littonowl
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Post by littonowl on Sept 6, 2016 13:03:19 GMT
I see in the faq's that you can have monthly interest paid into a bank. That could be pretty useful for me in the future, but I'd like to trial an account first with a small pot and build it up with payments being reinvested initially.
Can anyone confirm if it's possible to change your interest payments option, as/when your needs change, or do you have to stick with the option chosen on opening the account?
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 6, 2016 13:45:55 GMT
I see in the faq's that you can have monthly interest paid into a bank. That could be pretty useful for me in the future, but I'd like to trial an account first with a small pot and build it up with payments being reinvested initially. Can anyone confirm if it's possible to change your interest payments option, as/when your needs change, or do you have to stick with the option chosen on opening the account? Reinvest interest is just a click switch so yes.
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Post by vanessaiman on Sept 6, 2016 13:51:11 GMT
Hi Littonowl,
I hope you are well.
I'm happy to hear that you have invested. I can confirm that you are able to change your interest payment option from the home screen. You are able to choose whether you would like to re-invest or be paid straight into your bank account and would not need to stick with the option chosen when opening the account.
Do let me know if you have any questions.
Best, Vanessa
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littonowl
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Post by littonowl on Sept 6, 2016 14:14:32 GMT
Thanks vanessamain & ilmoro for your answers / confirmation. Vanessa, I hadn't invested, but I have now! Just started with a small pot initially, to see how it goes, but may come back with a little more if I like what I see... Pleased to say the registration process was quick and straight-forward too. I don't have a house number and you'd be amazed how many times that causes registration problems, but happily no such issues here!
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littonowl
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Post by littonowl on Sept 6, 2016 15:21:21 GMT
Ok, now fully invested (in under an hour, so quite impressive!) with 10 loans of 10% each at a combined rate of 4.84% against the target rate on the site of 5.2%. Was also expecting there to be 20 loans of 5% each, so not sure why it worked out that way, but still reasonably diversified. Not sure if there's any way of manually inputting how much diversification you'd like or whether its fully automated (and presumably just down to loan availability at the time of investment)?
Of my 10 loans, 8 loans were in London/SE, with one in Cambridge and one in Liverpool. Rates range from 3.79% to 6.63%, so quite a variance...
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Post by vanessaiman on Sept 6, 2016 16:15:00 GMT
Hi Littonowl,
That's great to hear!
Unfortunately there isn't any way of manually inputting how much diversification you'd like, we do try to spread across as many loans as possible approx up to 40.
I'm glad you found the sign up quick and straightforward, please do let me know if you need any help.
Best, Vanessa
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upland
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Post by upland on Sept 7, 2016 7:44:28 GMT
I have opened an account. It all went very smoothly and I have fed some money in over a few days. Its a simple site but for the sort of low risk ( ) low return its quite adequate I think. I am sure that life will make it more complicated over the years. As long as the capital is 'reasonably' able to be withdrawn and the rates remain comparable to other similar purveyors then I feel that this could have a place. I would not normally try such a new site but Octopus is well known to me and is a good reason to investigate further. My only real concerns to date are about diversification. Building up the capital I eventually got into 20 holdings ranging from £10 to £44 which I thought a bit lop sided. Doubling the amount I have sizes ranging from £20 to £64. I know its early days but I dont really think that 20 holdings (now have 21) is enough to be well diversified , 100 would be better. If you add in the lop sided distribution then the largest is 7.5% of the lot. If that loan went bad then it would make a bit of a dent in the 4.95% blended return. I doubt that I would lose 7.5% but it would presumably take some time for the bad loan to be sorted out and it just reduces the overall return. I do have a friend who actually lost money in a similar situation with another platform. I have a healthy respect for the balancing algorithms employed and its not an easy thing to get right as I do have a background in computers. If I were to put in ten times as much I wonder how the distributions would pan out. I wonder what difference it would make if you added small bits of money or put it in all at once.
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littonowl
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Post by littonowl on Sept 7, 2016 9:47:29 GMT
Interesting post upland, and I share your concerns over diversification, having been assigned just 10 loans with my initial stake.
