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Post by astro1900 on Jul 28, 2016 19:31:28 GMT
Hi all,
As a frequent reader but novice poster, I wanted to ask everyone's opinion on the challenges they've had with choosing the right p2p platforms / creating their balanced portfolios.
A little bit about myself... I got involved in p2p about 4 months ago and was completely overwhelmed by the amount of platforms out there offering different options, returns, asset classes etc. After creating a (more or less) standardised process of doing the due diligence on over 20 different platforms, I down selected to a combined few which I felt provided good diversification across asset class, geography, platform.
Clearly it's an ever evolving process as new platforms, new regulation etc. coming into play but, overall it's a time consuming exercise. So I've made it a bit of a mission to make this whole due diligence process easier for the average investor...
So the questions to you guys is this...
1) What tools would make it easier for you to conduct this due diligence?
2) How did you select the platforms that allowed you to diversify your p2p portfolio (and do think it's sufficiently diversified)
3) What advice would you have for a novice p2p investor in creating a balanced portfolio?
Appreciate this is a broad topic but please feel free to share your thought!
Thanks in advance
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Greenwood2
Member of DD Central
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Post by Greenwood2 on Jul 28, 2016 19:47:27 GMT
As a novice go for well established platforms, there may be problems coming up for new possibly underfunded platforms. P2PFA members might be best bet.
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gibmike
Member of DD Central
What is a cynic? A man who knows the price of everything and the value of nothing.
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Post by gibmike on Jul 28, 2016 20:49:04 GMT
Hi astro1900, I would like to offer my advice given I started in March 2016 myself. Here is the advice I would have liked ;-) 1. I agree, there is a massive, massive choice and it can be daunting but understand it is a fledgling industry and it is a little bit like the gold rush. Lots of players but over time they will be sifted out. 2. Start with one. I picked LendInvest. Looked easy, good rates of 7% and easy to open and use (no secondary market so your stuck with your investment for 9-12 months). 3. Once you are happy with a small amount (£500 or so), build it up to about 25%of your investment, this way you can manage 3-4 of them. 4. Make a spreadsheet. I update mine 2-3 times a week with projections. Makes it easier to see what the end of the year will bring you. 5. Try and find a range of risk p2p platforms. LendInvest is fairly safe so I went for AC with higher risk and LTV. Do the same again, small investment then grow it if you are happy. 6. My P2P ranges are 6-7%, 9-10% and 11%+. This tries to stop me from chasing the dollar and be a little safer. 7. Take advice from here, these guys are clued up (far far more than me!). They are also nice and a**sholes are few and far between. As I am fairly new I have't got to the stage of balancing the investments (withdrawing/topping up to keep risk levels right) yet but by the end of the year I will be. Footnote: I have LendInvest, AssetzCapital and SavingStream for the record. Hope this helps, feel free to ignore, correct or like! |
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Post by propman on Jul 29, 2016 7:38:03 GMT
Although I acquired my first P2P investment back in 2010, I have stuck with the safer better established options to date and am only now thinking about diversifying into riskier platforms.
My approach is to be very clear on what the risks are, ensuring that I try and identify the high impact low likelihood "tail-risks" that have not happened yet but could be very significant in the future. The next step is to reappraise this for other investments held so genuine diversification can be considered (exposure to UK commercial property market will not be reduced by alternative platforms lending to the same client base and will only slightly be reduced through P2P against REIT shares!).
Next consider liquidity requirements (both known and the contingency fund you might require in an emergency) and match this to durations of loans and expected availability of liquidity in secondary market.
Find out how you intend to / could use the various sites (ie active flipping, autobid, active loan selection with preferred loan options) and realistic volumes that you could acquire in a given timescale within your strategy. Evaluate the time commitment from that strategy and payback it is expected to produce. then compare with similar assessments on other asset classes and confirm P2P offers an expected improvement to overall portfolio returns for both time commitment and risk taken on.
Read this Forum to identify issues and options. With site info try and be clear what you are investing in (is exposure to the "platform" or a related entity or just borrowers? Any unfortunate features (Tax on unearned money, potentially high exit fees, low capitalisation of platform, history of problems with administration etc.) Fill any gaps (eg capital of platform and key man risk, current and realistic medium term profitability of platform as currently run etc).
