is just right.

From my experiences of speaking with financial advisers about the asset class, around 3-5% allocation is comfortable. Sure, there's a lot of self-directed investors who are comfortable with greater exposure within their portfolio, but I think for those who see P2P as a passive investment and perhaps don't have the time or inclination to regularly learn or monitor their investment(s) then 5-10% makes sense.

I think the typical investor journey is start very low, monitor , then increase exposure. I think what is important to remember, however is that borrowers are not likely to default in say their 1st year of a 5-year term, so default rates forecast while some open loans are in their infancy need to be taken with a pinch of salt. Increasing exposure too quickly could be risky.

aroominyork

The key issue that makes me limit my investment in Ratesetter is not the risk of defaults, but the possibility of some event leading to a huge number of rolling lenders simultaneously withdrawing their funds, which they can do without notice. Could Ratesetter cover such withdrawals and if so how, and what might the knock-on effect be to interest and capital provision fund coverage of fixed term loans?

agent69

aroominyork wrote: »

Could Ratesetter cover such withdrawals

They don't have to.

One of the risks of lending in the short term markets is that if the sticky brown stuff hits the fan you might have to wait 5 years to get your money back.