macq
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Post by macq on Sept 8, 2017 8:07:44 GMT
but maybe it isn't if you know your stuff. And that is precicesly the point I was trying to make but was constantly getting shot down by people with a blinkered attitude who think P2P is some invincible low-risk magic. Not a surprise I suppose, given the nature of this forum !! I wish the blinkered P2P lovers luck, they'll need it if they seriously think they can continue to receive high percentage returns from here to eternity without one day being faced with the consequences of their greed and gluttony. But for those who can be bothered to spend a little time learning, the stockmarket is not volatile for those who take a little time to understand it and are willing to invest with a medium or long term perspective. I have more than enough hard facts to back up that statement, but regrettably not the sort of facts shareable in public (although public equivalents are out there if you search for them). As someone with more in funds then p2p by a long way,i am not sure i would call it greed/gluttony on peoples part to chase high returns.Like you say shares/funds are for the long term p2p offers a good return over a short period but with risk.While p2p may be a new product a lot of what it deals in such as property,bridging loans,small business was already around but was only offered to HNW,angels & dragons (& premier footballers!) etc via an IFA or was the preserve of banks and wealth management.If people are offered a good return on a cash deposit why would they not take it(but knowing the risk)its human nature.Over 20 years ago my company was borrowing money from BT who lent money to get a better rate then banks and was done by other companies but was not called p2p then. What may have to change and can be seen on many of the boards on here is peoples view of p2p especially if they have been in it for a long time.There is more money due to customers/platforms chasing clients,more auto products which are cheaper to run & borrowers with more places to go for money pushing rates down.You can also see many platforms turning into the companies they were supposed to replace in the first place and like p2p in America they are looking for more institutional tie-ups. While i would agree about funds and lets be fair they are in most peoples lives even if its a pension company having part of the shopping centre where you go, so if the stock market goes to zero we are all in trouble.I can see one problem in the years to come and it does involve people knowing the product.People who went into funds or IT would hopefully have read up on them but i get the feeling with trackers its all about being cheap and for the most part they have been around in rising markets.Hopefully when the markets drop there will not be loads of people saying they were mis-sold the product by their bank or BS. p.s if not mentioned another good site is Morningstar
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pikestaff
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Post by pikestaff on Sept 8, 2017 8:42:00 GMT
...But for those who can be bothered to spend a little time learning, the stockmarket is not volatile for those who take a little time to understand it and are willing to invest with a medium or long term perspective... For facts, see my earlier post p2pindependentforum.com/post/213437/thread and the chart referenced therein. These facts are for the S&P500 because I could not find freely available long term data for the UK. Trustnet, mentioned in a couple of posts, is no good if you want a historical perspective because its charting tool only goes back 10 years. Most index tracker funds, which others have mentioned as a proxy, have shorter records than that. What the history shows, for the US anyway, is that there is plenty of volatility even over the very long term. Whether this should worry you depends on your risk appetite and your time horizon. There is significant downside risk (relative to what I'd expect to earn from p2p) even on a 20 year horizon. Over 30 years or more there is still plenty of variability of returns but the downside risk goes away because of the long-term tendency of shares to outperform. When I was younger I put most of my savings into the stock market (ISA and pension funds) and I've not regretted that decision. But now that I'm retired my perspective is shorter. I've kept my stocks and shares ISAs but my pension lump sums and most of my spare cash have gone into p2p.
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pikestaff
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Post by pikestaff on Sept 8, 2017 8:54:11 GMT
@wallstreet
The data in the chart are facts. Of course there are plenty of examples of people who've done well but the data in the chart captures the whole market. End of.
PS I did not say that p2p is less risky than the stock market. The risks are just different and that is what I was trying to explain in my earlier post.
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SteveT
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Post by SteveT on Sept 8, 2017 8:59:33 GMT
@wallstreet, might I suggest you open your mind to the possibility that others' views on here may be as valid as your own. As ever, there is huge scope for differences in the definitions being used / considered. Undoubtedly there are some sectors of P2P lending (eg. loans secured on good quality tenanted BTL property) that are lower risk than some sectors of the stock market (eg. emerging markets smaller companies). Conversely there are other sectors where the reverse clearly is true.
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Post by peerlessperil on Sept 8, 2017 9:53:29 GMT
This debate has been had countless times over many decades, and we're not going to resolve it here. P2P lending is really a subset of fixed income, so the same old favourites rear their heads: default risk, assumed recovery rate, duration risk, liquidity. - Liquidity is one everyone is aware of, given how much comment secondary market slow-downs attract here. If you can hold to maturity you don't care too much, if you're a flipper then keep hoping there's an endless supply of greater fools.
- Duration - not really an issue with the bridging loans, but I don't get the sense that most p2p investors signing up for 5yr term loans have much of idea about the interest rate risk they are running. If rates go up you won't be able to shift half of these loans on the secondary markets where you can only trade at par!
