Future of P2P investment. Is diversification the real answer?

dunstonh

I don’t really understand the level of hatred towards P2P on this forum.

It isn't hatred.  it is the understanding that P2P is still very much considered to be the wild west of financial services.   There is insufficient understanding of risk.  Liquidity issues potentially and poor quality disclosure.    There are certainly viable options that exist but there are too many dodgy options too.

I’ve been in P2P for the last ten years and am sitting on a £10,000 profit on an average investment of around £25,000. I

That is quite low.   A conventional investment spread would have doubled in that period.

EdGasketTheSecond

The returns on P2P have never looked worth the risk. It is projected as an interest earner akin to savings whereas in fact your capital is at risk as many have found out.

Albermarle

That is quite low.   A conventional investment spread would have doubled in that period.

Yes but that is with the benefit of hindsight . Ten years ago it could well have been a sensible diversifier as long as £25K was only a small(ish) part of a portfolio. I think you can also guess from the relatively lower return that the £25K was invested in the less risky P2P choices , most of which are still surviving . It is the ones that were offering >12% that have mainly gone bust.

Aceace

Hi Lukelo,

IMO P2P is an investment class that's here to stay. I'm making good returns in it from a large portfolio of platforms. Its become a major, profitable, and enjoyable, hobby for me. There are offerings across a very wide spectrum of the risk/reward curve, from relatively safe to very speculative. Like all investment classes there are good and bad offerings.

Unfortunately,  P2P has been tainted by some very bad, and in some cases fraudulent, platforms. Understandably, well intentioned victims of those platforms are very vocal in discouraging others from getting similarly burnt. It's important to take these views into consideration as a warning as to what can go wrong. To compound this the FCA have shown themselves to be rather inept in their regulation and their protection of investors, so best not to rely on them.

In answer to your diversification question, yes, I think diversification is a good idea. I certainly made some mistakes (losses) when experimenting with various platforms. Fortunately I only used very small amounts of cash that I could well afford to lose when conducting these experiments, so losses for me have been minimal, and dwarfed by the more profitable platforms that I settled on for larger investments. Even then, I'm only currently forecasting platform losses on 3 of the 29 platforms that I've tried so far. I'm currently withdrawing from roughly half of these platforms (not an easy task) and reinvesting or adding to the other half (still far too many platforms for the average, non-obsessed, P2P fan). I have a self imposed maximum limit of 20% of my P2P pot in any one platform.

If you're not totally discouraged from trying P2P, I would suggest taking a look at some more specialist/targeted forums,  e.g. p2pindependentforum or p2pfrank.

Best of luck if you do decide to give it a try. 

Albermarle

One point not be ignored, is that there seems to be more and more institutional money coming into P2P, either as lenders or investors. It was always around but was coming more prominent, and now Covid seems to be accelerating the trend. Seems to be two outcomes for this for a retail/individual  lender to P2P. First is makes the platforms involved more viable and less likely to collapse . Second is that some platforms will slowly pull out of their retail offering and this is already happening.
Of course there will still be a lot of defaulted loans that will still hit lender returns, but at least it will be dealt with in an orderly fashion , if the platforms have more institutional involvement.

csgohan4

longleggedhair said:

I don’t really understand the level of hatred towards P2P on this forum. I’ve been in P2P for the last ten years and am sitting on a £10,000 profit on an average investment of around £25,000. Its been stable...and has done exactly as it says in the tin. I’ve withdrawn about £10,000 since the crisis began as a cautious measure, however when times stabilise I should have no concern in reinvesting. (I use RateSetter and Zopa)

Just because it WAS a reasonable investment 10 years ago, doesn't mean it is now. People still get into P2P, but nothing wrong with it, as long as you understand the risk.  Much like Gold and cryptocurrency in some respects. 

kinger101

longleggedhair said:

I don’t really understand the level of hatred towards P2P on this forum. I’ve been in P2P for the last ten years and am sitting on a £10,000 profit on an average investment of around £25,000. 

Sounds like a really poor return compared to lower risk bond and equity funds.

Thrugelmir

Aceace said:

To compound this the FCA have shown themselves to be rather inept in their regulation and their protection of investors, so best not to rely on them.

When there's money to be made everyone's happy. When it goes pear shaped it's someone elses fault. Investors have to learn to be responsible for their own choice of investment and the risks attached. 

keyboardworrier

The risks outweigh the benefits now IMO. It was good a while back , and I was very exposed to the sector but started to withdraw after risks I didn't consider became apparent (Lenders nearly getting dragged into court cases, 'secured' assets going missing , etc)

I'd rather take my chances in the stock market.

Aceace

Thrugelmir said:

Aceace said:

To compound this the FCA have shown themselves to be rather inept in their regulation and their protection of investors, so best not to rely on them.

When there's money to be made everyone's happy. When it goes pear shaped it's someone elses fault. Investors have to learn to be responsible for their own choice of investment and the risks attached. 

That's precisely the point I was intending to make. Don't rely on the FCA. 
However, the FCA is supposed to protect investors and it has spectacularly failed due to its own incompetence.