What % do you put into P2P ?

jamesd

Rollinghome wrote: »

Isn't the difference that when equities fall in value there isn't a loss unless it's crystallised? Even those who invested in well diversified equities at the peak of 2007 wouldn't have suffered a loss if they'd waited for valuations to recover.

Some degree of crystallisation is implicit in the issue of sequence of returns risk but prudent planning for that will include some measure of use of savings or borrowing to avoid selling at such times, even if prolonged to the point of lasting as long as a decade or more before recovery. Even so, a drop that does last for a decade or more can impose quite severe selling pressure on many who would not choose to sell during a shorter term event like 2008. The worst cases for this started in the US in the 1960s and of course the Great Depression, when the decade sort of timescale and significant inflation (60s) was involved and that makes a repeats of those conditions the most severe test for income drawdown planning based on historic outcomes.

Rollinghome wrote: »

Invest in a loan that isn't repaid and you have no choice on whether to crystallise the loss: money not repaid is gone forever.

An individual loan may not have recovery, or if using secured lending, may not fully recover even after the security is taken and sold, but the overall portfolio still should have interest rates that have allowance to cover this contingency. The overall return will drop, of course.

Broadly, one advantage of lending P2P is that the income just keeps on getting paid so there's no need to actually sell the assets during a downturn. Indeed, rather the opposite, redemptions due to normal monthly payments or just reaching end end of term mean that money will be come available to reinvest at a time when credit is likely to be scarce and rates for new investment may be significantly higher with more opportunity for cherry-picking the best potential replacement borrowers.

At least these days the loan that is not recovered can be used to reduce the tax cost, provided the loan is not in a tax wrapper like ISA or pension. The amount of the loss is used to reduce the reported taxable interest income for the year.

However, this is not an either/or choice. I'm moving into P2P to avoid what I think is a higher risk time for equities but will happily move back into equities after a large drop. I don't know exactly when that will happen but unless history decides to take a break, I do know that it will at some point and that now the chance is greater than it usually is.

pantaiema

I just have a look on two of the well know P2P lending platform, Ratesetter, Zopa they just offer the interest for less than 3% for short term lending lower than one year.

I still cannot understand. Why would anyone sensible want to put their money into P2P lending scheme when with a relatively small work to do you could get risk free, instant access in high interest current accounts ??

What I have been missing here??? Plausible explanation especially with the people who put their money in Ratestters, Zopa might help to intensify this discussion ….

jamesd

masonic wrote: »

As I said above, I wouldn't be too surprised if one year I find that all of my returns for that year are wiped out by a series of defaults. It seems plausible that could happen.

I'd be fairly surprised except in the case of my largest two loans. In the unsecured consumer credit sector lending in Estonia there have been just 2 of the 24 months where I've been tracking it when net capital in default increased by more than the monthly gross interest paid. The total negative in those two months was €181 while the total for the positive months was €7881. And of course recovery of some money from defaulted loans routinely happens in the consumer credit area. With anticipated annual interest from P2P over £20k a year it'd take much more than a loan of say £1k going bad and having no recovery to make the overall picture negative.

pantaiema

It is a very sensible sustainable model to defend the saving stream

Is it really true that Saving Stream only lend to people buying property and not in other sector such as SME ??

nearlyretired2004 wrote: »

Interested to see that a several of the 'regulars have 0% ..!!

(...for all the same reasons as I [STRIKE]have[/STRIKE] hadn't invested to date)

I am only talking now about Saving Stream - and my thinking now goes:

1. They seem to do plenty of 'due diligence' on borrowers
2. They lend a max of 70% LTV ...often less
3. They have an excellent history of loan repayments to date

the two biggest risks to me seem to be

1. a property crash in the UK .... personally I dont see that happening anytime soon and dont think it would happen overnight anyway

and

2. A loan defaulting - SS seem to have good mechanisms in place to recover in the event that that happens, but with a smallish exposure to each over a large number of loans it wouldnt take long at 12% to cover one bad loan

any comments on the above thinking?

pantaiema

12% interest is a cracker, especially for only a short term. I will defenitely consider this a risk worth taking. But if it is for only 5%, why would anyone consider this when you could easily get this return with putting into funding or even in high interest current account (unless of course if you have optimised this)??

westy22 wrote: »

I am happy with a target of about 10% of my investments in P2P as I need to diversify away from being almost 100% equities.

