The recommendations of 30 experts in the field of p2p lending

Here are the Top 5 investment recommendations of 30 experts from the p2p industry, which will help you avoid the most common mistakes and earn a high return on your investments in this type of platform.

To arrive at these recommendations, the authors of the article asked 30 highly respected and well-known experts in the field of p2p lending the following question: "If you could give a new investor in p2p lending three tips for successful investing, what would you tell them?" ?”

The brief sample of responses shows the following 5 responses as the most important:

1. Diversify your investment by investing in as many loans as possible.
2. "Do your homework" - do good research on what you are investing in.
3. Reinvest your investment earnings, don't let them sit idle.
4. Use automation to invest and reinvest.
5. Be prepared for limited liquidity of your investment.

If you have a little more time, you can read the detailed answers of all the interviewed experts below in the article.

 

Aaron Vermut, ex-CEO of Prosper Marketplace says:

Diversify: We encourage Prosper investors to diversify their investments across loans with different ratings and a minimum of 100 loans to ensure they receive the platform's average return of 7% per annum

Reinvest: As the loans are repaid by the borrowers, investors will receive proceeds in their accounts every month which will be available for withdrawal or reinvestment, by reinvesting these amounts investors can further increase and diversify their portfolio.

 

Charles Moldow, General Partner at Foundation Capital

Diversify: Once you have decided how much you want to invest, determine how much return you want to earn based on your risk profile. Diversify as much as possible, number of credits, type of credits, duration and even platforms.

Automated Investing: The best platforms provide clear information, good analytical information and automated investment opportunities. A key to maximizing your returns is to keep all principal and earned returns invested at all times. If you don't use automation, it will take you a lot of time to manually select credits.

 

Giles Andrews, Co-founder & CEO of Zopa

Research the originator's business model: Research and try to compare your risk appetite/expectations of profit against their business model. For example, business loans are considered to have a high risk/high return ratio compared to consumer loans, and some platforms offer additional protection for investors.

Research the history of the platform very well: Research the platform in terms of credit risk management. How long have they been in this business? Have they been through a credit and economic cycle and if yes, what happened during the cycle. Have they published expected losses and how well they have handled them.

Diversify: Diversify your portfolio even if it's only on one platform, giving small amounts to as many borrowers as possible. Some p2p platforms do this automatically, while others may take you a while.

 

Peter Renton, Founder of Lend Academy Media & Co-founder of LendIt Conference LLC

Diversify: Take advantage of investment opportunities through a minimum amount in a given loan, I think this is the right way to invest.

Research: Do your homework, study your credit history and read up on good investment practices.

 

Nick Clements, Co-founder of MagnifyMoney.com

You must be prepared to invest in at least 250 credits: Preferably in 500 to ensure an intrinsic portfolio effect and avoid accidentally falling into the risk trap.

Be very cautious about loans with a duration of more than 36 months: Risk of loan default and risk of loss increase over time.

Beware of large amounts of credit: Beware of credit from users who have exceeded the credit card limit. The bigger the loan, the bigger the payment on it. In unfavorable economic times, it is difficult to pay large installments on loans. Much of my experience with unsecured loans during an economic cycle shows that large loans suffer the most in a downturn. Institutional investors are very hungry for loans to put their capital to work. P2P lending platforms will be tempted to increase the amount of loans over time to meet investors' expectations. My experience tells me not to ask for large consumer loans.

 

Dara Albright, Co-founder of LendIt Conference LLC & Thought Leader

Diversify in the platform: To avoid the risk of non-payment, invest your capital in as many loans as possible, as the consensus among most experts says that the amount in a given loan should be between $25-$50.

Diversify into different platforms: The number of p2p lending platforms has increased dramatically in the last few years. The result for investors is that they will have the opportunity to diversify across multiple different platforms.

Diversify with different Financial Managers: Institutional P2P managers have the technology, expertise and algorithms to predict bankruptcy with high accuracy, thus generating high returns. Therefore, a large number of investors in P2P credit platforms choose to invest capital with experienced P2P managers. This strategy gives investors "algorithmic diversification" that can help increase returns.

