Peer-to-peer lending sites: MSE guide discussion

Snow_Dog

bxboards wrote: »

Obviously not offering advice, but I'm big fan of MLA - I use diversification as a form of self-insurance.

I tend to go in to any 8%+ loan - usually there are enough on the secondary market that (for example) you could put an equal amount into every loan, and probably get into 100 to 200 loans fairly easily.

I tend to have an amount I put in, call my 100% amount. So for example if I put in 1k per loan, 1k would be 100%, 500.00 would be 50%..etc etc

So 8% loans get 50%, 9% loans get 75% of that, and 10%+ loans get 100% of my per loan float.

I've had very few defaults on Assetz Capital, I have a few in recovery (suspended) but probably less than 1% and obviously the interest generated covers the odd default.

As I said, not advice, but if you aim to diversify and that diversification includes multiple platforms too, then I think you can still do well.

I have a fair bit more invested in P2P than you do, my platform maximum is higher than your total investment, but I am fairly 'low risk' so never got stuck with Lendy / Colloteral lemons luckily.

I run on similar lines.


Assetz - MLA, look for 6.5%-9% range, <60% LTV (and evaluate confidence level in valuation report), maximum per loan £100.


(Exception to the above is money in IFISA which is in the 30DAA).



Kuflink - Self select, prefer single loans, not the development ones where combined loans in the £M. Maximum per loan £50


Ratesetter is an anomaly in the method above - so break up lending into £100 max chunks (with one exception of £1K in wifes name to get the sign up bonus after 1 year), break up by lending in 0.1% increments.


Main concern would be platform failure, Kuflink failure would be small change, Ratesetter intending on withdrawing the £1K in wifes name as soon as the 12 months is up, so after that same level as Kuflink.


Assetz is the one that would be annoying to see go - partly for the money but also because I enjoy the process of evaluating the loans and sticking cash in. It feels like playing one of those strategic games but with the bonus of seeing your money grow.

takesyourchances

I think the real depths of high amounts in P2P is really felt once illiquidity becomes real and understood and the amount of time it can take to run an overall portfolio down once decided too. Having say X amount of thousands invested can look well on a balance sheet, but not so easy to get your hands back on it once it becomes hard to sell loans or defaults happen or platform problems.



If there is a slow down in the UK, it will surely become even harder to liquidate P2P overall. Also platform failure, many of us have felt Collateral....I won't labour on it



I am close to running down P2P to as best I can get asides the wind up of Collateral and some defaults on Moneything and hopefully remaining MT live loans will be repaid by Feb around £550 in live loans.



I find it very concerning medium to long term most P2P companies are not in profit and I personally don't see P2P as a long term investment.



While stock markets are uncertain, I sleep much easier invested in stocks and shares than high amounts in P2P. I peaked at around 17K in P2P I would not like to try and liquidate 50K for example across lots of platforms.



I also invest in equity Investment Trusts and some REIT's in part of my S&S portfolio and while value does fluctuate, I don't get concerned as holding long term and my dividends have been coming in and I am re-investing them and I have grown this over the last couple of years so far.


I personally am taking this approach as part of my investments and while dividend rates are mostly lower than the higher "advertised" p2p rates on many platforms (if all goes perfect), while dividends are more "boring" and not quite as "high octane", they are more stable and sustainable over the long term, yes they can be cut I understand but I feel they are a more diversified income stream and I feel anyone in P2P long enough will unfortunately encounter some type of problem due to the nature of the P2P industry and the non mainstream finance market in which they lend too.



Over the last 12 months I have fully changed direction to get out of P2P and at 39 I feel I have time to invest long term in stocks and shares.



I have read on the P2P forum certain posters reducing etc over the last lot of months too, so it is not just this forum there has been concerns with P2P. I increased P2P while it looked to be going good, but over time I got to experience what many of the problems are like with P2P and although it took a while for the penny to finally drop, I felt it was the time to wind out best I can.

short_butt_sweet

dont_use_vistaprint wrote: »

1) The returns are still too low with S&S. Unless you have a lot of skill and luck

no skill whatsoever is required with S&S, if you use the method of shoving all your available cash in a multi-asset fund or global tracker fund.

and as masonic has pointed out, returns have been great over long periods. that is not guaranteed to be repeated, so you could get unlucky by happening to invest over a 10- or 20-year period with lower returns than the longer-term averages. but you don't need above-average luck to do well; about average would do fine; and even somewhat below average luck is probably OK over several decades.

dont_use_vistaprint wrote: »

risk of individual loans, this is where the skill (and fun) is.

so you don't need skill for S&S, but you do for p2p? or at least: it would help for p2p?

i don't know whether you have skill for p2p, but i'm sure the average person going into it doesn't. so this is quite worrying. there is a huge danger of people finding the process fun, and imagining they have skill, when they don't.

people should be asking themselves: do i have professional experience in deciding whether to grant loans? do i have any evidence that i know how to do it well?

2) Short term investments aren't suited to S&S

no: and nor is p2p.

3) S&S can also blow up in your face, hasn't its done that quite a lot recently - Many have lost money on VLS over the last year or 2. Brexit / S&S seems much more volatile than P2P / Brexit.

as masonic says, equities can fall suddenly in price, but unlike p2p, they don't lose big chunks of your capital, without hope of recovery (provided you stick to well-diversified funds ... if you buy shares in individual companies, you can lose chunks of capital).

