|
Post by herik on Jul 31, 2016 11:40:29 GMT
Hey everyone, I've thought of an interesting discussion that perhaps can be had here in the forums. My background is that I come from a family that has rented all their lives, I have an apprenticeship and am earning a minimum wage. Perhaps there are others here that have had similar backgrounds, or have been bought up very differently, and have learnt the principle from an early age that money works for you and that you don't work for money. There are obviously many strategies and ways of making the money work for you in P2P lending. And many people here have started with little money, and perhaps many others with large amounts of money. Many have found success and perhaps failures. Yet each have the intent of creating wealth for better lives for themselves and their families and what have you. Some may view investing as a competition or some may see this as a necessity. Whatever it may be. I and I'm sure many others are keen and interested in learning from those that have wealth and gain wisdom or from those that are currently in that moment of becoming wealthy. What strategies they can start applying in investing in P2P lending with Ratesetter. So what strategies have worked for you?
An example: Let's say I have $2000 that I am able to invest. Where should I start? Should I divide the money and put it into different parts? Or at different times?
What are the most successful ways that you have experienced in generating wealth in a well paced manner?
Hopefully you all understand where I'm coming from and where I'm going with. Any advice and discussion would be greatly appreciated.
Many thanks.
To add: If you feel that it can't really be taught and that you just have to learn from experience...Please expound.
|
|
|
Post by wiseclerk on Jul 31, 2016 14:24:09 GMT
I love reading experiences from other investors. Several of the investors from this forums have share their stories here: www.p2p-banking.com/category/investor/page/2/However while one can learn a lot by just looking at what other investors did and avoid some obvious errors, that does not mean it is easy just to copy successful investors and be successful oneself. For one what worked in the past might not necessary work in the future under different market conditions. Also different investors have quite different levels of risk tolerance and expected yield. So the best way might be to go slow, read a lot, but find your own way that is right for you.
|
|
Neil_P2PBlog
P2P Blogger
Use @p2pblog to tag me :-)
Posts: 355
Likes: 209
|
Post by Neil_P2PBlog on Jul 31, 2016 22:15:49 GMT
Hey everyone, I've thought of an interesting discussion that perhaps can be had here in the forums. My background is that I come from a family that has rented all their lives, I have an apprenticeship and am earning a minimum wage. Perhaps there are others here that have had similar backgrounds, or have been bought up very differently, and have learnt the principle from an early age that money works for you and that you don't work for money. There are obviously many strategies and ways of making the money work for you in P2P lending. And many people here have started with little money, and perhaps many others with large amounts of money. Many have found success and perhaps failures. Yet each have the intent of creating wealth for better lives for themselves and their families and what have you. Some may view investing as a competition or some may see this as a necessity. Whatever it may be. I and I'm sure many others are keen and interested in learning from those that have wealth and gain wisdom or from those that are currently in that moment of becoming wealthy. What strategies they can start applying in investing in P2P lending with Ratesetter. So what strategies have worked for you? An example: Let's say I have $2000 that I am able to invest. Where should I start? Should I divide the money and put it into different parts? Or at different times? What are the most successful ways that you have experienced in generating wealth in a well paced manner? Hopefully you all understand where I'm coming from and where I'm going with. Any advice and discussion would be greatly appreciated. Many thanks. To add: If you feel that it can't really be taught and that you just have to learn from experience...Please expound. I would look carefully at the exit options on each platform, and not put all my money into just one. For example, say in 2 years time you want to take that money out of ratesetter to put into a deposit for a house, ratesetter has a complicated early exit fee on their higher paying products (see other threads). If you put £1k in a platform like landbay, you can get about 4% interest and another 5% from the cashback (£50) with no exit fees.
|
|
adrianc
Member of DD Central
Posts: 9,012
Likes: 4,824
|
Post by adrianc on Aug 1, 2016 7:41:29 GMT
An example: Let's say I have $2000 that I am able to invest. Can you just clarify where you're located, herik? If you're outside the UK, then you should be aware this is a UK-focussed forum. You may find better sources of information that's more locally-relevant to you. Given that you're earning minimum wage, I would have thought your priorities leant away from relatively high-risk investing.
|
|
|
Post by propman on Aug 1, 2016 8:24:09 GMT
It would take a very long time for someone of modest means to become rich with P2P. Compound interest may be the most powerful force in the universe, but it needs to act on a large amount or over a very long timeto have a huge impact. realistically people shouldn't expect >10% from P2P even with a lot of time invested and that is higher than I would expect. To create £100,000 in 20 years (which will not be a lot then, but probably sizeable) at 10% would require a starting sum of about £15,000 even ignoring tax.
