Peer-to-peer lending sites: MSE guide discussion
Comments
-
choochootrain wrote: »£2k with an auto-lend maximum of £20 for provision trust, gold trust and bespoke loans. Spread across almost 300 loans with a mean interest rate of 0.78%. Have put more than £20 in the non-auto loans that pop up occasionally.
I was thinking to build up to that sort of amount myself drip feeding in. I know it'll take time to get it lent out which I am fine with. What has been let out so far is mostly £5 per loan from I joined recently, so there is bit of cash in the acount to get used up too.
I set it for the prevision trust and gold trust. What type of loans are in the bespoke you are matched to? I seen small business, so didn't turn it on as I have enough small business loans. I could not find much more information on it, maybe I should consider it still if it is a little different.
That is good your spread is across 300 loans. I like you just transfer in and let it work.0 -
Ignoring tax:grey_gym_sock wrote: »if you want to reduce exposure to shares, you could just sell some shares in the pension. now, i realize the effect is not exactly the same as using this spread bet. but why do you favour the spread bet (other than tax reasons)?
1. Much faster dealing times. While most of the fund instructions I gave at about 8AM were executed at Monday's noon price, one used Tuesday's. A bit later or in my other pension and that would have been at least a day later. And that sort of delay can lose you a lot of money.
2. Stop loss instructions, available for spread bets but not normal funds.
I had plenty of time to buy back in at lower prices but chose not to since I had just brought forward a change of asset allocation a bit and intend to withdraw the cash early in the new tax year.0 -
Rates aren't a particularly good indicator of P2P risk but yes, RateSetter is lower risk than Ablrate, in part because of its protection fund and greater liquidity (liquidity risk is another of the types of risk).Fatbritabroad wrote: »On another point is something like ratesetter lower risk than ablrate? The interest would appear to say yes but I tend to equate all p2p the same but maybe that's too simplistic
Yet protection funds alone don't produce lower risk, the UK P2P place that I think is highest risk has one. I think that platform risks unrelated to that and the size of potential losses vs the undisclosed protection fund are more important in that case.
The management and the types of assets also matter a lot. Property development loans are some of the riskiest in P2P because partially built places tend to have far less value than completed ones. But additional security and platform first loss investments can totally transform the picture in some deals.
Depends what you're looking for in the balance between risk and return. I've been using P2P for almost ten years and have never had an account with them. Their easy access account might be interesting to me for the rate/liquidity balance..Fatbritabroad wrote: »So the logic would be I should be more confident of having a higher sum in ratesetter?0 -
That's a much better expression of the issue than some of your earlier posts, a pretty good one IMO.What i meant was that the P2P portfolio should be run down to a level that you don't mind taking the risk of large number of defaults given recession. For me this means ONLY choosing platforms secured against assets with low LTVs and good record of underwriting standards.
I've been cutting risk by shifting from equities to P2P. Very easy logic: I don't like to invest much when the expected returns are negative and that's what the current cyclically adjusted price/earnings ratio in US equities implies for the next decade.
I've been over £100k in P2P for a while now, expect to be around £250k by summer and might get as high as 75% or so of my total money, over at least seven platforms.
For anyone not familiar with what happens in a recession here's a rough risk list, highest to lowest:
1. commercial and residential property development: slow to sell, at lower prices and banks will be reluctant to lend to refinance or for a buyer. Don't still be in these, though they are OK now. You'll suffer substantial liquidity impairment, increased chance of losses and bigger losses when they happen.
2. trade finance (invoice lending) though irrevocable letters of credit and sound end buyers can help.
3. bridging: bank reluctance to lend is likely to lead to loans being slow to exit and if forbearance in't shown for years the value after repossetion can be much reduced.
4. pawn except backed by gold and silver. Pawnbrokers can do a lot of business but buyers for other things become more scarce and auction prices drop. You can have booming trade and booming losses at the same time. Sensible valuations matter a lot but liquidity will suffer anyway.
5. business lending, very heavily dependent on type of security offered, if any. Some businesses will fail. The tools and goods are likely to be far worse security than homes. If security is poor this is riskier than non-gold pawn.
