Peer-to-peer lending sites: MSE guide discussion

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  • itwasntme001
    itwasntme001 Posts: 1,143
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    I personally have derisked out of P2P completely and i recommend everyone else do so. There are so many risks with P2P and the returns do not compensate enough for these risks.


    Avoid completely.
  • Nardge
    Nardge Posts: 246
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    edited 21 October 2019 at 6:11PM
    I personally have derisked out of P2P completely and i recommend everyone else do so. There are so many risks with P2P and the returns do not compensate enough for these risks.
    Avoid completely.

    Whilst I can understand that, it does beg the question, where else can one make money that yields favourable returns? Bank switching deals get used up, 'high' interest current and regular savings accounts watered-down and/or discontinued, and stocks and shares are very long-term. So bar p2p, what else is there?

    With Kind Regards
  • masonic
    masonic Posts: 23,099
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    Nardge wrote: »
    So bar p2p, what else is there?
    Corporate bonds are the obvious choice - similar to P2P, comparable returns but better regulated and with no platform risk, and the loss potential is lower too in general.

    One does also have to look at what inflation is doing and manage expectations. It has never really been possible to earn rates of CPI+5% without taking considerable risk - other than through the bank incentives mentioned above.
  • Nardge
    Nardge Posts: 246
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    masonic wrote: »
    Corporate bonds are the obvious choice - similar to P2P, comparable returns but better regulated and with no platform risk, and the loss potential is lower too in general.

    One does also have to look at what inflation is doing and manage expectations. It has never really been possible to earn rates of CPI+5% without taking considerable risk - other than through the bank incentives mentioned above.

    Thanks! I shall have to re-read regarding corporate bonds. My knowledge is limited to what I read about them when opening-up my Vanguard LifeStrategy S&S ISA, of which I believe they form part. Perhaps I should look into how I can invest in them as a specific entity, and read more...

    With Kind Regards
  • itwasntme001
    itwasntme001 Posts: 1,143
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    Corporate bonds have also been "chased" and yields have fallen to record lows considerably. Sure they are a different type of risk to P2P, but one of the main risks, liquidity risk, is still there in corporate bond funds. They are usually open-ended funds, so when a liquidity issue occurs, bond funds could get hit hard - they are currently holding record low levels of liquidity at present according to an IMF study. Also when the cycle turns (recession), these bond funds will get hit along with equity funds. Arguably the bond funds would create more of a permanent capital loss due to defaults (bond funds can be concentrated) whereas a well diversified stock fund may experience a very large draw-down, but in the long run should recover this back.



    Personally for short term savings i would just suck it up with the low interest rates as there are literally no alternatives for a safe yet inflation matching yields.
  • chucknorris
    chucknorris Posts: 10,786
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    Corporate bonds have also been "chased" and yields have fallen to record lows considerably. Sure they are a different type of risk to P2P, but one of the main risks, liquidity risk, is still there in corporate bond funds. They are usually open-ended funds, so when a liquidity issue occurs, bond funds could get hit hard - they are currently holding record low levels of liquidity at present according to an IMF study. Also when the cycle turns (recession), these bond funds will get hit along with equity funds. Arguably the bond funds would create more of a permanent capital loss due to defaults (bond funds can be concentrated) whereas a well diversified stock fund may experience a very large draw-down, but in the long run should recover this back.



    Personally for short term savings i would just suck it up with the low interest rates as there are literally no alternatives for a safe yet inflation matching yields.

    I just can't force myself to accept a guaranteed loss (with 40% tax and inflation), so I can't put anything substantial in a savings account. Because I already have quite a bit in equities, I have invested in some individual corporate bonds with some risk attached providing an average yield of 6%. But I am also looking for a fund or etf for higher amounts, I would be interested to know what other think of this, which provides a 4.99% return:

    https://www.hl.co.uk/shares/shares-search-results/i/ishares-global-high-yield-corp-bond-gbp-hdg
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • itwasntme001
    itwasntme001 Posts: 1,143
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    I just can't force myself to accept a guaranteed loss (with 40% tax and inflation), so I can't put anything substantial in a savings account. Because I already have quite a bit in equities, I have invested in some individual corporate bonds with some risk attached providing an average yield of 6%. But I am also looking for a fund or etf for higher amounts, I would be interested to know what other think of this, which provides a 4.99% return:

    https://www.hl.co.uk/shares/shares-search-results/i/ishares-global-high-yield-corp-bond-gbp-hdg


    The positive is it is a closed-ended fund which would prevent liquidity issues related to OEICs. However it could still have liquidity issues as it appears to have a market cap of less then £100m only?


    I imagine the bid/offer could easily widen by a fair bit and stay wide when there are illiquidity issues so something to bear in mind if/when you plan to sell. I also imagine it would do pretty badly in a global downturn so i am not sure i would invest in this at this stage in the cycle. I prefer safety above all else at this stage with fresh capital.


    It is very well diversified however so you would take on very little concentration risk. But a general sell-off in hy bonds could prove to be very harmful for money invested in this.
  • masonic
    masonic Posts: 23,099
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    I just can't force myself to accept a guaranteed loss (with 40% tax and inflation), so I can't put anything substantial in a savings account. Because I already have quite a bit in equities, I have invested in some individual corporate bonds with some risk attached providing an average yield of 6%. But I am also looking for a fund or etf for higher amounts, I would be interested to know what other think of this, which provides a 4.99% return:

    https://www.hl.co.uk/shares/shares-search-results/i/ishares-global-high-yield-corp-bond-gbp-hdg
    Less risky (IMHO) than your other bond holdings that you mentioned previously. I'd question the GBP hedging - I spent quite a bit of time researching several currency hedged ETFs and my conclusion is the hedging is costly and doesn't give you the protection you think it does. Best to opt for UK:international in whatever proportion suits your spending needs in the future (I buy a lot of things that are not domestically produced and therefore priced).
  • masonic
    masonic Posts: 23,099
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    Corporate bonds have also been "chased" and yields have fallen to record lows considerably. Sure they are a different type of risk to P2P, but one of the main risks, liquidity risk, is still there in corporate bond funds. They are usually open-ended funds, so when a liquidity issue occurs, bond funds could get hit hard - they are currently holding record low levels of liquidity at present according to an IMF study. Also when the cycle turns (recession), these bond funds will get hit along with equity funds. Arguably the bond funds would create more of a permanent capital loss due to defaults (bond funds can be concentrated) whereas a well diversified stock fund may experience a very large draw-down, but in the long run should recover this back.
    The good thing about corporate bond funds is that quite a few were around during the global financial crisis of 2008, so one can load them up in Trustnet and see how they fared for an indication of what is possible. No guide to the future of course.

    There are also statistics to be found, if one is so inclined, around default rates and losses suffered by investors under different economic circumstances.
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