zlb
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Post by zlb on Jun 1, 2018 14:55:45 GMT
I've had a look around at threads. I sold out of FC a while back, but thinking about again. In their website it mentioned 1% diversification. Is this 1% of deposit, like Zopa, or 1% over all like BM?
I know there are two products/bands to choose from, but I wouldn't want BM style with the kinds of risks I see written about. Thanks
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cb25
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Post by cb25 on Jun 1, 2018 15:00:14 GMT
I've had a look around at threads. I sold out of FC a while back, but thinking about again. In their website it mentioned 1% diversification. Is this 1% of deposit, like Zopa, or 1% over all like BM? I know there are two products/bands to choose from, but I wouldn't want BM style with the kinds of risks I see written about. Thanks It's 0.5% (not 1%) of your portfolio total. E.g. my FC ISA portfolio is currently £14,039, but only £120 funds available for investment. FC is making loan offers of £70 (0.5% of £14,039)
Rather than put in (say) £10,000 and get each loan at £50, my approach is to put in £1,000 or £2,000, let it get lent out, then repeat. The early loans will be smaller, the latter loans bigger. Clearly takes longer, but for a given size of total investment, spreads the money out more.
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invester
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Post by invester on Jun 1, 2018 15:34:10 GMT
Is there any way to force a smaller diversification size?
Don't particularly feel that good about say, £100 chunks.
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cb25
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Post by cb25 on Jun 1, 2018 15:39:23 GMT
Is there any way to force a smaller diversification size? Don't particularly feel that good about say, £100 chunks. No. If your portfolio is £20,000+ money will be lent out in £100+ chunks. It's one of the reasons I'm running down my longtime non-ISA FC account. When the new system of auto-bid only came in my account had something like £80,000 in it and I wasn't happy at all with the idea of £400 loan chunks, having never lent that size per loan when placing money myself. So, I started another non-ISA FC account using a different email address (still mine) and started building that one up. The newer account has small loan chunks due to it's small portfolio size.
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ashtondav
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Post by ashtondav on Jun 1, 2018 17:47:07 GMT
Surely 0.5% diversification is adequate? If you’re happy lending £1000 in £5 chunks why would you hesitate about lending £100000 in £500 chunks? The mind is wired in weird ways I guess...
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benaj
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Post by benaj on Jun 1, 2018 17:55:55 GMT
FC matching algorithm starts with £20 loan parts, the minimum investment per account is £1000, hence 2% at the beginning if someone invests the minimum amount.
As the fund increases, the portfolio becomes more diversified. £4k in the account will have at least 200 loan parts once the fund is full matched.
For larger account, the algorithm will buy loan parts in 0.5% of the total value. For example, say you set up an new account with 10k, the initial loan parts size is £50, then one year later, assuming the net return 7% gain, the algorithm will be buying new loan parts in £53.
For loan parts from the Secondary markets, it can be anything from as little as £1 to maximum of 0.5% of your portfolio value.
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pickles
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Post by pickles on Jun 1, 2018 20:20:31 GMT
Surely 0.5% diversification is adequate? If you’re happy lending £1000 in £5 chunks why would you hesitate about lending £100000 in £500 chunks? The mind is wired in weird ways I guess... Exactly. Once you get below about 1% diversification it makes no difference. You are being allocated the loans randomly, and a few will default. If you have 10,000 loans the only difference will be that you have a larger number of small defaults, but the total monetary amount will be virtually the same. Also, bear in mind that the vast majority of FC loans are amortising, so you will always be more diversified than the maximum percentage allocated to a new loan (unless you withdraw a lot). I sold my whole portfolio in January and put it back up for autobid. Already I have 400 loans (700 parts) so on average twice as diversified as the headline 0.5%, and as time goes on this will apply even more.
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easylender
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Post by easylender on Jun 1, 2018 22:52:49 GMT
Is there any way to force a smaller diversification size? Don't particularly feel that good about say, £100 chunks. Yes, you can create more than one account with FC. You will need several e-mail addresses to do this. Just don't fund them at the same time to reduce the chance of each one buying parts of the same loans.
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Stonk
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Post by Stonk on Jun 2, 2018 1:59:15 GMT
Surely 0.5% diversification is adequate? If you’re happy lending £1000 in £5 chunks why would you hesitate about lending £100000 in £500 chunks? The mind is wired in weird ways I guess... Exactly. Once you get below about 1% diversification it makes no difference. You are being allocated the loans randomly, and a few will default. If you have 10,000 loans the only difference will be that you have a larger number of small defaults, but the total monetary amount will be virtually the same. Also, bear in mind that the vast majority of FC loans are amortising, so you will always be more diversified than the maximum percentage allocated to a new loan (unless you withdraw a lot). I sold my whole portfolio in January and put it back up for autobid. Already I have 400 loans (700 parts) so on average twice as diversified as the headline 0.5%, and as time goes on this will apply even more. It might make no difference on average, but it certainly makes a difference to individuals. FC has determined that 0.5% diversification will provide a 7.2% net return on average (for the Balanced option), within a reasonable level of tolerance. Actually it is the tolerance that is more important. The 0.5% does not determine the intended 7.2% return; it determines the degree of certainty of receiving close to the intended 7.2% return. If 0.5% diversification gives 7.2% return on average among all investors, then so would 1% diversification, or 2% or 5% or 10% or 50% or 100% on average. But the less the diversity, the greater the probability of any individual having a return far from the average. This matters to me. I am investing on the basis that I am happy with the intended 7.2% return, and that I am an investor not a gambler. As such, I wish to minimise the probability of receiving less than 7.2% (in return for which I am prepared to accept a reduced chance of receiving more than 7.2%). The way to do that is to diversify as much as possible. 0.5% will achieve a certain (undeclared) level of certainty, but whatever it is, I would prefer to have more certainty.
