Here is the composition of my portfolio as per February 2020
The total gain for February has been 586 EUR.
Total value invested per Months
Total income per Months.
I am in the process of creating an evaluating system for the P2P platform. You can find update here .
Slowly I’m closing the position in the portfolio and moving everything to Go & Grow
I am having difficulties in getting all the 5000€ invested. Again is my strict investment policy. I am not investing in everything that is moving around the platform. Still 1000€ need to be invested.
I am no more confident with this P2P platform. I have closed all the investments and waiting they are paid back. I feel to be too much exposed to CROWDESTOR.
This month I have introduced a new P2P platform, Estateguru. and I am testing it. I am trying to find a way to evaluate the investments, but if I am checking all the parameters I get scared to invest in most of the projects. That’s why I am moving slowly on this interesting platform.
I have stopped investing in Grupeer. It’s a good platform. I think I am overexposed to Grupeer. I will reduce my total investment in the next months.
Little by little I am increasing the position on this platform. I have difficult to get investment due to my strict investment policy. I am getting more confidence in Iuvo-group
I am no more confident with this P2P platform. Fortunately they are all short investments at 30 days. I am reducing from 5000 to 1000€ my investments in this platform.
Very satisfied at present with this platform. I will invest more next month.
I was always thinking about having a P2P portfolio diversification to reduce the risk of default of one platform.
The recent cases of Envestio and Kuetzal confirmed me that it is a really important topic and that it was the case to go deep to implement a diversification strategy.
Let’s say we are investing 10000 EUR or USD in 5 different P2P platforms. The first way to diversify the portfolio is to divide 10.000 by 5 and invest 2.000 EUR or USD on each of them.
But I was attracted by the idea of Warren Buffet to study deeply one industry, in this case the P2P Lending, in depth, and use the learning to maximum profit on this industry. In practie focusing on few well selected opportunities is more lucrative than spreading the portfolio across a broad diversification.
My aim is not to get the top most interest rate from P2P platform, but to invest part of my global portfolio in a way that can reach 10% interest rate in a safer way.
I have read lot of post on internet on optimizing the P2P investment to reach 12-13-14%. I would rather prefer a lower interest rate but with lower risk. This is not an investment advice, it’s only my personal consideration. Everybody can see this matter in different way and it is ok.
So let’s see how I am analyzing the P2P platforms to make a score and decide where and how to invest in each one.
The main factors
Let me introduce the main parameters I am considering in my analysis for P2P portfolio diversification. They are not listed in order of importance.
It should be nice to have the possibility and capability to read the balance sheet of each platform but I have three main problems
I am not so good in analyze balance sheets
I do not know where I can get all the balance sheets
Each Balance sheet report data that are at least 6 to 18 months old
Fortunately, I have found a rating company that publishes financial report, it’s called s-peek. Taking their report analysis I can add this important information in my analysis.
The share capital is the money that the shareholder has put inside the company.
We can see a big difference among platforms. From 2600€ of Crowdestor to 1.700.000€ of Iuvo Group.
I feel safer to invest in a company that has a big share capital. It’s not an insurance, we have seen a huge company like Leeman Brother going bankrupt, but I feel much safer to invest in company with higher share capital.
Total amount invested
The total amount invested gives me the idea of how big is a company and hopefully how solid it is.
Number of investors
Same as the previous parameters, the more investors there are the safer I feel. I know that from the psychological point of view it is just the persuasion of the reciprocity and no more. A good company with good marketing can attract more persons.
Number of employees
It’s not an easy number to find out, but I use an indirect technique. I go to the LinkedIn page of a platform and look at how many employees are connected in Linkedin.
The older is a company the safer I feel to invest in this company.
I do not want to say that younger companies cannot be a good investment choice. I am just thinking that the older is the company, the more structured it can be and I feel more confident to invest more money.
P2P lending industry is quite new and there are many new P2P platforms on the market.
In my opinion, it is important to see what is the experience of other customers too. Not checking only the reviews on P2P blog sites. They are often interested in making a good review only to let other readers invest in the platform with their referral code. Not all the bloggers are like this, I ofter appreciate when I read a negative review.
