Care Annuity advice

Malthusian

You're making the classic mistake of assuming that of two investments, one of which is highly illiquid (e.g. a house, or a P2P loan) and the other of which is highly liquid (e.g. a stockmarket fund), the illiquid one is safer because its value appears as a smooth line while the liquid one's value appears as a wavy up and down one. This is not correct. The illiquid investment's value changes every minute of every day, just as the liquid one's does. However because the liquid one is traded frequently you can see what is value is every minute and plot a graph, whereas you can't plot the up-to-the-minute value of the illiquid investment because not enough people are buying it.

At present the value of P2P loans appears stable because people tend to only sell them when they can get par value for them, or something close to it. And they usually can get par value for them, because of the amount of money flowing on to P2P platforms, from people who are desperate for yield, and will therefore buy any old crap that the platforms offer to them. (Eventually. The fact that it took days to encash a piddling £60,000 illustrates how illiquid they are. Compared to mainstream stockmarkets where tens of millions of pounds can be sold near-instantly, that is glacial.)

This is not going to be the case in a crash. What happens when everyone wants to get out of P2P rather than get into it? I'm guessing you will say: the borrowers will probably repay their loans on time in which case everything will be fine. The OP however has to consider what will happen if that isn't the case. If she is relying on the yield from P2P to pay care fees and the yield dries up due to defaults, she will need to sell down the capital; and if the capital is invested in illiquid loans then that is a grim prospect.

jamesd

Malthusian wrote: »

You're making the classic mistake of assuming that of two investments, one of which is highly illiquid (e.g. a house, or a P2P loan) and the other of which is highly liquid (e.g. a stockmarket fund)

P2P is not generally highly illiquid, as I illustrated partly with the Ablrate example. Again, you're misrepresenting how P2P normally works. All three of the biggest UK P2P platforms and the three I'd normally mention here have normal selling times for untroubled loans that are typically from a few seconds to a few days.

Ablrate publishes total loans made and total value of secondary market trades on their home page. At the moment £26,724,184 and £8,314,038. That's a lot of trading going on for the size and MoneyThing is similar, so there is decent price discovery at Ablrate.

Malthusian wrote: »

The fact that it took days to encash a piddling £60,000 illustrates how illiquid they are. Compared to mainstream stockmarkets where tens of millions of pounds can be sold near-instantly, that is glacial.

If I was to put any or all of the MoneyThing loans I'm holding on the market now I'd probably have them all sold and the money in my bank account in an hour. Even that selling at Ablrate would have got the money into a bank account faster than the stock market trade. That's because stock market trades are normally settled (paid for) three business days after the day of the trade. I don't think that trade day plus three day stock market minimum time is glacial even though it's longer than I usually expect for P2P.

Malthusian wrote: »

This is not going to be the case in a crash. What happens when everyone wants to get out of P2P rather than get into it? I'm guessing you will say: the borrowers will probably repay their loans on time in which case everything will be fine. The OP however has to consider what will happen if that isn't the case. If she is relying on the yield from P2P to pay care fees and the yield dries up due to defaults, she will need to sell down the capital; and if the capital is invested in illiquid loans then that is a grim prospect.

What crash in the value of lots of P2P loans? That's unheard of in UK P2P but routine in stock markets. P2P yields don't dry up due to defaults, only the defaulted ones stop paying, either during debt collection or for a few seconds while a protection fund repays the capital. The rest just keep making their payments.