I held back some cash in case this happened, and like you did, will drip feed cash in to hopefully get a better spread of loans going forward.
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Post by vanessaiman on Sept 7, 2016 9:49:58 GMT
Hi Upland, I'm happy to hear you're opened up an account with us! At Octopus Choice we aim to reach 40 loans as there is a very marginal reduction of risk for a portfolio above 40, you can find our reasoning behind this here. Like you said getting the algorithm balance can be difficult, so every time somebody invests with us we distribute that investment across loans with a minimum of £10 in each loan. For example if you invest £30, we will then invest 3 loans for you (so not 20 or 40). Please do let me know how its going. Best, Vanessa
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pom
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Post by pom on Sept 7, 2016 10:55:07 GMT
I paid in my 3rd dollop yesterday - 1st was Aug 1st - and I'm now up to 33 loans (max 4.7% in any one loan), so the diversity does happen, but I think it would be unrealistic to expect there to be availability in loads of loans all at the same time (Some of my earliest ones would appear to be totally full as nothing's been added to them since the first investments, others have been increased) - you wouldn't get it on any other platform after all. Best bet I think is to make (semi) regular investments if you want it spread around as much as possible - I'm doing it manually but you can of course set up monthly payments.
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Post by propman on Sept 7, 2016 12:08:08 GMT
Hi Upland, I'm happy to hear you're opened up an account with us! At Octopus Choice we aim to reach 40 loans as there is a very marginal reduction of risk for a portfolio above 40, you can find our reasoning behind this here. Like you said getting the algorithm balance can be difficult, so every time somebody invests with us we distribute that investment across loans with a minimum of £10 in each loan. For example if you invest £30, we will then invest 3 loans for you (so not 20 or 40). Please do let me know how its going. Best, Vanessa As ever the naïve analysis assumes a normal distribution of returns on the properties. This completely ignores the outliers that are the main reason for diversification, in property that would be either properties that have a special purchaser (and so attract a premium above market growth), or become unlettable at market rates. This is fine for a professional who does significant due diligence as investing in less should allow them to reduce the risk of issues and the opportunity for upside and so select the better performing assets. That might well be an appropriate approach to investing in a property fund as the investor is appointing the fund manager to provide this out performance. However, when investing in a random selection of opportunities this is no longer valid.
Furthermore, loans do not perform like real estate. The return is either as contracted, reduced by subsequent delays and possible costs of recovery, or significantly reduced when loans default and security fails to repay the debt. This leads to the variation in returns being primarily determined by the unrecovered defaults. These are a small proportion of the whole, but have the capacity to devastate returns. As a result, investors should invest in sufficient that the potential losses in a down turn are within acceptable levels. I imagine for some investors this might not be significantly more than the portfolio losses and so they should not also take on a significant risk that their investments incur significantly greater losses than the portfolio. this will require a portfolio large enough that they expect a significant number of defaults so that each default effects their returns only modestly.
In addition, the outsourcing model is devised to reduce the costs of increasing the portfolio size and so the main objection in the paper (management costs outweighing future benefit) are not such an issue.
Of course some may be willing to take the punt on the grounds that a small portfolio means they have a good chance of no defaults and so outperform.
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upland
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Post by upland on Sept 7, 2016 12:19:54 GMT
littonowl , indeed we will have to keep an eye on our concerns.
pom , from your figures and what else I have seen it looks like they are generating 10-15 loans a month. I put 4 lots of cash in in as many days and went from 10 to 20 and then 21 loans. Even with your 33 loans if the one that is a bit bigger than the rest goes west then it will take the shine off of the years returns while it is being recovered.
I guess its a bit early to talk of default rates , I think it will probably not be a loss of capital but the time it takes to sort it out that costs the investor. One of my earlier p2p investments with a market leader went wrong , my £20 investment went bankrupt before it had even paid anyone any money! I am still waiting and hence I am cautious. It always seems that there is a mystical reason that nobody has seen before....
