Why P2P Lending Should Be A Sizeable Part Of Your Retirement Planning

Aceace

MaxiRobriguez said:

Aceace said:

MaxiRobriguez said:

Aceace said:

An interesting article from 4thway: https://www.4thway.co.uk/candid-opinion/why-p2p-lending-for-retirement/

I've been increasingly heavily investing P2P for 3.5 years now and am achieving an overall net XIRR of 7.52%. It's hardly ever talked about on this forum except in negative terms, and never recommended by the main contributors due to some high profile scams. It's been working very well for me. Is it time to look again? 

A figure that is significantly lower, both in actual and risk-adjusted returns, to alternative options.

P2P can form a small part of a well diversified portfolio, but it shouldn't, in my opinion, be doing the legwork. 

Not according to the article, and not in my experience. 

A bog-standard global equity tracker would have given you returns of about 16% annual returns over the last five years, with greater liquidity, and whilst probably more volatility, much less chance of wipeout. 

Roughly half my investable funds are in global trackers. They've averaged just over 8% over the same time frame that my P2p has returned 7.5%. I'm not saying that we shouldn't invest in shares. I think that global trackers and P2P will give similar long term returns. Shares will sometimes outperform and sometimes underperform. They've certainly been way more volatile so far. If I thought it was likely that I'd be able to get 16% returns consistently from global trackers I'd switch all but my highest risk P2P funds to them. However, no-one is predicting that.

Liquidity in P2P hasn't been a problem for me, though that's largely due to my ridiculously large number of platforms (many are being run as experiments, and 6 of the 35 have already been exited). Liquidity definitely did dry up for a while in some of my platforms. Although I had full liquidity throughout covid in my trackers, at times I would have had to take a 40% haircut to access that liquidity.

I'm not saying that P2P is better than trackers. I'm just saying that it doesn't get the respect on this forum that I feel some platforms deserve. 

dunstonh

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Aceace

dunstonh said:

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Yes, and still is by the vocal majority on this forum. I don't feel that that description is deserved for the sector as a whole. It certainly is deserved by some platforms, just as it is for some shares and some investment managers and funds.

keyboardworrier

P2P is barge pole territory for me now after being involved in numerous platform collapses, not to mention the two occasions where the borrowers tried to sue each lender involved in the loans!

Klopek

I put money into four FCA regulated platforms across a multitude of loans. All four are no longer operational and I most certainly have not escaped better-off. Never say never but I am personally extremely hesitant to dip my toes back in.

Thrugelmir

Aceace said:

dunstonh said:

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Yes, and still is by the vocal majority on this forum. I don't feel that that description is deserved for the sector as a whole. 

In another decade we can assess whether the sector has matured and become mainstream. The pandemic is going to do little for the financial stability of those using P2P to fund their operations. 

Aceace

Thrugelmir said:

Aceace said:

dunstonh said:

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Yes, and still is by the vocal majority on this forum. I don't feel that that description is deserved for the sector as a whole. 

In another decade we can assess whether the sector has matured and become mainstream. The pandemic is going to do little for the financial stability of those using P2P to fund their operations. 

I get the point that many will require platforms to prove themselves over a longer timeframe, though covid has already shown which platforms can handle certain unexpected events. 

I'm not sure what you mean by the part in bold. I don't think any of the platforms I use have the right to demand early repayment unless the borrower defaults. I think Growth Street had that right, but they're no longer in business. Most platforms (certainly the better ones) are sensible enough to work with the borrowers for solutions when genuine unexpected problems arise. Of course, recovery action is sometimes the best chance of minimising lender's losses, and on higher risk platforms there will be losses on some loans.  Lenders should factor this into their expectations, just as some shares in a fund will be duds. But perhaps I've missed your point entirely. 

Thrugelmir

Aceace said:

Thrugelmir said:

Aceace said:

dunstonh said:

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Yes, and still is by the vocal majority on this forum. I don't feel that that description is deserved for the sector as a whole. 

In another decade we can assess whether the sector has matured and become mainstream. The pandemic is going to do little for the financial stability of those using P2P to fund their operations. 

I get the point that many will require platforms to prove themselves over a longer timeframe, though covid has already shown which platforms can handle certain unexpected events. 

I'm not sure what you mean by the part in bold. I don't think any of the platforms I use have the right to demand early repayment unless the borrower defaults. I think Growth Street had that right, but they're no longer in business. Most platforms (certainly the better ones) are sensible enough to work with the borrowers for solutions when genuine unexpected problems arise. Of course, recovery action is sometimes the best chance of minimising lender's losses, and on higher risk platforms there will be losses on some loans.  Lenders should factor this into their expectations, just as some shares in a fund will be duds. But perhaps I've missed your point entirely. 

With the pandemic far from over. The extent of the economic damage to the SME sector is yet to be revealed. There's a long road ahead for many SME's to regain financial stability. Analysis of data in 2020 revealed that only 42% of start up's in 2013 were still trading 5 years later. That's in relative stable times. Far more chance of failure for a P2P borrower, than a listed company. The shares might be a dud but at least the investment can be exited (highly liquid trading markets) and there's no 100% capital loss. 

Aceace

Thrugelmir said:

Aceace said:

Thrugelmir said:

Aceace said:

dunstonh said:

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Yes, and still is by the vocal majority on this forum. I don't feel that that description is deserved for the sector as a whole. 

In another decade we can assess whether the sector has matured and become mainstream. The pandemic is going to do little for the financial stability of those using P2P to fund their operations. 

I get the point that many will require platforms to prove themselves over a longer timeframe, though covid has already shown which platforms can handle certain unexpected events. 

I'm not sure what you mean by the part in bold. I don't think any of the platforms I use have the right to demand early repayment unless the borrower defaults. I think Growth Street had that right, but they're no longer in business. Most platforms (certainly the better ones) are sensible enough to work with the borrowers for solutions when genuine unexpected problems arise. Of course, recovery action is sometimes the best chance of minimising lender's losses, and on higher risk platforms there will be losses on some loans.  Lenders should factor this into their expectations, just as some shares in a fund will be duds. But perhaps I've missed your point entirely. 

With the pandemic far from over. The extent of the economic damage to the SME sector is yet to be revealed. There's a long road ahead for many SME's to regain financial stability. Analysis of data in 2020 revealed that only 42% of start up's in 2013 were still trading 5 years later. That's in relative stable times. Far more chance of failure for a P2P borrower, than a listed company. The shares might be a dud but at least the investment can be exited (highly liquid trading markets) and there's no 100% capital loss. 

Fair enough. Only specifically relevant to the SME sub-sector of P2P, but I expect similar arguments could be made for some other sub-sectors as well. I expect that many listed companies will also fail due to the pandemic. Your last sentence implies that all P2P borrower failures lead to a 100% loss for lenders,  and that no listed company failures lead to a 100% loss for shareholders. Neither of those things are true. 

dunstonh

Aceace said:

dunstonh said:

For many years, P2P was referred to as the wild west and not suitable for the average consumer.

Yes, and still is by the vocal majority on this forum. I don't feel that that description is deserved for the sector as a whole. It certainly is deserved by some platforms, just as it is for some shares and some investment managers and funds.

You can count the number of failed unit linked funds over the last 20 years on one hand.   And each of them were niche/specialist/focused funds and in many cases, compensation became payable for regulatory failures.

The retail marketplace for the "average consumer" has to be safe.   We are not talking about investment risk there.  We are talking about expectations of regulatory standards, easy to understand and have companies that can be trusted to do what they say they will do.     P2P at this time doesn't have that.       That doesn't mean it is not possible to make a profit with it.       It just isn't ready for the "average" consumer.