 

Jason Fritton, CEO & Co-Founder of PatchofLand.com

Don't skimp on your research: No matter how good the history or warranty, any investment carries the risk of losing some or all of the invested funds. Check all the documentation and information you can find. If you have a question of any nature about the investment, do not get involved until you are satisfied with the answer. If you're having trouble getting your questions answered, take that as a big red flag.

Know the platform you are investing in: P2P lending has evolved in recent years and there are many startups, some with high quality and potential, while others are nothing more than shiny platforms. Check out the platform before investing, look at their history, talk to the team.

Diversify: This is one of the main advantages of online credit platforms. They allow you to invest a small amount in many opportunities. A high level of diversification allows you to avoid the impact of personal bankruptcies. It also allows for more predictable income. Don't put all your funds in one project, diversify among many different projects, assets, platforms and countries, it's easier than it sounds.

 

Claus Lehmann, Editor-In-Chief at p2p-banking.com

Start slowly with small amounts: to gain experience with the platform. Take the time to understand how the platform works before investing larger amounts.

Diversify: Spread your investment across many loans and if possible across multiple p2p platforms.

Be careful when choosing: When you choose the loan in which you invest, remember that a large part of your investment will be invested there. Even if you take advantage of the secondary market, you may not get the value and price you are looking for if you decide to exit your investment quickly.

 

Don Davis, Managing Partner of Prime Meridian Capital Management

Do your homework: Not all platforms are the same and not all ratings are the same. An A-rated credit is not necessarily better than a B or C, nor is an A-rated credit on one platform necessarily the same as a credit with the same rating on another platform. Do a thorough research of the information and understand what you are investing in.

Diversify and Reinvest: Invest in hundreds or more loans of different ratings and reinvest the cash flow.

Consider using a management fund: The fund has a lot of experience gained over multiple economic cycles and many advantages that include instant diversification across multiple loans and the opportunity for higher returns. A fund can also provide quick liquidity and save you a lot of time compared to managing the entire process yourself.

 

Christian Faes, Co-founder & CEO of LendInvest

Research the history of the platform before you invest: Research whether the management has experience with lending and how long the business has been operating.

Ask yourself "What am I investing in?": Many platforms are nothing more than black boxes. If you do not have a clear understanding of who you are lending to and there is no transparency, you should ask yourself if the investment is worth it.

Check the collateral: Check what collateral the loan platform offers in case the economic situation worsens or the borrower has difficulty paying the loan.

 

Sam Ridler, Executive Director of Peer-to-Peer Finance Association

Check the platform: There are numerous P2P lending platforms on the Internet and investors should decide what type of P2P lending to invest in, consumer or business/real estate and check if the platform is regulated.

Diversify your portfolio: In most popular consumer lending platforms, the platforms automatically diversify the amount of the investment to reduce the risk of not paying one loan

Think About Time Frames – There are two important time frames to think about. The first is whether you need the money you invest in the short, medium or long term. Most P2P platforms are not suitable for short-term investments from a few months to less than a year, but are more suitable for medium to long-term investments, because once invested in credit, the investment amount is difficult to withdraw. There is a possibility of it being sold on a secondary market if the platform has one, but this may depend on demand.

 

Stu Lustman, Editor-In-Chief at p2plendingexpert.com

Find out what type of investor you are and how much risk you tolerate: In other words, if you're just trying to get some return on your savings, an A-rated loan with a 6% yield is a better choice than a G-rated loan with a 22% yield. If you are looking for the highest possible yield, then invest in loans with a 22% yield and accept the possibility of losses that they bring.

Diversify: Spread your risk by investing a small amount of money in many loans to increase the likelihood of high returns.

 

James M. Dahle, MD, FACEP & Chief Editor at Whitecoatinvestor.com

Use backtesting: to assess whether you are generating positive returns

Find a way to automate the investment process: If you have to manually buy every piece of credit, it's just not worth your time.

 

Sam Dogen, Editor-In-Chief at FinancialSamurai.com

Know when to stop your losses: Hesitating too much when losing is the worst move an investor can make

Diversify: Diversify so that no investment can affect you in case of loss.