- PM
|
|
|
Post by herik on Aug 1, 2016 10:40:26 GMT
It would take a very long time for someone of modest means to become rich with P2P. Compound interest may be the most powerful force in the universe, but it needs to act on a large amount or over a very long time to have a huge impact. realistically people shouldn't expect >10% from P2P even with a lot of time invested and that is higher than I would expect. To create £100,000 in 20 years (which will not be a lot then, but probably sizeable) at 10% would require a starting sum of about £15,000 even ignoring tax.
- PM Really? It seems so much faster when looking at the monthly payments. So are you suggesting that P2P lending should not be done, until someone has sizeable invement money? Obviously an asset is better then no asset. What assets should I be looking at? Thanks for being direct. Would that be a monthly $50 for the duration of what time? (is it a month/1/3 or 5 year investment)? Is Landbay a lot safer with less return investment? Or is it very similar to Ratesetter? Thanks for the example and help. I figured this was the UK version when people were throwing euro signs around haha. I'm in Australia. Are there Australia Ratesetter Forums? I think I am a good saver. My priorities are to be able to one day have a family and support them well enough to thrive off of a good education, owning my own home and be financial independent enough to help others aswel as myself. Is P2P lending high risk? I would have thought that the stocks would be more high risk then P2P lending. Also I think I understand P2P lending more then the stocks at this current time. If you feel that it may be a high risk for someone like me, what do you believe would be the best alternative? What would be a 'safer' or more 'secure' investment for me at this time in my life? Thank you Thanks for the link, I'll give it a read. Yea I can understand that, But wouldn't there be some basic principles or guidelines to follow in investment to atleast be able to do it intelligently and successfully? Yea, that's what I was thinking. I've only started off with a simpe $10 in each of the 'lending markets'. To see the differences and advantages. Thank you
|
|
|
Post by propman on Aug 1, 2016 16:07:20 GMT
The monthly payments include repayment of capital, so the total value of your investment increases much more slowly than the amount repaid.
Yes money creates money, but the proportion where this makes up a large share of their income (pensioners aside) is small for a reason. basically the capital required is out of the means of most.
P2P does have significant risks. By far the largest impacts would be from Platform failure. If this was caused by fraud the majority of the investment might be lost. lesser collapses might mean loss of liquidity and a likely delay before receiving any recompense. On more straight forward P2P's you should have the right to any repayments, but some are structured as loans to the platform or a related company, so your rights would at best be a share in the amounts received for the entire loanbook after this had been determined and liquidated (possibly at significant cost). Few are as straight forward as they seem. There is a world of difference between how a company operates when continuing in business (ie it is trying to maintain customer loyalty and avoid bad press / maintain authorisations to trade etc.) as opposed to closing down. In UK liquidators routinely breach contracts as the disadvantaged parties often stand in line with other "ordinary" creditors for recompense which, if only a small proportion of face value, is often less than the cost of continuing the contract. Finally, the "wind down" arrangements to return the repayments to lenders are currently untested. If there were a major down-turn and loss in confidence in P2P generally, it is possible that collecting these debts will become more expensive than envisaged and lenders might bear the shortfall of fees on costs out of their repayments. Remember that failure to satisfy the regulator could lead to cessation.
Of course the most discussed risk is default risk. Only Zopa has been through adverse credit conditions and that was with a very different product to those available today. I for one expect a number of platforms to collapse (or merge) in the first serious downturn and there to be a significant loss of confidence in the sector as a result. At the least this will reduce liquidity, but it may lead to the default protection funds being inadequate and unable to replenish on lower volumes, so any platform may generate losses. Also, the backlash might lead to tighter regulation that increase platforms' costs reducing viability and funds from their backers.
As for who this is for, it depends upon the investors appetite for risk. Nothing wrong with putting some money aside for risky investments in the hope that you can grow it. But that should probably only be the excess to requirements of an acceptable standard of living, while most would advise a buffer to cover unexpected liabilities (deposit on new home if forced to move, some funds to cover a gap to another job, repairs to a vehicle etc). P2P is not recommended for short term needs (remember losing your job is most likely during a downturn when liquidity may dry up).