- Default Risk - at the individual loan level there is some data, and some platforms have come through a patch of higher defaults. Without a proper recession we have no real idea of default correlation - for example a flood of rolexes hitting the market could hammer all the popular pawn loans as the auction houses get flooded. Platform failure is the other side of the coin and we don't have a sufficient sample of data to assess that risk properly.
- Assumed recovery - people are wising up to the fact that they won't be getting 100% back on secured property loans on some platforms, but I still sense too much optimism. Recovery post a platform failure remains the great unknown.
So quite simply, there is insufficient data to price p2p lending risk. In asset-backed investments it is the recovery rate that really matters.
Now add the fact that QE has hugely polluted the risk statistics for both bond and equity markets over the past decade (and possibly housing markets, gulp). Equating risk with price volatility is a common error and a fallacy of applying modern financial theory in an over-simplified way. Any strategy driven by recent volatility statistics is suspect - and there are a lot of robo-advisers out there driving asset allocation on vol stats.
It is not possible yet to meaningfully contrast p2p risk with equity market risk. If you simply enjoy the argument then go and join the crowd debating corporate bonds vs equities - they've been arguing for decades and they do have some real data!
I'm going to return to looking after my 4yr old who is starting in reception but won't be joining his sister at school for another 3 bloody weeks - it will be a more sensible conversation 
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macq
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Post by macq on Sept 8, 2017 10:33:16 GMT
... While i would agree about funds and lets be fair they are in most peoples lives even if its a pension company having part of the shopping centre where you go, so if the stock market goes to zero we are all in trouble. ... (my bold) This always amuses me. There is a school of thought that says people would rather avoid making a mistake than make a good decision. One reason you could find to invest in the stock market is that if it all goes to zero then there'll probably be gangs roaming the streets with shotguns or worse fighting over food, which is bad, but at least there won't some smart alec saying "oooh, should have put more in p2p". My point was i am in funds & p2p because i don't think it will go to zero but some people will still think of an event like the wall street crash when hiding their money under the bed
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macq
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Post by macq on Sept 8, 2017 11:14:46 GMT
As someone with more in funds then p2p by a long way,i am not sure i would call it greed/gluttony on peoples part to chase high returns.Like you say shares/funds are for the long term p2p offers a good return over a short period but with risk You have already made the point I am about to make with your second phrase.  I don't mind people chasing high returns per-se, if that's what they want to do. What I do have an issue with, and as I said earlier in this thread, what actually scares me, is people's attitude to P2P as some sort of panacea. People consider it as a lower risk short-term alternative to the stockmarket. But its not. When you see people here and elsewhere banding around figures like "oh but you can get 8% here" without even so much as a mention of risk or consideration of WHY you're being offered 8% when the banks are only giving you 0.5-1.2% and a sensible balanced dividend-yielding portfolio on the stockmarket will only produce a dividend yield of 2.5-3% max. If you've got a P2P platform peddling 5%,8% or more in your face, you really have you ask yourself WHY, and the answer is RISK. The P2P platforms know very well that P2P is RISKY and that's why you're being offered such a high risk-premium in return, the P2P platforms might not be as clear as they should be about the risk in their marketing fluff, but its there. It truly scares the bejeesus out of me when I see some of the threads on here and elsewhere. For example there was one on here recently with some person truly believing that P2P was a viable alternative to a savings account, and the depressing thing was not one person who responded to that thread mentioned the word "risk", it all just dropped down to the usual state of affairs about which P2P platform said person could get the highest percentage. (I did not have an account here at the time, but when I saw the same thing about to happen again in the recent 200k thread, I just had to register to put a more balanced view in !). as i said in someways i would agree with you about the risk of p2p v funds but only because i have been in funds for so long and they have a history to back them up.But its also true to say within shares & funds there is high risk and looking for a fast buck(greed & giuttony maybe)in the short term. Would hedge funds or VCT or funds that long & short the market be suitable for the average person or are they not high risk?While it may be true that some people will now see an advert for an IFISA paying 5 - 12% and move cash without reading up thinking that the label of ISA makes it safe is that any different then a IFA putting the same people in the next big thing i.e emerging markets,India,gold etc. rather then putting them in safer RIT Capital or Witan etc.(but not all IFA) I intend to keep the bulk of my money in funds but who knows where p2p will be in the years to come imagine if this forum had been around 100 - 150 years ago people would have been saying don't trust these new fangled things called Investment trusts or mutual society's or there is this new building society in Yorkshire offering me interest on my money should i trust it? P2p will find its own place in time and yes there will be losses along the way but other then NS&I you pays your money and takes your chance
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macq
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Post by macq on Sept 8, 2017 11:52:52 GMT