Then one or 2 platforms at a time start small and experiment, having identified what investment is appropriate in each platform and what niche it occupies in your portfolio (ie is it there to provide stability against shares or enhanced return from risk against FSCS deposits!).
Best of luck!
- PM
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Post by Deleted on Jul 29, 2016 11:18:33 GMT
You will need to manage your time and their risk. No point in working for less than minimum rate.
Take your time. I set a target of 9 months to be fully invested and it took 12 months to hit 100% at 1% diversified.
Where portals don't make judgement on default rates, do it for yourself and set aside that money to pay for defaults. They will come.
Then work out what deals you like. Do you believe that art has value, that property has value that speed boats have value, promises have value, at what point do you just not believe the value of the asset?
Then set targets for your portals (you can change them, but only for substantive reasons).
Some portals are inefficent investment portals, that is to say your money has to sit there, factor the cost of that in. Some portals are great communicators, some are useless to the point of absurdity, you have to put a numercal value to that difference. Remember if a deal is just too hard to understand, the figures are full of B*****it, or planning permission in not in place, it isn't a deal you want to invest in.
One other thing, I started with three portals and I'm disinvesting from all three, because? Because they changed their offering. Nothing is forever and portals are feeling their way.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Jul 29, 2016 11:29:59 GMT
My opinion, not shared by everyone, is that diversification is better than due diligence. It is almost impossible to predict which loans will go bad, and DD takes up a lot of time. So diversify across platforms and across loans within each platform and rely on the extra interest on the good loans to offset any losses.
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Post by tybalt on Jul 29, 2016 14:52:24 GMT
In contrast to the above I have three ratings A - Acceptable, B - Bargepole and C- Catastrophe in Waiting. The platform which I use ThinCats has a minimum loan part of £ 1,000. I am afraid I believe less than 20% of loans listed meet my criteria for A. Due Diligence for 'A' takes about an hour. B & C tend to be shorter. I have found little correlation between interest rate and my view of risk. After I have applied DD I then limit my loans to individual borrowers the 3% of my capital.
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Post by bluechip on Jul 29, 2016 15:36:48 GMT
If starting from a clean slate again I would pick one platform for each key criteria (there will be others that I don't work with/know about), I spent too much time spreading my risk across multiple platforms then realised I don't like the way some work/communicate and that I'm basically investing in the same types of loans across four platforms when it could be one. So only start multiplying the platforms once you have reached maximum comfort level with the ones you really like. Managing so many platforms efficiently can be like a full time job.
P2P - I'd pick one of Ratesetter, Zopa, Wellesley, Lending Works all lower rates but lower risk. Some also change their lending profile so be aware that it isn't just person-person lending.
P2B (sort of) - Funding Circle, Assetz, Lend Invest (this is in with my P2B because of the rates being similar but you know this is just property bridging)
Pawny/Property mainly - Funding Secure, Saving Stream, Money Thing
There is also BondMason which does the DD for you and spreads your money across many platforms targeting over 7% return (after their fees and defaults). I have just started working with them and it is going smoothly so far, so could be a good place for any novice to start.
The above platforms are ones I'm very familiar with. I was/am with 15 or so and I just quadrupled my work for the same return, now I have 3-5 years to wait until I'm fully out of them and that is if there are no major problems with bad debts. If I were brand new to P2P I would put a chunk with BondMason, some with Ratesetter and some with Assetz (if you can get invested), if not you can get very well diversified with Funding Circle quickly, but again there are a few bad apples in there. Saving Stream or Money Thing are my preference in the last group.
I agree with the guys saying DD is futile, if you are expert in DD then you shouldn't be wasting your time on these websites in my opinion as too much time can be spent on it and you are still kept in the relative dark. P2P is a bit of a punt but a relatively safe one if you spread your risk across different types of platforms/asset classes and a wide spread of loans on those platforms. Don't make the mistake of seeing a great rate, having money sitting in your account doing nothing and then allocating it all just to get invested because of a lack of options. I did that and I am stuck with a few dead ducks on some poor platforms because I was too eager to have my money working for me ASAP.
Patience and understanding what the platform do are keys to success, don't assume anything. I have been caught out by skim reading certain things only to have my plans scuppered because of the way some platforms operate, it doesn't always make sense so become expert in a handful of platforms rather than spreading yourself too thin is my advice.