There may be people who support themselves on P2P after retirement, but most will only use P2P as a minority of their investments. yes, some P2P is safer than shares in general, but a well diversified portfolio of shares might well be a better prospect than many P2P portfolios in a downturn. If you are prepared to risk losing a significant proportion of your savings, nothing wrong with starting your investments solely in P2P to minimise costs. But as the portfolio becomes larger, probably advisable to diversify into other classes. If a major platform goes down all will struggle, so you need to diversify into non-P2P. Even more so, property makes up a large amount of P2P. So diversifying from property would require a significant reduction in P2P options, while this whole area is very cyclic and so should only make up a small proportion of your investment portfolio. In addition, fixed income investments has been compared with picking up pennies in front of a steam roller. You know what you expect to earn (the quoted interest), but there is potential for significant losses, while there is little prospect for any upside to make you rich (ie shares can go up as well as down, so to an extent the "risk" of losses is balanced by the "opportunity" of large gains).
In summary, most P2P investors use these assets to enhance the return from their portfolio while maintaining other less risky assets to cover requirements. Some choose to hold the majority of investments in a higher risk form, choosing diversified investments so that it is unlikely that all will be illiquid / poorly valued at the same time, while still others take the risk of significant impacts to their circumstances in the hope of the prospect of improved circumstances. So P2P has its place to get you incrementally richer, but not to get you rich in anything but the very long term.
HTH
- PM
|
|
|
Post by herik on Aug 3, 2016 9:13:10 GMT
So let's say I pay 5 chunks of $200 (diversifying it) into a rate that is going at 6% , would my return be $60 per month for 5 years or slightly lower because of tax and charges by ratesetter, so let's say $50-55? It still would be THAT bad. Although I'm sure you're right, that there are a lot more high risk/return investments that would be a greater benefit to me at this time. What ones do you think I should be looking at? What should I be studying you get my head around it?
That is very true, though we are on different platforms in a way and countries, we do share the same risks. So far from what I've been able to find. Is that Diversification is how you protect your capital and still earn money in the long run. Even if that means investing in other platforms and investments. Would you agree?
Unfortunately there's always going to be an opposition in all things, so far ratesetter has got a really good reputation.
Another very true statement, so a way to tackle this, would be to put aside money per week for an investment? Or would you recommend just forgetting about P2P for the current time? And going into other investment paths.
Thank you so much! I really do appreciate the advise. I definitely will have to diversify my investments to get the best out come in other classes.
But because Stocks/shares are more risky then lets say P2P lending. Would you first invest in P2P lending and then Stocks? Or would you go to Stocks first and then P2P.
P2P and then Stocks sounds like a safer route to me personally.
|
|
|
Post by dualinvestor on Aug 3, 2016 9:37:57 GMT
5 "chunks" of $200 makes a total of $1000, invested at 6% will give a return over 5 years (60 months) in total of c.$1150 or around $19 per month including capital. I am not sure where you get a gross figure of $60 per month from.
|
|
DeafEater
Member of DD Central
Extremely Moderate
Posts: 218
Likes: 292
|
Post by DeafEater on Aug 3, 2016 9:51:54 GMT
So let's say I pay 5 chunks of $200 (diversifying it) into a rate that is going at 6% , would my return be $60 per month for 5 years or slightly lower because of tax and charges by ratesetter, so let's say $50-55? It still would be THAT bad. I detect a fundamental misunderstanding here! If your $1000 remains fully invested for the whole year, the interest payable before tax is $60 FOR THE WHOLE YEAR. The monthly interest is thus only $5. Hence you will not get rich at quite the rate you anticipated, even supposing you don't suffer any losses.
|
|
|
Post by herik on Aug 3, 2016 10:37:28 GMT
So let's say I pay 5 chunks of $200 (diversifying it) into a rate that is going at 6% , would my return be $60 per month for 5 years or slightly lower because of tax and charges by ratesetter, so let's say $50-55? It still would be THAT bad. I detect a fundamental misunderstanding here! If your $1000 remains fully invested for the whole year, the interest payable before tax is $60 FOR THE WHOLE YEAR. The monthly interest is thus only $5. Hence you will not get rich at quite the rate you anticipated, even supposing you don't suffer any losses. Wow, I guess I really misunderstood this part. I was under the impression that it was like 6% of your capital for a whole 5 years . Kind of like a bank. Example: I deposit $5000 in my bank. at an interest rate of %10...But instead of the interest been built up in the deposit with the "bank" the money comes to me. So how does the mathematics exactly work here? Thanks for correcting me, before fully committing myself! Edit: you both came up with different answers, $19 and $5. How come?
|
|
alender
Member of DD Central
Posts: 957
Likes: 647
|
Post by alender on Aug 3, 2016 11:05:48 GMT
The maths are complicated for anything but 1 year investments and yearly interest payments, I remember at school we used calculus to look at this issue. Excel has a function which can calculate the interest.
