Post by nick on Jun 23, 2016 12:41:06 GMT
I think we shouldn't lose sight that most loans on the platform have a maturity of 12 months or less so lending on the platform is inherently short term. Having a liquid SM is nice to have to allow earlier cash out if there is a unforeseen need for the cash and to help diversify when first investing, but should be less important than for platforms where loan terms are a lot longer. Really we should be happy and prepared to hold these loans for the full term.
I have in the past been fairly active in continually swapping out older loans for newer ones in the belief that if I don't hold a loan to maturity it can't ever default. The recent normalisation of the SM (it was far from normal previously) will make this more difficult, but it has also made me realise that I was taking on far to much concentration risk by tending to hold new loans rather than ones of all maturities. There will be a bigger cost in pursuing such a strategy going forward, ie the liquidity risk of not being able to offload a concentrated position and/or lost interest if/when queuing loans for sale. From now on I'm going to be a lot more diligent over the individual loans I invest in and will only invest if I'm happy to hold to maturity - something I had lost sight off by the previous ultra liquidity of the SM!
I have in the past been fairly active in continually swapping out older loans for newer ones in the belief that if I don't hold a loan to maturity it can't ever default. The recent normalisation of the SM (it was far from normal previously) will make this more difficult, but it has also made me realise that I was taking on far to much concentration risk by tending to hold new loans rather than ones of all maturities. There will be a bigger cost in pursuing such a strategy going forward, ie the liquidity risk of not being able to offload a concentrated position and/or lost interest if/when queuing loans for sale. From now on I'm going to be a lot more diligent over the individual loans I invest in and will only invest if I'm happy to hold to maturity - something I had lost sight off by the previous ultra liquidity of the SM!