What are the alternatives? - I think that Bonds are currently higher risk than P2P; cash is barely matching inflation; gold is unlikely to make much more than cash in the next year or so; commercial property seems to have fizzled out in the past year; I know nothing about fine wines, classic cars etc.

I hope that by spreading my P2P funds into as many different platforms and individual investments as I can that, even after defaults and lost causes, I can achieve 5-8% pa return.

Daz2009

pantaiema wrote: »

I just have a look on two of the well know P2P lending platform, Ratesetter, Zopa they just offer the interest for less than 3% for short term lending lower than one year.

I still cannot understand. Why would anyone sensible want to put their money into P2P lending scheme when with a relatively small work to do you could get risk free, instant access in high interest current accounts ??

What I have been missing here??? Plausible explanation especially with the people who put their money in Ratestters, Zopa might help to intensify this discussion ….

For the current accounts paying decent interest you normally have to pay in a certain amount every month,often £1,000.
Some people might not be working or on low incomes or variable incomes (like myself) and yet have savings in a low interest savings account or ISA.
That's one possible scenario.
I started off with Zopa but the returns aren't as good as Ratesetter where I am getting 6% + on the 5 year market,or SS where I'm getting 12%.
I have roughly 40% of my money in P2P and am happy with the risk

masonic

pantaiema wrote: »

It is a very sensible sustainable model to defend the saving stream

Is it really true that Saving Stream only lend to people buying property and not in other sector such as SME ??

The loans are always secured on property or land. The purpose of the loan is not necessarily to buy property. There are a number of property developers, hoteliers, leisure industry businesses who use the capital to invest in their businesses. I've seen one or two were the loan was used, at least in part, to consolidate other debt. If you want straightforward bricks and mortar loans, then you will need to cherry-pick.

masonic

jamesd wrote: »

I'd be fairly surprised except in the case of my largest two loans. In the unsecured consumer credit sector lending in Estonia there have been just 2 of the 24 months where I've been tracking it when net capital in default increased by more than the monthly gross interest paid. The total negative in those two months was €181 while the total for the positive months was €7881. And of course recovery of some money from defaulted loans routinely happens in the consumer credit area. With anticipated annual interest from P2P over £20k a year it'd take much more than a loan of say £1k going bad and having no recovery to make the overall picture negative.

Perhaps I was being overly pessimistic. Looking back at Zopa's stats, it seems defaults in 2008 were only 5.5%, which is lower than I would have guessed. Perhaps things are a little different now with P2P becoming more mainstream, but you could double that rate and still have change out of your annual interest even without taking into account any recovery.

MadMat

pantaiema wrote: »

What I have been missing here??? Plausible explanation especially with the people who put their money in Ratestters, Zopa might help to intensify this discussion ….

I'm getting an average of 6.2% on ratesetter's 5 year market. I also have some 5% current accounts, but I'm not confident that the high interest current accounts are going to be around long term. They are simply a marketing scheme, and the banks could change their marketing strategies at any time.

So I see ratesetter as a long term set up the DD and forget type investment, and the current accounts as something to take advantage of with my short term cash while the going is good . . .

Mat

pantaiema

MadMat wrote: »

I'm getting an average of 6.2% on ratesetter's 5 year market. I also have some 5% current accounts, but I'm not confident that the high interest current accounts are going to be around long term. They are simply a marketing scheme, and the banks could change their marketing strategies at any time.

So I see ratesetter as a long term set up the DD and forget type investment, and the current accounts as something to take advantage of with my short term cash while the going is good . . .

Mat

Good to see from this point. However keep in mind for such long duration of commitment (e.g 5+), it has been proven statistically that investing in well know fund will get a better return with lower risk.