6. direct to consumer lending without protection fund or insurance. People lose jobs in recessions, just a fact of life. Zopa default rate roughly doubled in 2008 and while underwriting is probably better now they have also substantially increased the risk mixture of the loan book, as have RateSetter.
7. direct to consumer lending with protection fund but not insurance. How and when the protection fund makes you suffer losses also matters. RateSetter makes you take losses based on interest rate and regardless of how low risk your loans are. Zopa, you get your own losses but at a later stage, probably. Zopa likely to leave some of your money your money tied up for a decade or more, not really sso with the RateSetter method.
8. Direct to consumer lending with both unemployment insurance for borrowers and protection fund, one platform offers this.
More for others than you: liquidity risk is real but don't give it excessive weight. If I have a quarter of a million Pounds in P2P I probably won't have an urgent need for it all within a few days or months or even years. Things like money to live on can come from the still good loans at still good platforms and sensible cash reserves and perhaps use of credit. You can plan similarly.0 -
IMO using CAPE to determine equity allocations is a very bad idea. Simple because CAPE is backward looking. It has shown stocks are over valued for 25 years except in 2009 when it said it was fair value, 2009 was a buying opportunity of a lifetime....
Do you use only CAPE to make your decisions?
250k in P2P is a lot but then you may have investible assets of 5m+ which makes it not so much. How much is your P2P exposure relative to your total portfolio?
I fear people are underestimating the tail risk in P2P by a long way. If you have a bad recession in the UK with volumes of underwriting drying up, some platforms will struggle to pay their staff as they depend on the income they generate from the loans. Thats just one key risk that is often overlooked.0 -
@Jamesd great as always to read your detailed input into this topic and your thoughts and plans. Will read over this again and the recent posts. Much appreciated.0
-
Here's a chart showing the history of the Shiller cyclically adjusted price/earnings ratio, also known as CAPE or PE10.
After the initial equity drop in early 2008 I set up pension salary sacrifice down to minimum wage, knowing that more drops were possible. Around March and April 2009 I moved almost all of my P2P money and money from credit card stoozing into equities. Just being over or under the average isn't enough to act, it has to be enough to matter.It has shown stocks are over valued for 25 years except in 2009 when it said it was fair value, 2009 was a buying opportunity of a lifetime....
No. In the US it's currently at a level that has only been exceeded before the crashes of 1929 and dot-com bubble.Do you use only CAPE to make your decisions?
Guyton used PE10 in his work on how to reduce the effect of sequence of return risk on those doing income drawdown. Published at Sequence-of-Return Risk: Gorilla or Boogeyman? and commented on by respected retirement researcher Wade Pfau in Jonathon Guyton Tames a Gorilla. The Gupta et al rule Guyton uses for his action threshold says:
"P-E10: if the S&P's normalized P/E ratio is less (greater) than its historical mean plus (minus) one-half its standard deviation, the stock allocation in the rebalanced portfolio is decreased (increased) to 25 percent below (above) the baseline allocation"
Guyton kept the one standard deviation threshold but modified the shift:
"Because of my sense that most financial planners (including myself) may be uncomfortable communicating so large a one-time equity allocation change to their clients, in modeling the dynamic allocation policy I use a 65 percent neutral equity allocation with just under a 25 percent shift to 50 percent (80 percent) when an over- (under-) valuation occurs"
That one standard deviation range means that the 68% of values around the mean produce no action beyond unwinding the shift that was just made and going back to normal.
A chart showing PE10 with +/- one standard deviation ranges (not half) is here.
Today it's about 25% and I'b be comfortable as high as 75% or so. Provided I can find enough loans I'm comfortable with over a sufficient range of platforms.250k in P2P is a lot but then you may have investible assets of 5m+ which makes it not so much. How much is your P2P exposure relative to your total portfolio?
There's a good deal of tail risk, particularly to liquidity. While the mandatory run-off requirements of the FCA should protect the money pretty well I doubt that many secondary markets would stay open. And some people will undoubtedly try to avoid repaying in that situation.I fear people are underestimating the tail risk in P2P by a long way. If you have a bad recession in the UK with volumes of underwriting drying up, some platforms will struggle to pay their staff as they depend on the income they generate from the loans. Thats just one key risk that is often overlooked.0 -
1. Much faster dealing times. While most of the fund instructions I gave at about 8AM were executed at Monday's noon price, one used Tuesday's. A bit later or in my other pension and that would have been at least a day later. And that sort of delay can lose you a lot of money.