Sorry about that @wallstreet . I don't want to give the impression that I support the P2P is less risky argument. I don't really have a strong opinion but in line with guidance from people I respect I try keep my P2P exposure to 10% or less. I was really just trying to tease out your winning stock market trading/investing strategy! I'm always ready to learn and you can't blame me for trying. While someones portfolio can be really good there is no guarantee it will stay the best one.It probably takes only DD on most peoples part to find there own funds.It could be where the greed comes in and the need to keep checking charts to compare against other funds that works against people.As long as you check every 6 months or so for news on your fund to make sure you don't have a dog be happy with your return.Does it matter if your fund is making 15% a year and another one is making 20% its still a good return(and you can bet if you change it will go the other way) just take it slow & steady.Or become a day trader and make p2p look like a walk in the park At the most basic google how to invest like the Rothschild family as it seems to work for them
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Post by dan1 on Sept 8, 2017 12:16:17 GMT
Sorry about that @wallstreet . I don't want to give the impression that I support the P2P is less risky argument. I don't really have a strong opinion but in line with guidance from people I respect I try keep my P2P exposure to 10% or less. I was really just trying to tease out your winning stock market trading/investing strategy! I'm always ready to learn and you can't blame me for trying. While someones portfolio can be really good there is no guarantee it will stay the best one.It probably takes only DD on most peoples part to find there own funds.It could be where the greed comes in and the need to keep checking charts to compare against other funds that works against people.As long as you check every 6 months or so for news on your fund to make sure you don't have a dog be happy with your return.Does it matter if your fund is making 15% a year and another one is making 20% its still a good return(and you can bet if you change it will go the other way) just take it slow & steady.Or become a day trader and make p2p look like a walk in the park At the most basic google how to invest like the Rothschild family as it seems to work for them I thought 'dogs of the <insert index of choice>' was a popular value investment strategy?
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macq
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Post by macq on Sept 8, 2017 12:22:13 GMT
While someones portfolio can be really good there is no guarantee it will stay the best one.It probably takes only DD on most peoples part to find there own funds.It could be where the greed comes in and the need to keep checking charts to compare against other funds that works against people.As long as you check every 6 months or so for news on your fund to make sure you don't have a dog be happy with your return.Does it matter if your fund is making 15% a year and another one is making 20% its still a good return(and you can bet if you change it will go the other way) just take it slow & steady.Or become a day trader and make p2p look like a walk in the park At the most basic google how to invest like the Rothschild family as it seems to work for them I thought 'dogs of the <insert index of choice>' was a popular value investment strategy? some people have been following the idea for a few years in that what was the worse fund this year in which ever sector will go up the next.But how much it improves would be the worry
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Post by peerlessperil on Sept 8, 2017 12:51:26 GMT
Mummy's come home to feed the 4yr old.... I'm not trying to take sides here, and whilst I've "been around" and have the kids to prove it, I'm not sure I'd have been seen frequenting the same establishments as @wallstreet  Neither p2p nor this forum "scare me". I've seen far worse having observed 90% of the fund management industry pile into the dot.com bubble (where I was not entirely blameless either), I've watched Vodafone become 10% of the equity index, seen various high yield bubbles (oil rigs?), and more recently fund managers buying government bonds on negative yields because they have to. Then don't get me started on interest only and 100%+ mortgages.... pikestaff's approach of using p2p as part of a diversified income portfolio in retirement has its merits, and follows the old adage of using equities in the accumulation phase and switching to fixed income as you start to decumulate. Bonds used to be the standard answer, but with real yields so low it makes sense to dip a toe into p2p - partly as an alternative to high yield, and partly to avoid the longer duration of corporate bond funds should interest rates revert to historic norms. |
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macq
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Post by macq on Sept 8, 2017 13:14:50 GMT
Just to add a brief note to what peerlessperil has just said. I'm not seeking to take sides either. P2P, Stockmarket, Fixed Income, they all have their own risks. My "beef" with P2P is the poor recognition of the very real risks by lenders, and equally the P2P platforms for not being as clear on the risks as they ought to be. As peerlessperil says, as part of a broader diversified portfolio, if you want some P2P in there, thats obviously absolutely fine. The issue comes when people start making nonsensical statements such as "P2P is less risky than the stockmarket". That's when you just end up with a bunch of lemmings piling into P2P, chasing yield and largely ignorant of the risk and trying to justify their actions by telling themselve and others "oh well, its less risky than the stockmarket". Also not taking sides (but more on the funds side of the line)and agree that some p2p platforms are starting to make their products look like savings accounts as it looks better in the markating.But the same could be said about investment companies pushing a fund via an advert in the Sunday papers after one good year or telling people that trackers can do no wrong and then also ending up with "ignorant lemmings" buying high and panicking and selling at the wrong time
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bg
