Diversification is one of the basic tenets of investment, and in general, it’s a good idea to invest.
Rich and successful investors typically diversify across the following:
- Stocks and bonds
- Real estate
- Ownership of businesses
Others might diversify further into commodities, cryptocurrencies, peer-to-peer loans, precious metals, etc. but the above three are the really big ones.
On this blog, I’ve written quite a bit about the high returns that can be obtained on P2P loan platforms, and if you read other European FIRE and finance blogs you will see that platforms like Mintos and Peerberry are all the rage at the moment.
A frequent question that new investors have is the following:
“Should you diversify your investment across many P2P loan platforms?”
Now, if you read some other blogs you will see that these bloggers keep investing in new platforms, claiming that they want to try out more platforms for the benefit of their readers.
However, you should be aware that keeping a handle on your investments is a time-consuming task, and is exponentially more time consuming the more platforms you add.
How to invest €10,000, €100,000 etc in P2P Lending
I would, therefore, be of the opinion that you should select a maximum of 5 platforms to invest in, and preferably only if you have a substantial amount to invest, say €100,000. For smaller amounts I would say just start with one platform, and once you learn how things work to expand into two others.
If I had €10,000 I would only put it on one platform, and that platform would be Mintos.
Keep in mind that your reporting and tax compliance costs will also increase with each platform you add. At the end of the year, you will most likely engage an accountant to help you prepare your personal tax return, and the accountant will bill you according to the time spent. He will most definitely spend more time on your tax declaration with every platform you add.
If you’re investing through an audited company, every platform you invest money in (irrespective of the amounts invested) will increase the cost of your audit, as the auditors will need to spend time getting to know the platform and performing impairment checks on the loans invested in. Therefore, it doesn’t make sense to invest small amounts in any platform as the audit cost per platform might actually be higher than the expected returns.
If you see bloggers that are invested in more than 10 platforms, you can be pretty sure that the main reason they are doing so is to be able to review all those platforms and land more affiliate commissions from new investors, especially from their monthly reports, where they can land several affiliate clicks and hence affiliate commission.
The aim of these bloggers is, therefore, to make money through affiliate commissions and not from the investments themselves. The potential returns from affiliate commissions are many times the multiple of what they can get from the interest on their meager investments, hence it justifies the long hours spent every month in compiling detailed reports and regular reviews of all these platforms.
What are your thoughts on platform diversification?