2. Stop loss instructions, available for spread bets but not normal funds.
I had plenty of time to buy back in at lower prices but chose not to since I had just brought forward a change of asset allocation a bit and intend to withdraw the cash early in the new tax year.
thanks. i think i now understand a bit better what you're doing.
viz. you are planning to shift some of your investments from shares to p2p. and the use of a spread bet is a (temporary) detail in how you're going about that, which lets you effectively sell shares more quickly than you could by the ordinary method.
i was concerned that you might be suggesting that, when shares are highly valued, it could be a good idea to keep holding your shares (and not just temporarily) but also take out spread bets to protect against the downside. which i think would be a really bad idea.
but as a temporary detail, it makes more sense. (though i probably still wouldn't do it that way myself.)
as for the general shares-to-p2p move, i'll come back to that in separate post.0 -
I've been cutting risk by shifting from equities to P2P. Very easy logic: I don't like to invest much when the expected returns are negative and that's what the current cyclically adjusted price/earnings ratio in US equities implies for the next decade.
i'd disagree that expected returns from US equities are negative. you may get that result by using the unadjusted CAPE10, but there are good reasons - the big one being changes in accounting standards - to adjust it. the raw CAPE10 figures are not comparable to the figures before accounting standards changed.
a discussion of that, and other reasons to adjust CAPE10: http://www.etf.com/sections/index-investor-corner/swedroe-seeing-valuations-clearly?nopaging=1
so i think we should be working from lower-than-ususal expected returns for US equities, but not negative.IMO using CAPE to determine equity allocations is a very bad idea.
IMHO, it very much depends what kind of adjustment you are planning to make to your portfolio. for instance, ...
method 1: cut the percentage in equities, instead hold more in something lower-risk (bonds/cash), with a view to increasing your equities allocation again when valuations are more favourable.
this is a very bad idea.
various studies show this method failing to improve returns. despite the CAPE10 having some predictive power for returns from equities over the next 10 years or so. but it's the effect of a strategy on the whole portfolio that matters.
method 2: underweight US equities (where CAPE is currently high), and instead overweight equities in other parts of the world (where it's not so high).
IMHO, a reasonable strategy.
if you can stick with it, of course - as always applies in investing. the US market could just keep powering ahead of other equities markets: will you stick with underweighting it, or eventually cave in and move investments back to the US - perhaps just before the US does start underperforming?
it is best not to go too extreme with this kind of underweighting. partly so you'll find it easier to stick with it. partly because you are less diversified if you have little or nothing in the biggest equities market in the world.
method 3: move some capital from expensive US equities to p2p (but only p2p where returns before defaults are at least 10-12%, and where there some kind of security, and the risk seems reasonable, and there aren't red flags over the borrower or the platform, etc, etc).
i believe this is something like what jamesd is doing.
i think the argument that expected returns from this approach to p2p are higher than expected returns from equities is plausible.
however, it does require a lot more care - both time, and skill, to do this properly. you need to evaluate the platforms and loans for yourself. it's certainly much more difficult than to do this properly than it is to buy and hold a US equities tracker properly. and IMHO, some people are likely to make bad decisions about which p2p platforms/loans they put themselves into.
so, while i wouldn't be surprised if jamesd knows what he's doing here, i'm i bit concerned about some (not all) of the people who might try to follow his lead.0 -
Guyton used PE10 in his work on how to reduce the effect of sequence of return risk on those doing income drawdown.
i can't comment properly on this, as i haven't tried reading guyton (or related work).
though i am perhaps a little put off if he's using unadjusted CAPE10 (which there are issues with, as i mentioned in my previous post).
however, if the broad idea is that retirees who are de-risking should be doing one-way rebalancing - i.e. sometimes they should sell equities to buy bonds/cash, but never the other way round - and that valuations should have some role in deciding when or how fast they should sell equities, ... then that does sounds generally plausible.0
Categories
- All Categories
- 343.1K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.6K Spending & Discounts
- 235.2K Work, Benefits & Business
- 607.8K Mortgages, Homes & Bills
- 173K Life & Family
- 247.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards