macq
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Post by macq on Sept 8, 2017 14:32:01 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. think you are starting to accept that some people especially on a p2p platform are not sharing your point of view  .I still think funds & IT are best for most people.But playing devils advocate(its fun on a wet Friday)would buying shares v funds be not as risky as p2p?.Say you had invested in Zopa a year ago verse's a Bell Pottinger situation-which is why some people will still see shares as risky. My brain says shares are less risky but even if a company was to fold near term only hindsight will hold the answer as to how p2p will grow(in my mind there will be a few big players becoming the banks & loan companies they are meant to replace) Playing devils advocate again i refer to what i said in another post.What would you have said 100 years ago when a company said give us your money for a year and we will give you a little bit more next year.You would not have believed them.Now we think a Building society is one of the safest places.
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Post by Deleted on Sept 8, 2017 15:37:49 GMT
Surely the issue with p2p is the potential profit is capped per loan while you can lose 50%+.
With s&s using stops your loss is capped and your gains potentially infinite??
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macq
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Post by macq on Sept 8, 2017 19:49:00 GMT
have said i agree with a lot you have said and that i was playing devils advocate  But its like i also said with Building society's & insurance companies they all had new products that had to grow (a bit like MP3 players) |
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Post by df on Sept 8, 2017 20:17:23 GMT
This was inspired by a discussion elsewhere about the relative merits of p2p and the stockmarket, and my hypothesis is that as retirement approaches the stockmarket is too dangerous however well diversified you are, but p2x investment is still a reasonable thing to do. The stockmarket on the other hand is well established, and in many respects easier to understand and research than P2P. I found p2p much more easier to understand than stockmarket.
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pikestaff
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Post by pikestaff on Sept 8, 2017 23:38:45 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. ... 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% ... 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!) I lived through the 70s and I fully understand the difference between real and nominal returns. I was comparing like with like. The lion's share of my portfolio is on TC rather than AC. While I do have a small amount lent at 7% on AC I rarely go that low and it's only a tiny part of my portfolio. I expect to earn 5-6% real after losses on my portfolio as a whole, across the cycle. This is after adjusting for CPI rather than RPI, which tends to overstate inflation. CPI is currently 2.6%, though I attach little significance to one month's numbers. Over the time I've been lending it's averaged 1.2% but that is unusually low. When comparing to the S&P data, which has been adjusted for US CPI, it would actually be more appropriate to use another measure - CPIH. Both US CPI and CPIH include housing costs (which UK CPI does not), and they both calculate the average price increase as the geometric mean and not the arithmetic mean used in the RPI. The use of the arithmetic mean is the main reason why, over the long run, RPI is higher than both CPI and CPIH. The latest CPIH figure is also 2.6% and it has averaged 1.4% over the period I've been lending. We are having a short-term uptick in inflation because of the fall in sterling triggered by the Brexit vote. What happens in the medium term is anyone's guess. The B of E's CPI target is 2%. Pre Brexit I thought the risk of deflation was higher than the risk of a significant increase in inflation but now I'm not so sure. I think the risk of a 70s style wage-price spiral remains minimal. The unions are much weaker and the global pressures on the wages and conditions of the masses won't go away. However, future governments of either hue may be tempted to print money to get themselves out of the fiscal hole they will be in. Be all that as it may, I do not expect changes in the rate of inflation to be so abrupt as to have a devastating effect on my returns bearing in mind that the average remaining life of my loans at any point in time is 2-3 years. If there were to be a significant rise in inflation without a commensurate increase in rates on new loans I might stop investing in p2p and direct my repayments elsewhere. But that would depend on the alternatives at the time. With luck a big rise in inflation might panic the stock markets in which case I might pile in there...
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JamesFrance
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Post by JamesFrance on Sept 9, 2017 7:33:02 GMT
I really don't understand the idea of setting stop loss selling orders to limit the downside. The last thing I think of whenever the stock market has a large drop is to sell out thus creating a real loss. I have been retired for over 20 years and have held various equity income investment trusts continuously over that time. I have never worried when their value drops as it eventually rises again, with the benefit of steadily increasing income which was the reason for choosing that type of investment.
