active vs passive?

jamesd

EdGasket wrote: »

P2P lending returns are also poor after tax ... there is no FSA protection on your money

That implies that you know too little about P2P investing. It's unlikely that my after bad debt, before tax returns from P2P are below 10%. It's around 13% XIRR for my current most active P2P, or around 17% if I ignore transient exchange rate loss.

What you shouldn't do for P2P is place much money in the usual suspects like Zopa and RateSetter, which are top of the poor returns league table for UK P2P. Though even those two have a pretty decent chance of beating bonds over the next few years.

You're correct that there is no FSA protection for P2P but that is only because the FSA vanished and has been replaced by the FCA, which does regulate P2P. P2P without FCA authorisation is prohibited in the UK. Had you written FSCS instead you'd be right, there's no FSCS protection for P2P.

A person who wants just one place to go in P2P might look to the 10%+ before tax and bad debt opportunities offered by Ablrate for its asset-backed lending. With the protection of the assets I doubt that losses will be substantial enough to be a concern and they may well have a higher expected return than global equities or the FTSE at the moment.

P2P is an excellent area to consider for serious investment, particularly at the moment to replace some of the traditional bond component, in part due to the potential impact of higher interest rates on bond capital values, which in general does not affect the usually hold to maturity P2P markets. That's for investing with minimal correlation with shares and bonds, something that I think is particularly desirable at the moment.

The lack of a tax wrapper for P2P is frustrating but with returns over 10% before tax readily available it's not at all bad. It still does need to be compared and complemented by more traditional opportunities, though. It's not something for100% of a portfolio or even close to that.

Lack of supply of the most desirable opportunities is what I tend to find as the chief limiting factor for P2P. There's plenty of supply between the lowest and highest, though.

EdGasket

and lack of FSCS protection means you could lose the lot! No thanks.

Linton

EdGasket wrote: »

and lack of FSCS protection means you could lose the lot! No thanks.

Losing most or all of your investment in one share is much more likely. There is no protection if that happens.

Ryan_Futuristics

With Funding Circle (at least) even if the platform went bankrupt, the businesses you're lending to would still be obliged to pay you back (and I believe they've got a system in place to handle that in such an event)

And with no more than £20 lent to any one business, it seems like you'd need some kind of large-scale crisis to really put your investment at risk

It certainly feels safer to me than bonds at the moment (although I do aim to be about 90% equities)

jamesd

EdGasket wrote: »

and lack of FSCS protection means you could lose the lot! No thanks.

You also have no FSCS protection for a directly held share or corporate bond losing money, whether that's due to mismanagement, fraud or just normal market ups and downs.

The FCA mandatory requirements for UK-regulated P2P include client money separation from the P2P business and arrangements to continue to collect repayments even if the P2P firm goes out of business. Fraud at the P2P firm is not impossible and could cause losses when the comparable fund situation would have the limited £50,000 FSCS protection. Meanwhile the P2P investments are normally spread over lots of borrowers, so the chance of losing a high percentage due to one borrower aren't great.

P2P definitely isn't as safe as the established fund management regime but it's not at all bad either.