Hope this helps and good luck.
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Post by dualinvestor on Jul 29, 2016 15:43:57 GMT
Firstly and most importantly remember that all that glistens is not gold. The P2P platforms would not be offering such exaggerated rates over FSCS returns unless there was considerable risk involved. You are going to encounter two major risks, the loan itself and the platform you obtain it through. With regard to the former I tend to agree with littleoldlady diversification is a much better method than a high proportion of your portfolio in a few loans on which you have conducted “due diligence.” As for the platforms they are nearly all start up businesses in a new industry, this carries both financial and regulatory risk. Although some platforms offer “provision funds” and have warm and fuzzy words on their web sites about risk be careful they are just words not guarantees that can be relied upon, especially in the event of a platform failure. Summing up I think that a lot of people have given good advice on this thread and although I would say take it slowly and diversify anything said above is equally valid and worth considering. Remember there are only two certainties in life, death and taxes |
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Post by jackpease on Jul 29, 2016 15:46:37 GMT
I too have given up imagining i can do due diligence. eg loans i thought were good weren't and loans i thought were bad were good.
Now - eg on funding circle - when one of my loans goes belly up i go back and try to look to at whether the signs were there - i can see no pattern in my failures nor warning signs.
I also think property 'security' is overblown - a property valuation may be as flimsy as a director's guarantee...
J
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Post by yorkshireman on Jul 29, 2016 16:18:08 GMT
I also think property 'security' is overblown - a property valuation may be as flimsy as a director's guarantee... J Whilst fully accepting that many property valuations are probably overstated, I still believe that first charge bricks and mortar security acts as a deterrent to unscrupulous borrowers.
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Post by GSV3MIaC on Jul 29, 2016 20:01:13 GMT
IMO you have to work hard (i.e. very badly indeed) to manage a 100% loss on a property backed loan (toxic tip was a potential!), but it is not hard to lose SOME of your money (maybe quite a lot of it) when the asset has to be auctioned at the wrong time.
I'm with the eggs/baskets brigade .. diversify across platforms (5 or more are probably enough .. keeping track gets to be an issue else), asset/borrower types, and individual loans. If you can pick winners, wonderful .. eventually you'll pick a loser though, so spread it out (9*9*9*9*9*...9*0 is a lousy return - accumulator bets are for mugs).
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Post by astro1900 on Jul 31, 2016 16:16:55 GMT
Firstly, thank you everyone for a great response and showing an insight into your selection strategies.
Gibmike - This is exactly the same way I started with perhaps a greater degree of analysis paralysis in the early stages!
Propman - You make a very interesting point regarding using each platform for additive purposes:
"Find out how you intend to / could use the various sites (ie active flipping, autobid, active loan selection with preferred loan options) and realistic volumes that you could acquire in a given timescale within your strategy. Evaluate the time commitment from that strategy and payback it is expected to produce. then compare with similar assessments on other asset classes and confirm P2P offers an expected improvement to overall portfolio returns for both time commitment and risk taken on"
My view on this is that, most platforms atm make the secondary market a rather fixed process (i.e. you can't set the price for which you sell or buy) although this has the potential to evolve into a much more interesting space to generate additional revenue for the more active investors out there looking to trade at premiums or discounts, similar to what Proper Partner has at the moment. This of course opens up the topics for an aggregated p2p secondary exchange which is a whole other topic.
Secondly, it's interesting how websites like BondMason and InvestUP have emerged to provide an aggregation of different platforms to cater for the need for greater diversification across p2p platforms / asset classes without investing many hours into DD.
All in all, we are still forced into excel sheets for accurate reporting, hours of reading, trial/error etc. but it still doesn't feel that there is a solution out there that provides what, I personally feel, are key criteria to for an "all in one platform":
1. Trading Access: access to sufficient volume of "quality" loans
2. Diversification tools: to allow you to diversify portfolio across platform, asset class & geography with a neat visualization tool to aggregate this.
3. Investment / account consolidation: allow standardized performance tracking of loans across ALL platforms
4. Investment strategy automation based on risk profile: remember there are more than 100 platforms out there which could have place in the portfolio but I've only seen roughly 20 discussed actively on UK blogs.
If you had to write a wishlist of what would make investing in P2P an easier experience for you, what would it be?
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