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IFISAcava
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Post by IFISAcava on Jun 2, 2018 7:58:44 GMT
Exactly. Once you get below about 1% diversification it makes no difference. You are being allocated the loans randomly, and a few will default. If you have 10,000 loans the only difference will be that you have a larger number of small defaults, but the total monetary amount will be virtually the same. Also, bear in mind that the vast majority of FC loans are amortising, so you will always be more diversified than the maximum percentage allocated to a new loan (unless you withdraw a lot). I sold my whole portfolio in January and put it back up for autobid. Already I have 400 loans (700 parts) so on average twice as diversified as the headline 0.5%, and as time goes on this will apply even more. It might make no difference on average, but it certainly makes a difference to individuals. FC has determined that 0.5% diversification will provide a 7.2% net return on average (for the Balanced option), within a reasonable level of tolerance. Actually it is the tolerance that is more important. The 0.5% does not determine the intended 7.2% return; it determines the degree of certainty of receiving close to the intended 7.2% return. If 0.5% diversification gives 7.2% return on average among all investors, then so would 1% diversification, or 2% or 5% or 10% or 50% or 100% on average. But the less the diversity, the greater the probability of any individual having a return far from the average. This matters to me. I am investing on the basis that I am happy with the intended 7.2% return, and that I am an investor not a gambler. As such, I wish to minimise the probability of receiving less than 7.2% (in return for which I am prepared to accept a reduced chance of receiving more than 7.2%). The way to do that is to diversify as much as possible. 0.5% will achieve a certain (undeclared) level of certainty, but whatever it is, I would prefer to have more certainty. There's two types of certainty: 1) how close the overal loan book gets to the intended 7.2% average at any given time and 2) how close your portfolio gets to the overall loan book return. More diversity improves 2) but not 1).
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zlb
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Post by zlb on Jun 2, 2018 8:18:39 GMT
Exactly. Once you get below about 1% diversification it makes no difference. You are being allocated the loans randomly, and a few will default. If you have 10,000 loans the only difference will be that you have a larger number of small defaults, but the total monetary amount will be virtually the same. Also, bear in mind that the vast majority of FC loans are amortising, so you will always be more diversified than the maximum percentage allocated to a new loan (unless you withdraw a lot). I sold my whole portfolio in January and put it back up for autobid. Already I have 400 loans (700 parts) so on average twice as diversified as the headline 0.5%, and as time goes on this will apply even more. It might make no difference on average, but it certainly makes a difference to individuals. FC has determined that 0.5% diversification will provide a 7.2% net return on average (for the Balanced option), within a reasonable level of tolerance. Actually it is the tolerance that is more important. The 0.5% does not determine the intended 7.2% return; it determines the degree of certainty of receiving close to the intended 7.2% return. If 0.5% diversification gives 7.2% return on average among all investors, then so would 1% diversification, or 2% or 5% or 10% or 50% or 100% on average. But the less the diversity, the greater the probability of any individual having a return far from the average. This matters to me. I am investing on the basis that I am happy with the intended 7.2% return, and that I am an investor not a gambler. As such, I wish to minimise the probability of receiving less than 7.2% (in return for which I am prepared to accept a reduced chance of receiving more than 7.2%). The way to do that is to diversify as much as possible. 0.5% will achieve a certain (undeclared) level of certainty, but whatever it is, I would prefer to have more certainty. thanks, I agree, nicely extracted about probability. 18 months is often stated as a minimum investment time in P2P. If one ends up investing for shorter periods (eg, 'I don't like the feel of this anymore', or life circumstances) then greater diversity helps there, so that one might have a better chance of controlling whether one loses the value of a pair of trousers, rather than a car repair cost.
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zlb
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Post by zlb on Jun 2, 2018 8:27:36 GMT
FC matching algorithm starts with £20 loan parts, the minimum investment per account is £1000, hence 2% at the beginning if someone invests the minimum amount. As the fund increases, the portfolio becomes more diversified. £4k in the account will have at least 200 loan parts once the fund is full matched. For larger account, the algorithm will buy loan parts in 0.5% of the total value. For example, say you set up an new account with 10k, the initial loan parts size is £50, then one year later, assuming the net return 7% gain, the algorithm will be buying new loan parts in £53. For loan parts from the Secondary markets, it can be anything from as little as £1 to maximum of 0.5% of your portfolio value. Slightly different-sounding responses on this thread. It sounds as if you've watched this closely. Thanks.
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