So I decided to find a different approach not related to payback money.
I am considering the reviews on Trustpilot. I take note of the total number of reviews and the average score.
This is Mintos rate
Here are the data collected until now.
Can you help me to get the missing data?
I am working on 2 scores to have an index with which I can evaluate P2P platform.
In the first score I give 2 points to each green parameters, 1 point to yellow parameters and -1 to red parameters. And I make the sum.
In the second score, it is much more complicated and I try to give a weight to each parameter.
Both scores give similar results. I am at a developing stage of this system, therefore any suggestion is welcome to improve it
The data considered gives only idea of the platforms.
Having these numbers together is something that let me think more deeply on how much to invest in each platform. All the information comes from my own experience. I am not a financial advisor, what you read are just my toughts. Make your on investigation before investing in P2P lending. As already written the P2P lending is a risky investment.
This is just the start of the idea to find a way to classify P2P platform. What do you think about it? Let me know in the comments.
Absolutely not. P2P is a risky investment and you can lose all the money you have invested. Different platforms in the past years had default problems. Like Kuetzal (January 2020), Envestio (January 2020),
Let’s check which are the main risks in investing in P2P Lending and what to do to minimize them.
Risk 1 – Buyback warranty
Some P2P platforms have a buyback warranty. In practice, some loan originator promises to buyback an issued loan if it defaults. But what happens when a loan originator or a platform bankrupt? No one is buying back your loan. Yes, loan originator or platform bankruptcy is an extraordinary event, but it happens and we need to consider it.
For sure the buyback guarantee is making your investments safer and reduces the risks of peer to peer lending. I am investing, where it is possible, only with a buyback warranty. It is always advised to use it.
Risk 2 – Loan originators
Some platforms, like Mintos, the biggest European platform, do not offer their own loans. They are just an interface between who issue the lending (loan originator) and the buyers (us). Loan originators might bankrupt.
Some platforms give us the possibility to check the default payments of the loan originators. We have the possibility to choose only the best ones. Platforms like Mintos give a rating to the loan originator and we can choose what we feel convenient.
What can we do?
diversify our investment into different loan originators to limit our exposure.
Risk 3 – Platform bankruptcy
It is what happened to Envestio. From one day to the other the company closed and it was impossible to check their website and collect back the money
What can we do?
Diversify in different platforms and not invest only in one
Invest in platform with big capital share
Invest in older platform with longer history
Risk 4 – Cash drag
Cash drag happens when have money in a P2P platform, but there are not enough loans to invest in. This means that, the money does not create any interest and that we are leaving our money in an unsafe account.
What can we do?
Invest slowly and eventually take back money that have difficulty to be invested. Sometimes we can invest in less secured loans to decrease the cash drag, but I do not advice to do it.
Use autoinvest feature, if available, to invest in a loan immediately before the loan is fully invested by others
Risk 5 – Loan Quality
If there are too many investors, that is too much money available, there is the risk that the loan originator could lend money to “low-reccomended” people in order to avoid cash drag. There are always loans that don’t succeed. Another factory is that some loans does not have a buyback guarantee. In P2P you can have loans in different sectors, like real estate, private loan, … I do not personally invest in car loans because car, which is usually given as guarantee, depreciates more than a house.
What can we do?
Choose loan with buyback guarantee
Choose loan type that fit to us as investors
Invest in secured loans with collateral, such as mortgages
Diversify our investment to limit your exposure
Risk 6 – Currency fluctuation
If you are investing in currency different from your own, you will always be subjce to currency fluctuation
What can we do?
Invest only in our own currency
Risk 7 – General crisis
P2P lending is quite new form of investment. We do not know how it will react in case of general world or local crisis.
Just take into consideration that P2P lending is a risky investment. You should invest only the money that you can afford to lose. Do not invest money you need for your daily survival. I am not a financial advisor I am just giving you my humble experience.
Let me know what you think about this article and how I could improve it.