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Post by bg on Sept 8, 2017 13:18:46 GMT
The main issue with stock market investment is volatility, which is not just a short-term issue. See for example this historical return calculator for the S&P 500 dqydj.com/sp-500-historical-return-calculator/ which covers all time periods back to 1871. (Periods before 1926 use a different index which is explained in one of the references cited.) The inflation-adjusted total return graph with dividends reinvested, but no provision for tax, shows (among other things) that: 12% of 10 year periods had nil or negative real returns 25% of 10 year periods had real returns of 3.5% pa or less 35% of 10 year periods had real returns of 5% pa or less, which I’m expecting my p2p portfolio (excluding PF backed accounts) to match or exceed 19% of 20 year periods had real returns of 3.5% pa or less 27% of 20 year periods had real returns of 5% pa or less. The graph also shows that, over all time periods from 10 years up, more than 50% of periods had real returns of more than 6% pa, which is the upper limit of my expectations for p2p. However, the risk of underperformance over 10 or 20 year periods is significant, and remember these figures are for the USA which has substantially outperformed the UK. The conclusion I'd draw from this (heavily caveated because the data is from the US) is that if you are happy with the risk it may be rational to prefer shares but if you are risk averse, and particularly if your time horizon is 20 years or less, there is a strong case to be made for a diversified investment in p2p. All that said, my p2p portfolio (TC and AC) is much less liquid than I expected it to be. I have a lot of loans that are not tradeable for one reason or another. For some people this would matter a lot, but it doesn’t really bother me. I’m in it for the long term and happy to remain, for the moment, overweight in p2p. Three main reasons: I enjoy it, I find it easier to understand than equities, and I think equity markets are riding for a fall. But then I’ve thought that for a long time! I will be right one day… I don't think you can look at real returns for the stock market and then compare it with nominal returns for P2P. RPI is curently 3.6% so if you want to look at your real P2P returns you best knock that off. So if you are getting the standard 7% on Assetz (I appreciate you probably have a legacy portfolio that is yielding more) your current real return is only 3.4% I think the reason why so many are scared of the stock market is because there is instant mark to market...and it frightens them when they have a day with a reasonable loss. In compariosn they see all P2P investments as trading at par so there is no possibility of a loss outside of a default. This is comforting but is not the true picture. If all platforms let their loans find their true price and there was sufficient depth of market then the daily P&L swings would be significat. For example the default loans on Lendy could well be trading at 60% in the £ (or less), likewise FS. ABL (although a small platform) have a free market so you regularly see loans offered at 95% (or less)...but fortunately for them they are not marking their clients holdings at these levels or there would likely be a stampede out with prices tumbling even further. Many of the platforms give the illusion of stability merely because they are not repricing the credit (and to lesser extent) interest rate risk but it does not mean these risks aren't there. If you want to look historical analysis using real rates then you have to consider the possibility that inflation can go even higher, this is particularly relevant as many P2P loans are 5 year loans. IN the 1970s inflation in the US was regularly hitting 15%...if something like that again then a P2P portfolio yielding 10% would be making a significant real return loss - not that most people would know it as they would just be looking at their nominal return (while moaning that they are getting less than in a savings account!)
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dandy
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Post by dandy on Sept 8, 2017 14:01:27 GMT
Just to add a brief note to what peerlessperil has just said. I'm not seeking to take sides either. P2P, Stockmarket, Fixed Income, they all have their own risks. My "beef" with P2P is the poor recognition of the very real risks by lenders, and equally the P2P platforms for not being as clear on the risks as they ought to be. As peerlessperil says, as part of a broader diversified portfolio, if you want some P2P in there, thats obviously absolutely fine. The issue comes when people start making nonsensical statements such as "P2P is less risky than the stockmarket". That's when you just end up with a bunch of lemmings piling into P2P, chasing yield and largely ignorant of the risk and trying to justify their actions by telling themselve and others "oh well, its less risky than the stockmarket". how would you know what risks lenders do or dont appreciate - in P2P, stocks or anything else for that matter there is no generalized risk of P2P lending. there are individual loans with individual risk profiles, then there are auto accounts (where its spread for for you). Bundling it all up to say P2P is riskier/safer than this or that is a sign of not understanding P2P. some loans are riskier than bitcoin, some are safer than tesco bonds. MANY are safer than a global index tracker. My opinion is that my money is likely to be "safer" in a 10% LTV loan (at 3% above inflation) then in a savings accounts (at 2% below inflation). hedgies think they know it all, but clearly they dont otherwise more of them would survive - average HF life span of a few years says it all .....
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dandy
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Post by dandy on Sept 8, 2017 14:28:00 GMT
there is no generalized risk of P2P lending.
Those words say it all. That is EXACTLY the sort of lack of appreciation of risk I am talking about. If you disagree with that comment then you are saying all P2P bears the same risk ... anyway, what self respecting hedgie would call themselves wall street. lol.
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