Sometimes the old ways are the best ways. Analysis from firm 4th Way earlier this week found that the odds of losing money in a severe recession were up to 10 times higher if you lent to just one borrower on a P2P platform.
Learning that putting all of your money on one number and trusting that the roulette wheel will spin in your favour isn’t the greatest risk management strategy isn’t terribly surprising news, but it is useful to remember. P2P investors can diversify across types of debtors, lending periods and platforms. They can invest more tax efficiently through an IFISA and they can consider information like the default rates (the number of debtors that haven’t paid) and the cushion of cash that a platform has to hand should defaults arise so that investors don’t lose out.
But investors beware for at present there are a few sticking points. Firstly, there is no set way agreed across the platforms as to how they calculate default rates and no rule that states they should publish those rates. Which means they can be lacking, or if not lacking it is difficult to know if you are comparing like with like.
Secondly, investing across platforms currently requires you to run your own spreadsheet to track results. That’s not ideal. It certainly makes life harder for the investors and indeed requires you to be an investor to have that comparative data. A little more transparency would vastly improve this sector, after all, without the right data it is difficult to make an informed decision. Aggregators of data like businessagent.com work hard to persuade the platforms that this should change, investors should too.
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