Peer to Peer investing is an excellent alternative investment. It can be compared to some other traditional investments to see whether it makes sense to invest in peer to peer platforms.
Peer to Peer platforms solve two problems:
- Private lenders/investors need returns because savings rates are low
- Borrowers need money to support and grow businesses or to fund deals
Whether you should invest or not in P2P lending is a multi-faceted question. I think we should start by comparing P2P lending with other investment alternatives.
P2P Lending VS Bank Savings
Bank savings rates are still abysmally low. If you have large amounts of sitting in bank savings accounts for a long time, you will lose money to inflation as the cost of living and goods increase. If you need your funds in the short term, holding the money in a savings account can make sense, but if you don’t need the money, then you would be better off taking the necessary investment risks to grow your money using compounding interest.
P2P Lending VS Company Bonds
Bonds are usually unsecured and when you invest in a company bond or mini-bond, you are investing money directly into the company which is risky. If the company goes out of business (which does happen), bond investors are usually treated as unsecured creditors and are at risk of losing their capital. To top it off, bond rates aren’t even that attractive with most bond offerings paying between 3.5-7%.
If you are going to take risks, it makes more sense to invest through reputable FCA regulated peer to peer lending companies offering secured loans that pay equal or more interest than private bonds pay.
P2P Lending VS Stocks
Equities had a pretty poor year as well in 2018, and when we compare stocks versus P2P lending we can see that the latter’s returns were 26% higher. They’re also risky in their own right. I would still suggest investing in stocks for the long-term, however, if you want to start earning money right away than P2P lending is the way to go.
Bank savings accounts, stocks, and bonds are the most popular investment options for much of the population, so for the purposes of this post, I won’t delve into other options such as cryptocurrencies, gold, startups, etc.
With those alternativces covered, let’s talk about something that very few people seem to consider when it comes to investment, especially P2P lending…
Time Investment Required
Investing on P2P platforms like Mintos can be as simple as using the platform’s auto invest strategy, putting in an amount of money, activating the strategy and sitting back to wait until the interest starts rolling in. This takes just a few minutes.
On the other hand, if you’re going to be investing in several platforms and digging deeper into how the platforms and different types of loans work, you will spend a considerable amount of time on your P2P lending investments.
Frankly, when I see the net worth reports and monthly income reports of many FIRE bloggers, I wonder what’s the point behind all they’re doing. The only explanation for spending so much time for so little return is that they are making much more money off the affiliate commissions they get when promoting some P2P platforms. It doesn’t make sense to spend say 20 hours a month on something when you’re earning €100 in interest. That’s not even taking into consideration the risk of your capital invested due to platform or loan originator bankruptcy.
Again, that’s why I would recommend just investing your money on something like the Mintos Invest & Access system as it’s very low maintenance and very liquid.
There is, however, one possibility where it is justified to spend a lot of time on P2P lending platforms even if you don’t have a huge chunk of money to invest…
Learning about Investing
While I spend a lot of time on real estate crowdfunding and P2P investing, the main reason why I’m doing all this is that a few years ago I set a target for myself to really learn the ins and outs of investing in different asset classes.
P2P platforms and crowdfunding websites are the perfect places to learn about investing.
Since you’ve got your money at stake, you’re much more likely to take things seriously and really learn the stuff than if you were just reading a book about investing.
It’s important that you learn not only how things work, but also how you react to things. At the end of the day, investing is also about handling your emotions.
What do you do when you’re riding a huge way of optimism, such as the Bitcoin bull run of 2017?
And how do you feel when everything you invested in seems to be burning to ashes?
Knowing how you react will help you become a better investor, as you will learn that perhaps certain asset classes stress you out too much and are best avoided, or maybe that you are not very risk-tolerant and would prefer to invest in a globally diversified index fund than pick investments yourself.
Whatever the lesson, the guarantee is that you will learn a lot, and in my opinion that knowledge and experience is far more valuable than the monetary returns.
Every single investment method has its pros and cons, including property (high cost of entry, increased stamp duty taxes, landlord headaches), stocks, shares and funds (if the market crashes, your capital and emotions could spiral downwards), and bonds (returns are low).
Peer-to-Peer lending is not without its issues. Some companies are complicated to understand and have a higher investment learning curve. If you invest through the wrong companies, don’t diversify correctly, only choose high risk/reward loans chasing returns or select the wrong loans, your returns could be in the red. But if diversify correctly by spreading your money across several companies and loans, P2P lending can be a very positive investment vehicle.
You can read about my favorite platforms here, but if you want to cut to the chase I can tell you right away that my absolute favorite is Mintos, and that’s where I put most of my money. I’ve been able to achieve 11,42% returns per year which I’m very happy with.
You will also notice that there are now a ton of bloggers that write about their portfolios and favorite platforms. I advise you to select 2-3 platforms that look interesting and read as much as you can about them, don’t just trust me or any blogger when choosing platforms. It’s your money and you should make an informed decision on how you invest it.
If you had to ask me for just one platform that you should check out and dig deeper into, as I said, Mintos is currently the biggest, most liquid and most transparent P2P lending platform in Europe.