Don't confuse mental opportunities with a bull market

 

Steve McGarry, Co-founder of LendLayer

Experience of the originator

Provisioning

 

Zack Miller, Head of Investor Community/Partnerships at OurCrowd LLC

Consider where p2p lending fits in your portfolio: Is it with money, bills or is it more risky, like stocks? Depending on where p2p lending fits in, you can focus your efforts in that asset class.

Create a strategy for investing p2p loans: Once you have chosen a strategy, stick to it. History shows that sticking to a strategy usually works better than chasing profits. There will be times when the strategy won't pay off well, but it's important to keep following it and change it when necessary.

Reinvest: Investments that yield returns when the income they generate is reinvested. Accumulating profits and reinvesting them in p2p loans is very valuable - make it work for you.

 

Joseph Hogue, CFA and Founder at Peerfinance101.com

Realize your risk tolerance: Do not think that the high rate of return on risky loans in which you invest will automatically turn into profit. Only invest in risk categories you feel comfortable with and with default levels you can accept.

Understand how diversification works: Understand that it is not necessary to hold loans in every risk category for your portfolio to be well diversified.

 

Miranda Marquit, Editor-In-Chief at PlantingMoneySeeds.com

Read the stories: Look for someone who has a real plan for the money and a plan to pay it back.

Increase your return: Add higher risk loans to your portfolio. As long as you build a mostly solid portfolio as a base, you can make a little extra money if you can accept the risk. Don't take a risk if you can't afford to lose.

Watch your A-rated loans: Someone with an A-rated credit who is consolidating may have gone downhill.

 

Marc Prosser, Publisher at Fit Small Business

Invest in asset classes, not loans: Simply put, trying to pick and choose which loans will bring more returns and concentrating your investment on a small number is a mistake. Credit selection is not a bad thing, but it can lead to a lack of diversification.

What worked well in the past does not always work well in the future if the economy slows down: Don't buy the riskiest loans just because of their high returns. Subprime loans bring high returns, but in a period of low unemployment, if the trend reverses, subprime loans will not pay as well.

Reinvest: Be sure your payments are automatically reinvested. P2P loans generate a lot of cash, but the platforms do not pay returns on uninvested amounts.

 

Ian Gurney, Editor-In-Chief at p2pmoney.co.uk

Do your research: There are multiple platforms, some new, some longer operating, with different business models and risk profiles.

Diversify: P2P lending is unregulated and there is risk to the capital invested, so investors should diversify their funds as best as possible. Try to avoid investing more than 0.5% of your funds in one borrower and diversify across multiple platforms.

Know the numbers: Some platforms advertise their rating before bad credit, some after, some before fees, and some after. Taxes must be paid before bad credit, so this can have a big impact on investor returns. Use tools to compare p2p platforms.

 

Joe Udo, Editor-In-Chief at RetireBy40.org

Read and educate yourself about investing in P2P loans: There are sites that can help you with this. This will increase your return on investment and reduce bad credit. It's hard to know what to look for when you're starting out.

P2P income is not passive: You need to spend some time to find new credits to invest in. If you don't have time for this, start with a small amount and consider whether this type of investment is for you.

Diversify: Invest in as many loans as possible, so that if some borrower defaults, you won't lose your entire investment.

 

Gregg Schoenberg, Executive Chairman of Peerform & Founder of Wescott Capital

Try multiple platforms: There are multiple platforms to choose from. Consider carefully which platform will give you investment opportunities and attitude and don't assume it will be the same everywhere. Some will want to work with you more than others.

Do your homework: P2P loans are an asset class that is at the beginning of its development and the secondary market is not so well developed and cannot provide quick liquidity, therefore investors need to make efforts to choose the loans they invest in well.

Choose the platforms you work with well: Make sure you work with a platform that understands the financial markets and risks well.

 

Graham Wellesley, Executive Chairman and Joint-CEO of Wellesley & Co

Understand the risks involved in P2P lending: When you invest in P2P lending platforms, there is potential risk to your investment and returns are not guaranteed if the borrower stops paying.

