Five reasons to invest in P2P loans
Gradually, over the last half-century, investing has become a tool that’s now available to almost anyone who possesses access to the World Wide Web. Investing has the power to increase each one of our wealth, with mere clicks of the computer mouse and some due diligence in choosing your investments. It is no longer reserved only for the affluent.
Like other industries, finance or more specifically, investment finance readily responds to demand. Thus, with a steady positive incline of demand, investment options pop up like mushrooms after summer rain. Naturally, it might be a bit taxing to decide on the option best suited for your needs and situation. So, even though the following will not navigate you through the world of investing in its entirety, here are five reasons why investing in P2P loans could be your best option.
1. Returns
What is the one thing that is at the core of investing your money? Making more of it. And investing in P2P loans all but guarantees that your money will grow exponentially. There is only one other investment vehicle that offers similar or even greater returns than P2P loans do – stocks. Yet, in a turbulent market such as it is these days, investing in stocks can be a hit-or-miss venture. Right at the end of 2022, the S&P 500 Index is down more than 20% for the year. Whereas P2P lending platforms still pay out 12, 14 or even 16% in total returns for the year.
2. Risk mitigation
In a perfect scenario, an investor would like the risk and return to be balanced. As in – no risk, maximum return. Sooner or later, though, it becomes clear that it’s impossible to avoid risk altogether. Once you come to terms with this, it becomes easier to turn your focus on returns rather than avoiding risk at all cost.
With P2P loan investing, the risk is there. But, the same can be said about stocks. Even much more so – with stocks your Return on Investment, or ROI for short, is not fixed. This means that while you might earn more than a P2P investor, you might also earn significantly less or even lose a part of your investment.
Other investment vehicles, like bonds, real estate, cash deposits, have various levels of risk involved, too. And, while some would argue that bonds and Certificates of Deposit (CDs) are at the lowest side of the risk spectrum, the ROI with these investments can entice anyone to invest into P2P loans. Especially, if you consider that as an investor, you can choose the risk profile of your borrowers.
3. Effort(less)
You’ve probably heard or read somewhere that, to be a successful investor, you need to put in a lot of time in research and managing your investments. While this is no doubt true for most investment vehicles, P2P lending takes a turn for the better here.
The main difference is that once you’ve set up your account with the platform, you can sit back and watch the money grow. This is because usually the P2P platform will take care of everything concerning your investment and the corresponding loans, including debt-chasing.
P2P platforms also offer you the luxury of an auto-invest function. It is part of setting up your investment account and, after locking in your investment preferences, this function invests your money on your behalf. It is not mandatory to use it, and you can still go through all of your investments manually. However, auto-invest helps you limit the effort and time necessary for sustainable investing.
4. Diversification
Whether you’re a novice or an experienced investor, you probably know that diversification is key for every investment portfolio.
Well, you see – with P2P lending, diversification is already included. This is achieved by spreading your investment over various loans. In turn, that reduces the overall risk for your portfolio – the more loans in your portfolio, the less impact a single loan default will have. And once again, this is all done by the P2P platform in your stead.
5. Asset liquidity
Apart from the already mentioned, asset liquidity should also be looked at. For example, there are investment vehicles like bonds, that can be extremely long-term (10 to 30 years) investments. Whereas P2P loan terms can be as little as a few days, weeks or months. Or, if you look at how the stock market works – stocks are very liquid, but you face the risk of having to sell at a low point in price. That means you could be locking in losses instead of profits.
With your loan investments, typically what you would do is wait for the borrower to repay the loan over the previously agreed upon term. But, if you want to – you can sell some or all of your loans on the secondary market, which are usually available at the P2P loan platforms. This way, your investment becomes more liquid – you don’t have to wait until the loan is repaid. And while you might not earn as much money on the sold loan as initially intended, you won’t lose any either.
But there is more
Of course, there are more reasons to invest in P2P lending. One of those is the opportunity to be at a ‘frontier’ of investing, or so to say.
P2P lending is one of the more recent investment vehicles. Its rise in popularity attracts investors from all over. But especially those who put their fears aside and look for new and exciting opportunities. Some will always shun the new and unknown, yet some will welcome an opportunity with arms open wide.
Even after a solid 15 years of market presence, investing in P2P loans can still be considered a fresh alternative to conventional investment vehicles. The unique combination of high ROI and relatively low risk on investment makes this investment attractive, with more and more investors taking notice.
How about you? Have you been thinking about investing in P2P loans, but somehow haven’t got there yet? Well then – here’s the final reason to invest in P2P loans without any more hesitation:
The longer you wait, the less profit you’ll make. Start investing in P2P loans today, from as little as €10!