P2P diversification

jamesd

adam81 wrote: »

What I'm interested in is diversifying against bad debt on any one platform. I saw Jamesd mention in one of his threads he will aim for 10% after bad debt. To my mind that means a lot of little chunks.

Assuming £1000 investment, with a average loan return of 12% the holy grail is £120 interest per year. So to achieve the 10% after bad debt we need to return £100. Assuming you only get one bad debt in the year that would mean loan chunks of £20, or 50 separate loans for a £1000 investment..

There's usually some recovery of money after a default, for secured lending normally by taking the security. If you presume 50% recovery that doubles the potential loan size. You won't necessarily see one default a year, except on loans to lots of consumers.

I actually aim for more than 10% after bad debt but each person will have different loans and a different experience so 2% gives some margin.

Personally I've seen so much bad debt over the years that I'm relatively relaxed about it compared to the newcomers I'm normally writing to. Newcomers are far more easily spooked and it's useful to try to keep the potential default amount per loan quite low to deal with that.

Since I'm more comfortable I'm generally OK with my whole expected annual interest in a loan at once when it seems worthwhile for some reason. In exceptional cases I've gone as high as 10% of my net worth in one loan for a while. The current cashback offer at Collateral for one particular loan is one where I've temporarily gone higher than usual.

cjv

I have only just recently opened my first P2P account, it was with funding circle. After reading more and looking into the loans available I decided to sell all my funding circle loans (made a small profit overall ) and now focus entirely on asset backed loans.

I opened accounts with Assetz Capital, Moneything, Ablrate, Collateral UK and Funding Secure. I have placed a small amount in each to see which platforms I enjoy and how they operate.

I personally just put minimal amounts on each loan I pick, £20 usually (£25 on funding secure) as I do not have a large amount total to invest.

I will probably reduce the amount of platforms to 2 or 3 after I decide which ones I like best. I would be happy with 7-8% returns overall so I am hoping this strategy will help me "safely" achieve that and give me a chance to also get higher returns.