Do research on the type of products and platform that suits you as an investor: Understand the difference between the business models of the different platforms to choose the one that best meets your investment criteria

P2P is different: Understand that investing in P2P platforms is different compared to investing in big banks. P2P platforms are not banks and interest rates reflect the level of risk of the investment.

 

Emmanuel Marot, CEO and Co-founder at LendingRobot

Diversify: The best way to reduce risk is to diversify by investing in many different loans.

Relax: The leading lending platforms do a pretty good job of assessing risk and setting interest rates, and you don't need to worry about it.

Exit takes time: P2P liquidity is still low, so don't invest money you might need in the next few months

 

Brendan Ross, Founder & President of Direct Lending Investments LLC

P2P income is permanent income: You lend money and get paid for it, and in this respect it is more like bonds than stocks and other investment alternatives.

Diversify in different platforms: If you prefer to own whole credits, buy them in several different platforms. If you invest in a fund, look for one that diversifies across different platforms.

Liquidity is important: If you don't mind waiting until your loans are paid off, you can keep entire loans and even earn a good yield. If you want to be able to get out of your investment faster, use a fund that will pay your investment with money from other investors, not all of whom will want their money at the same time as you.

 

Ryan Weeks, Chief News Reporter & Editor at AltFi.com

Diversify: I would advise the investor to ensure that his portfolio is well diversified. Some platforms can help investors with the automatic allocation of resources into credits, while others will want an active approach. Diversification can also be achieved by spreading the investment across multiple platforms and different assets.

Historical information: Try to find historical information about the existence and operation of the platform. Many of the early stage platforms are great and even advertise double digit returns, but I would recommend you start with the proven players that have been through an entire economic cycle.

 

Brian Bartaby, Founder & CEO of Proplend

Not all platforms use the same business model: Research carefully what business model you are investing in.

Research the risk well: A yield of 6% per annum on an unsecured loan is not the same as a yield of 6% on an asset-backed loan.

Granting loans is easy: Try to understand how the loan will be paid and if there is a plan B.

 

Graeme Marshall, CEO of FundingKnight

Risk: Think carefully about how much risk you are willing to take, bearing in mind that you can lose the entire amount of your investment in a loan if the borrower stops paying. Different platforms have different risk assessment methods and offer different investment products.

Time to manage the investment: Consider how much time you are willing to devote to considering investment opportunities and monitoring performance. This should form your investment strategy. Some platforms offer good automated solutions for investors with little free time.

Diversify: In different credits, in different products, in different platforms. This is the best way to spread your risk.

 

David Klein, CEO and Co-founder of CommonBond

Invest in a reputable platform: Do your research and invest in a platform that inspires trust. Points that earn trust are:

- Volume: Has a large volume of investments passed through the platform

- Press coverage: Is there information about the company in the quality press

Team: Who's behind the platform and why they're doing it. To make quick money or to create a stable company?

Choose your risk/return profile: Not all P2P lending platforms are created equal, some offer higher returns in exchange for higher investor risk, while other platforms provide lower returns in exchange for taking on more risk. -low risk on the part of the investor.

Invest across platforms: Investor returns are similar across platforms, with a few standing out as better for investors. I would recommend diversification between different platforms for better risk management.

 

Tore C. Steen, CEO & Co-Founder of CrowdStreet Inc

 

Evaluate the platform: The good thing about online platforms is that they are accessible to everyone. With this accessibility in mind the investor should take the time to research the expertise and professional experience of the team behind the platform.

Investment Selection: An investor creating a portfolio would like to spread risk across different asset classes, geographies or different investment types.

 

Sam Hodges, Co-Founder & U.S. Managing Director of Funding Circle

Do your research: Knowing investors' appetite for yield, there are quite a few new companies in the P2P lending platform market, so check carefully that you're partnering with a proven and reputable originator.

Automate your investing: Save yourself hours looking at hundreds of loans every week by working with a platform that offers autoinvest.

Reinvest: Reinvest the principal and yield received so that you spread your investment even better across more loans. The last thing you want is cash sitting in your account unused, reducing your overall return on investment.

If you are relatively new to this type of investment, we are sure that the knowledge shared by the experts in this article will be very useful to you.

Source: https://thelendingmag.com