Investing in Drawdown

jamesd

Malthusian wrote: »

The only reason it has no volatility is that it's totally illiquid.

If you want to sell more than a few million Pounds per platform per week you'll need to allow some time and take some care over which platforms you use.

The forms of P2P that I tend to suggest have minimal volatility because the capital value doesn't change much over time. The money is borrowed, it gets repaid with interest each month, or if interest only, just the interest is paid. Occasionally there's a problem with a loan and there's a little dip as it gets reclassed as in default but it usually vanishes in the interest payment level.

P2P liquidity varies depending on the P2P platform concerned. Some have no secondary markets so you can't resell the loans and for those you can manage liquidity only by choosing loan durations that match your needs. Others have secondary markets that can be very active.

For liquidity you should select platforms that have lively secondary markets and ideally those that allow selling at a discount in case you want to further nudge the sale along by taking some capital loss.

At the moment just about all of my P2P money is in platforms with good liquidity: lively secondary markets or loan durations of up to six months. I expect that I would have no trouble selling at least 80% of my P2P within a month and that I could sell a large chunk of it in a week or two if I wanted to, without having to take a capital loss, actually, making a capital profit is more likely where I am.

To give some idea of the potential here are the approximate numbers for my secondary market activity at a couple of places:

1. total bought on primary market £37,000, secondary market total loans sold £12,500, bought £1,100.
2. total bought on primary market £41,900, secondary market total loans sold £27,600, bought £200

For both the limit hasn't been liquidity but rather me not wanting to sell more. With the exception of some late loans at platform 1, that don't always sell well unless the discount level matches what buyers are looking for. Most platforms don't allow selling impaired loans, though many have protection funds that make this moot by repaying lenders if a loan defaults.

As usual with P2P or other investments, if you want a particular property like easy liquidity, just pick the ones that offer you that capability. A couple of platforms where you can expect sales to complete within a few hours to days for transactions of say £100,000 would be Zopa and SavingStream, though neither guarantees it, it's just what currently happens in practice. If you want to get a million Pounds or more sold you should allow week or perhaps two at those places. They aren't the only places that can handle those numbers, just a couple that come to mind. RateSetter may well be able to handle larger amounts more quickly than either of those two.

For more on the subject of P2P liquidity you might find this reading useful:

P2P Lending - Does the lack of liquidity put you off?
Based upon all of your experiences - liquidating your assets .