The difference is RS loans are amortising i.e. capital as well as interest is paid at monthly intervals so your capital for a 60 month loan is invested for an average of 31 months. To get the full interest for 60 months you need to reinvest the capital each month. If you reinvest the interest you will get a little more than 6%, if you do not you will get a little less as the interest rate is based on interest payments at the end of each year both these will still be 6% APR, the difference is you get the use of the money either earlier or latter.
|
|
DeafEater
Member of DD Central
Extremely Moderate
Posts: 218
Likes: 292
|
Post by DeafEater on Aug 3, 2016 11:48:26 GMT
herik: the reason dualinvestor came up with the $19 per month figure is because his figure includes the capital that would ALSO be repaid each month. My figure was just a rough figure for the interest since the capital already belongs to you so it's not very exciting that you're gradually having it drip-fed back to you. Your main problem seems to be that you think you get 6% interest per month and you don't. 6% is the annual return and as alender says, assumes that the capital you get back as part of your monthly repayments is reinvested at the same rate. If you want to work out the MONTHLY interest rate from an AER of 6%, it's about 0.486755% so on a capital sum of $1000 this comes to about $4.87 a month. If you're having difficulty understanding why then you really shouldn't be investing in P2P.
|
|
|
Post by propman on Aug 3, 2016 11:53:48 GMT
I detect a fundamental misunderstanding here! If your $1000 remains fully invested for the whole year, the interest payable before tax is $60 FOR THE WHOLE YEAR. The monthly interest is thus only $5. Hence you will not get rich at quite the rate you anticipated, even supposing you don't suffer any losses. Wow, I guess I really misunderstood this part. I was under the impression that it was like 6% of your capital for a whole 5 years . Kind of like a bank. Example: I deposit $5000 in my bank. at an interest rate of %10...But instead of the interest been built up in the deposit with the "bank" the money comes to me. So how does the mathematics exactly work here? Thanks for correcting me, before fully committing myself! Edit: you both came up with different answers, $19 and $5. How come? Essentially at the beginning of the 5 year term you will get ~$5 of interest and the remaining $14 as return of part of your original $1000 investment. If you don't reinvest, the proportion of your $19 repayment each month that is interest will decline to negligible in the final payment (in proportion to the unrepaid capital) with an increasing amount of capital. If you choose to reinvest the full $19 each month, ignoring the impact of any time unlent, then the additional investments will also earn interest and have further repayments. At the end of the year you will have $1,060 invested (the $1000 and the $60 of interest). Essentially the interest paid is such as to compound to 6% a year, some 0.487% per month on the capital lent. The remaining 0.013% is the compounding (interest due on the earlier interest paid).
The difference to a bank is that only money that is lent earns interest. So lenders have to balance money unlent and therefore unproductive with the requirement to accept lower rates to lend out straight away.
HTH
PM
|
|
|
Post by propman on Aug 3, 2016 12:08:48 GMT
herik : the reason dualinvestor came up with the $19 per month figure is because his figure includes the capital that would ALSO be repaid each month. My figure was just a rough figure for the interest since the capital already belongs to you so it's not very exciting that you're gradually having it drip-fed back to you. Your main problem seems to be that you think you get 6% interest per month and you don't. 6% is the annual return and as alender says, assumes that the capital you get back as part of your monthly repayments is reinvested at the same rate. If you want to work out the MONTHLY interest rate from an AER of 6%, it's about 0.486755% so on a capital sum of $1000 this comes to about $4.87 a month. If you're having difficulty understanding why then you really shouldn't be investing in P2P. You beat me to it. However, I think you are making a lot of assumptions in your final statement. I can see why someone might see the $19 payments and assume they were interest, failing to realise that these are 1.9% per month, an AER of 25.3% rather than the 6% quoted. This is further confused because, assuming full and immediate reinvestment and ignoring early repayments, the repayments do compound at this monthly rate during the term of the original investment. So in the final month, repayments of $59.35 on initial debt of $3,080 (although capital outstanding would only be $1338). Of course the difference is that the repayments stop at the term of the loans, so would drop to $41.23 the following month including $6.50 interest.
Some of us may analyse the numbers obsessively, while others take the statements at face value (together with comfort from FCA oversight and the comments from the obsessives to keep them honest).
As I have posted elsewhere, many invest for real capital preservation. After basic rate tax (assuming the £1k tax free is used elsewhere) and cash drag, the 6% is about 4.6%. A healthy margin over likely inflation to cover the risk and potential sub-inflation returns on some other investments.
- PM
|
|