I do appreciate that this would not work for individual shares which is why I sold those to buy into the investment trusts.
For me P2P is more of a hobby, investing without advisors and managers making more from my savings than I do.
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bg
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Post by bg on Sept 9, 2017 7:41:22 GMT
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% ... 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!) I lived through the 70s and I fully understand the difference between real and nominal returns. I was comparing like with like. The lion's share of my portfolio is on TC rather than AC. While I do have a small amount lent at 7% on AC I rarely go that low and it's only a tiny part of my portfolio. I expect to earn 5-6% real after losses on my portfolio as a whole, across the cycle. This is after adjusting for CPI rather than RPI, which tends to overstate inflation. CPI is currently 2.6%, though I attach little significance to one month's numbers. Over the time I've been lending it's averaged 1.2% but that is unusually low. When comparing to the S&P data, which has been adjusted for US CPI, it would actually be more appropriate to use another measure - CPIH. Both US CPI and CPIH include housing costs (which UK CPI does not), and they both calculate the average price increase as the geometric mean and not the arithmetic mean used in the RPI. The use of the arithmetic mean is the main reason why, over the long run, RPI is higher than both CPI and CPIH. The latest CPIH figure is also 2.6% and it has averaged 1.4% over the period I've been lending. We are having a short-term uptick in inflation because of the fall in sterling triggered by the Brexit vote. What happens in the medium term is anyone's guess. The B of E's CPI target is 2%. Pre Brexit I thought the risk of deflation was higher than the risk of a significant increase in inflation but now I'm not so sure. I think the risk of a 70s style wage-price spiral remains minimal. The unions are much weaker and the global pressures on the wages and conditions of the masses won't go away. However, future governments of either hue may be tempted to print money to get themselves out of the fiscal hole they will be in. Be all that as it may, I do not expect changes in the rate of inflation to be so abrupt as to have a devastating effect on my returns bearing in mind that the average remaining life of my loans at any point in time is 2-3 years. If there were to be a significant rise in inflation without a commensurate increase in rates on new loans I might stop investing in p2p and direct my repayments elsewhere. But that would depend on the alternatives at the time. With luck a big rise in inflation might panic the stock markets in which case I might pile in there... I agree with most of what you are saying. I do not think inflation is going to surge (although it is not a non zero risk). What I don't agree with is using the past as a comparison to emphasise the volatility/risk of equities and comparing it with the immediate future/past for P2P. I don't think you can say 'I don't expect inflation to surge in the next 2-3 years so my P2P returns will be OK but look at the real returns of equities in the 70's and 2008 and you can see how risky they are'. If P2P existed in the 70s there would have been large real loses. Much commercial property fell in value by over 50% in 2008-2009, if P2P existed then as it did now there would have been catastrophic losses. I don't think many investors understand this. If you consider the period most of these P2P platforms have existed (most 2012+) then equities have outperformed. On top of that I would say this period has seen magnified P2P returns due to a set of conditions that won't be repeated (new sector, lack of competition, banks in a mess, P2P companies losing money to print new business). Going forward rates of return will be much lower driven by market forces (look at AC, I used to average 11-12% now it's 7%). Personally I invest in both. I see the advantages of P2P being that it's a very inefficient market, I think I have an edge on most of the users. For example, something bad can happen on a loan or economically and I can still sell at par. The day after the brexit vote, equities got tanked but you could still sell anything at par on FC (if it had been an efficient market prices would have been off 10%) but autobid kept on buying. Prices on SS can't move but if they could they would have been off substantially - as it was the SM was flooded and no one could sell anything for a period. That's fine as confidence came back but if we had ended up in a 2008 situation, everyone would have been stuck with significant losses. If I had liquidated my equity portfolio that day I would have had a nasty loss. The day P2P becomes a true totally efficient market then I will probably leave or use one of the pooled investment schemes - for the same reasons I do not trade corporate bonds. In the long run I prefer equities and think they will outperform debt (but that's another discussion) but I do agree, right now investing in P2P is more fun and it's good to be diversified.