S&S is more volatile because it is a more liquid market, i.e. the market price may bounce around a lot but there almost always is a price that it's possible to deal at. p2p secondary markets are much more likely to seize up in a crisis, making it impossible to sell. you should not assume that the apparent liquidity of p2p secondary markets will be there when you really want it to be. relying on pulling your money out when it looks like things are about to go wrong is totally unrealistic. you should assume that if things go very wrong your capital may be stuck for a long time.

(and that is just if lenders become nervous about loans being repaid. in addition, the whole secondary market for any one platform could disappear if the platform gets into trouble.)

short_butt_sweet

Nardge wrote: »

Furthermore, if there were some impending doom, the alarm bells would begin to ring on sites such as '4th Way' or 'P2P Independent Forum'. If I'm not mistaken, this MSE thread has historically appeared to be the most nervous.

as i just said in another post, it is unrealistic to assume the secondary markets will be there for you to sell, certainly at an acceptable price, or perhaps at all, when you think a blow-up of some kind is about to happen. who do you think you'll be selling to? the "greater fool"?

this forum is more pessimistic because it's a general savings & investment forum. forums specifically related to p2p will mostly attract posters who are putting money into p2p, so naturally they are more positive. this forum may have the more realistic view.

I think the main risks are for those who are not diversified enough, are without secondary markets, or who have too many funds invested in any one platform (much harder to whip the monies out as necessary).

again, "whipping out" is not a reliable strategy.

you omit to mention the economic cycle. a downturn in the economy is almost certain to see default rates rising across just about all types of loans. and a dearth of buyers in secondary markets.

Albermarle

Regarding platform losses/risks. Some of the platforms ( or maybe all ) seem to have some relationship with institutional backers . Not necessarily as owners of shares of the platform but as lenders to the same loans that we retail lenders are in ( or underwriters which is the same thing really ). I presume these larger professional lenders must have some confidence in the platforms they work with ?
Or at least they must have their reasons for getting involved in P2P ?

masonic

Albermarle wrote: »

I presume these larger professional lenders must have some confidence in the platforms they work with ?
Or at least they must have their reasons for getting involved in P2P ?

I can think of an instance of one investor who effectively took over a P2P platform, the official reason being he was interested in "becoming more involved in the company because he was looking to increase his influence in the P2P marketplace". The subtext might have been that he thought he could come up with a better approach to managing the loan book than the last lot

Investors in unprofitable fintech companies are ultimately looking for jam tomorrow. It is understandable that a company will make a loss in the initial years while it builds a market share, but would move to profit once it had secured its place in the market. Several young P2P companies are already trading profitably. But there has to be an acceptance when investing in such companies that a significant number of your bets will fail.

One of the backers of Ratesetter is Neil Woodford. One doesn't need to look very hard to see stories about other companies he has backed and their progress.

The problem with the P2P sector IMHO is that it was lauded as the next big thing to challenge the mainstream banks, but it will probably never achieve this. There are definitely prospects of a company finding a niche and making a tidy profit, but not at the sort of levels conceived when the first of these companies started appearing.

Edit: in case I've left any doubt, I would never consider investing in the shares of a P2P company, despite being a customer of several.

firestone

But you also have institutional money investing money direct into the loans of some P2P companies such as Lending Works and Ratesetter so either they are confident in the platform or have taken the risk v reward into account (to some extent such as it is there should be historical data of previous recessions for them to number crunch on loan defaults etc)

masonic

firestone wrote: »

But you also have institutional money investing money direct into the loans of some P2P companies such as Lending Works and Ratesetter so either they are confident in the platform or have taken the risk v reward into account (to some extent such as it is there should be historical data of previous recessions for them to number crunch on loan defaults etc)

Indeed, this is a different aspect to consider. One has to wonder what preferential terms might be afforded to institutional investors / underwriters that may give them an edge over the average consumer investor, but if I didn't believe P2P could be a component of a balanced portfolio I wouldn't hold any P2P investments. I don't believe there is reliable data that would allow anyone to predict how P2P will fare in the next recession (we have just Zopa and one or two European platforms with a long enough pedigree to look at during the last recession, and things have changed considerably since then). You also only have to look at the institutional money sloshing around some of the worst performing investment funds to see there are always professionals that make extremely bad calls. So I wouldn't look upon institutional money as much of a signal of good things to come.

firestone

True and understand what you mean about P2P companies not having a long history to see how they handle things in bad times.But i assume the institutional managers do not see some P2P as anything new in terms of lending but just where the funding is coming from ( but thats not to say they are right about its strength )
As you mention P2P has probably not grown as quick as some would hope but its hard to see Ratesetter lending 3 billion from 70000 investors(many only in for the cashback bonus) as a true P2P platform so they have morphed into a hybrid of both worlds as have some of the others

Lostdoggy

Hello all,


A bit of a novice question here from first time forum user, so apologies if I am hijacking thread, or if I'm being dim....


I applied for a Ratesetter Rolling account via MSE link in early December. MSE quoted that the first 5,000 applicants investing £1k+ would receive cashback, but this cashback would not be paid until after 12 months. I transferred in £1,200 straight away.


How do I know if I have qualified for cashback? (I had no message upon setup and can't see anything within Ratesetter).


Thanks!