Vanessa , would you know if the system does any re-balancing of the loans other than finding a new home for the interest repayments and the completed loans ?
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pom
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Post by pom on Sept 7, 2016 13:31:03 GMT
littonowl , indeed we will have to keep an eye on our concerns. pom , from your figures and what else I have seen it looks like they are generating 10-15 loans a month. I put 4 lots of cash in in as many days and went from 10 to 20 and then 21 loans. Even with your 33 loans if the one that is a bit bigger than the rest goes west then it will take the shine off of the years returns while it is being recovered. I guess its a bit early to talk of default rates , I think it will probably not be a loss of capital but the time it takes to sort it out that costs the investor. One of my earlier p2p investments with a market leader went wrong , my £20 investment went bankrupt before it had even paid anyone any money! I am still waiting and hence I am cautious. It always seems that there is a mystical reason that nobody has seen before.... Vanessa , would you know if the system does any re-balancing of the loans other than finding a new home for the interest repayments and the completed loans ? Well I'd hope/expect that given the summer is over things should pick up and there should be more loans to diversify. But the simple answer is don't put everything in one platform. 4.7% of my Octopus investment is and will remain insignificant compared to my overall portfolio until I have a lot more invested in there. So long as the deal flow doesn't totally dry up I'm more likely to reach my max_per_platform limit before I start feeling uncomfortable with the amount they're putting in each loan
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upland
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Post by upland on Sept 7, 2016 13:47:05 GMT
Hi Upland, I'm happy to hear you're opened up an account with us! At Octopus Choice we aim to reach 40 loans as there is a very marginal reduction of risk for a portfolio above 40, you can find our reasoning behind this here. Like you said getting the algorithm balance can be difficult, so every time somebody invests with us we distribute that investment across loans with a minimum of £10 in each loan. For example if you invest £30, we will then invest 3 loans for you (so not 20 or 40). Please do let me know how its going. Best, Vanessa As ever the naïve analysis assumes a normal distribution of returns on the properties. This completely ignores the outliers that are the main reason for diversification, in property that would be either properties that have a special purchaser (and so attract a premium above market growth), or become unlettable at market rates. This is fine for a professional who does significant due diligence as investing in less should allow them to reduce the risk of issues and the opportunity for upside and so select the better performing assets. That might well be an appropriate approach to investing in a property fund as the investor is appointing the fund manager to provide this out performance. However, when investing in a random selection of opportunities this is no longer valid.
Furthermore, loans do not perform like real estate. The return is either as contracted, reduced by subsequent delays and possible costs of recovery, or significantly reduced when loans default and security fails to repay the debt. This leads to the variation in returns being primarily determined by the unrecovered defaults. These are a small proportion of the whole, but have the capacity to devastate returns. As a result, investors should invest in sufficient that the potential losses in a down turn are within acceptable levels. I imagine for some investors this might not be significantly more than the portfolio losses and so they should not also take on a significant risk that their investments incur significantly greater losses than the portfolio. this will require a portfolio large enough that they expect a significant number of defaults so that each default effects their returns only modestly.
In addition, the outsourcing model is devised to reduce the costs of increasing the portfolio size and so the main objection in the paper (management costs outweighing future benefit) are not such an issue.
Of course some may be willing to take the punt on the grounds that a small portfolio means they have a good chance of no defaults and so outperform.
propman , excellently put. In my investment career its usually been the outside ones (the fat tails) that have caused mediocre and poor returns. I should always have been more diversified.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 7, 2016 13:47:40 GMT
Hmm Well my £10 went into 20 loans not just the one that Vanessa's answer would suggest. Slightly regret not putting in more as I seem to have hit a high point (the beginning) of rates with my 5.6% average, now seems to be 4.9% target. Does suggest there may be some element of timing required as target rate apparently updates regularly (actually thought it was 4.7 earlier but might have misremebered)
When I first signed up it told me how many loans were available for investment but that disappeared when I invested and map changed to show my loans - would be useful if this info was displayed somewhere
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