Octopus Choice
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so ...
all your p2p on 1 platform: serious platform risk, i.e. could lose the lot.
use multiple p2p platforms: sounds like a lot of work to me; and there's still some platform risk (more than holding conventional investments on conventional platforms).
why not just buy a high-yield bond fund (on a conventional platform) instead? that's what p2p is giving you (apart from unwanted platform risk
), viz. you're being paid high interest for taking on some credit risk. 0 -
You could do exactly that, but high yield bond funds are quite well correlated to equities, bond prices are sensitive to interest rate movements, and offer returns of up to ~5%. The alternative would be to buy individual high yield corporate bonds and hold them to maturity. This would get eliminate the first two issues, but introduce another - that bond prices are already inflated so you'd need to buy your bonds at a premium and your yield to maturity will therefore be relatively low (also, this is lots of work).short_butt_sweet wrote: »why not just buy a high-yield bond fund (on a conventional platform) instead? that's what p2p is giving you (apart from unwanted platform risk), viz. you're being paid high interest for taking on some credit risk.
So P2P does offer an attractive alternative, in that you can buy into loans at par (but you do need to ensure you are being adequately compensated for risk), you can hold to maturity so returns are not linked to interest rate movements, and returns after bad debt can be higher.
I have exposure to both corporate bonds and P2P.0 -
In my case i am in bond funds(and its not like they don't have risk) and equity but i use a small % of P2P to diversify.But using your point i think having read P2P forums over the last few years that many people investing in P2P don't invest in the stock market at all.You see people saying they don't understand the markets or want a 50% lossshort_butt_sweet wrote: »so ...
all your p2p on 1 platform: serious platform risk, i.e. could lose the lot.
use multiple p2p platforms: sounds like a lot of work to me; and there's still some platform risk (more than holding conventional investments on conventional platforms).
why not just buy a high-yield bond fund (on a conventional platform) instead? that's what p2p is giving you (apart from unwanted platform risk), viz. you're being paid high interest for taking on some credit risk.
Firms such as Ratesetter etc with their black box accounts appeal to people looking for a cash account they can set and forget (with or without the extra risk) and not have to follow such as a bond fund0 -
Going back to the OP question and the issue of platform/investment risk.In theory Octopus should be one of the bigger more stable players in P2P and if the question had been should they invest in a Octopus VCT fund people would probably have said go passive or global or multi asset but possibly would not have mentioned the platform/fund manager0
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Regardless of the sum, it's poor advice to suggest investing a lump sum with just 1 P2P company IMHO.
So for your example with 20k to invest, I'd be looking to spread that between 5 to 10 P2P companies, not just one. Helps diversify against platform failure.
It's not just the headline-grabbing, stomach-churning, Masonic's-hair-white-overnight-turning case of utter platform meltdown that we're diversifying against.
More mundane, and more likely, is the problem of all one's loans on a single platform having been priced and assessed using the same model.
A mistake in the credit assessment technique employed by a platform will lead to systematic poor returns. Not exciting catastrophic meltdown, but a lower return than one had expected.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
FatherAbraham wrote: »It's not just the headline-grabbing, stomach-churning, Masonic's-hair-white-overnight-turning case of utter platform meltdown that we're diversifying against.
More mundane, and more likely, is the problem of all one's loans on a single platform having been priced and assessed using the same model.
A mistake in the credit assessment technique employed by a platform will lead to systematic poor returns. Not exciting catastrophic meltdown, but a lower return than one had expected.
Absolutely, and I'm rather astonished at aroominyork in post 9.
You should never puts all your eggs in one basket, regardless of invesment or asset class.
I'm still surprised a professional IFA seems to be suggesting this, which is the point that is being lost if someone pulls out the 'it isn't for you' line, pulling that nonsense is so unhelpful on a discussion forum.0 -
high yield bond funds are quite well correlated to equities, bond prices are sensitive to interest rate movements, and offer returns of up to ~5%. The alternative would be to buy individual high yield corporate bonds and hold them to maturity. This would get eliminate the first two issues
IMHO, it doesn't really eliminate them.
the current market price of individual bonds will also fall if interest rates rise more than expected, or if it appears the borrower is more likely to default (either for general reasons e.g. the start of a recession, or because of issues specific to the borrower).
you can decide to hold on and wait for a recovery; and, providing the borrower doesn't default, you'll get the return you originally expected when the bond is repaid.
but you can also decide to hold on to a bond fund when it falls. and unless it loses money from defaults, you'll recover your losses by holding on for the average time to maturity of the bonds it holds (e.g. it holds bonds with an average of 5 years to maturity; interest rates rise unexpectedly, and the fund falls in value; you hold on to it for 5 years, and it will recover that paper loss).
and p2p is subject to the same risks - viz. defaults, and being locked into a fixed interest rate when rates are hiked. it may appear uncorrelated, but isn't that just lack of liquidity?
if the UK falls into a recession, p2p loans are more likely to default, so the market value of your p2p investments is lower. that may not be visible, if there isn't a secondary market, or it only allows trading loans at par, or it allows trading at other prices but what actually happens is that there are no buyers in the market so you can't see a meaningful price.
and the same goes for owning a p2p loan at a fixed rate if interest rates rise more than expected. though AFAIK most p2p loans have pretty short terms, so this is a smaller effect. (so p2p would be most similar to a very-high-yield, very-short-term bond fund.)i think having read P2P forums over the last few years that many people investing in P2P don't invest in the stock market at all.You see people saying they don't understand the markets or want a 50% loss
Firms such as Ratesetter etc with their black box accounts appeal to people looking for a cash account they can set and forget (with or without the extra risk)
yes, i suspect many people are using p2p because they don't know enough about better alternatives (e.g. bond funds, or equities funds).0 -
Perhaps you didn't read the part where I said and hold them to maturity. Default risk is a different type of risk than the risk the bonds will drop in market value during their term. Buying individual bonds and holding until maturity does eliminate the risk that you will lose money due to interest rate rises or other causes of price fluctuation on the market.short_butt_sweet wrote: »IMHO, it doesn't really eliminate them.
the current market price of individual bonds will also fall if interest rates rise more than expected, or if it appears the borrower is more likely to default (either for general reasons e.g. the start of a recession, or because of issues specific to the borrower).
you can decide to hold on and wait for a recovery; and, providing the borrower doesn't default, you'll get the return you originally expected when the bond is repaid.
The mitigation to default risk is diversification and limiting your exposure to the higher risk investments. That's true of bonds, P2P and other forms of debt instrument.0 -
Perhaps you didn't read the part where I said and hold them to maturity.
no, i didn't. perhaps you missed the part where i said a bond fund would recover in the same way if held until the average maturity of the bonds it holds
EDIT: yes, default risk is a different type of risk. perhaps it was a bad idea to mix discussion of it with interest rate risk, though i don't believe i've conflated them.0 -
I didn't miss it, I just responded to the part of your post where you disagreed with me. I didn't take issue with the parts of your post I didn't quote.short_butt_sweet wrote: »no, i didn't. perhaps you missed the part where i said a bond fund would recover in the same way if held until the average maturity of the bonds it holds
I maintain the view that holding individual bonds to maturity eliminates the risk that you will lose money due to interest rate rises or other causes of price fluctuation on the market.
Coming back to your point that holding a bond fund for a sufficiently long period would achieve the same end, this is true providing the bond fund did not trade the bonds it held. In practice there is often a flight to the safety of lower risk bonds which crystallises losses. Nonetheless, there might be examples of funds in which this is true. It's little consolation though if you want to access the money in a specific timescale, when buying individual bonds would give a defined return on a set date, notwithstanding default risk.0
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