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r00lish67
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Post by r00lish67 on Sept 9, 2017 8:19:48 GMT
This one seems to have swerved way off topic, but hey-ho, I'll go for it Totally agree with P2P being much more fun, and it being so because of its inefficiency. The point I wanted to add is that given the inherent volatility of shares, I really like P2P's (comparatively) measurable short-term return. To explain, I decided long ago to not really count any uplifts/downturns of shares in my financial tracking. The reason for this is that when I left normal work, I initially found that when I counted my pennies each month, the huge swings in shares made my gains from other avenues look paltry and more to the point effectively covered them up. One month I'd look like a financial hero, then like a catastrophe, but it was all artificial noise generated by equities volatility. So, I decided to 'ignore' shares from the equation, for my own sanity. I still check how they're doing, but don't measure myself against their performance. With P2P, since month 1, I've taken a slice of approximately 25% of my returns as a contribution to my own private 'provision fund'. This fund then gets eaten away when I experience defaults, and I attempt to compensate to keep it a reasonable level. Other than that, I get a clear picture of how I'm doing, and (rightly or wrongly) I feel comfortable in 'counting' that whilst I don't with shares. The bit I didn't take into account is that in (generally) living abroad, I'm very subject to currency swings too. I don't own a property, but being in Europe at 1.35 to £ is much more fun than 1.09 to the £  |
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macq
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Post by macq on Sept 9, 2017 11:27:52 GMT
This one seems to have swerved way off topic, but hey-ho, I'll go for it Totally agree with P2P being much more fun, and it being so because of its inefficiency. The point I wanted to add is that given the inherent volatility of shares, I really like P2P's (comparatively) measurable short-term return. To explain, I decided long ago to not really 'count' any uplifts/downturns of shares in my financial tracking. The reason for this is that when I left 'normal work', I initially found that when I counted my pennies each month, the huge swings in shares made my gains from other avenues look paltry and more to the point effectively covered them up. One month I'd look like a financial hero, then like a catastrophe, but it was all artificial noise generated by equities volatility. So, I decided to 'ignore' shares from the equation, for my own sanity. I still check how they're doing, but don't measure myself against their performance. With P2P, since month 1, I've taken a slice of approximately 25% of my returns as a contribution to my own private 'provision fund'. This fund then gets eaten away when I experience defaults, and I attempt to compensate to keep it a reasonable level. Other than that, I get a clear picture of how I'm doing, and (rightly or wrongly) I feel comfortable in 'counting' that whilst I don't with shares. The bit I didn't take into account is that in (generally) living abroad, I'm very subject to currency swings too. I don't own a property, but being in Europe at 1.35 to £ is much more fun than 1.09 to the £ its only a little swerve I have been surprised since finding this forum a year or so a go how many people are using p2p who are in or near to retirement.But thinking about it (and setting aside the risk question)a lot of what people used for savings are no longer available or are paying poorly.At one time endowments & endowment mortgages paid out well i know people who cleared £40 - 50,000 on their mortgage to put a way now,the product is pretty much a dead duck.The post office used to sell savings certificates paying 6% or which could be index linked if reqd which suited people who had retired.Even with inflation at the time my dad seemed quite happy with his BS rate (while watching me pay 9 or 10% for a mortgage).
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Post by Deleted on Sept 9, 2017 18:06:33 GMT
No, you buy at $1, share rises to $1.1 you set the stop at $1
Then all growth is leveraged on nowt.
Not keen to lose 10 or 20% to then place a stop.
P2p is just more fun, not very profitable
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Post by GSV3MIaC on Sept 9, 2017 20:59:04 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. Yep, Personally I'd never settle for tracking just the FTSE or S&P, or India or whatever .. I'd want a tracker that 'tracks' the whole mess (and without the US-centric / large company bias of a simple weightings). Ditto with P2P .. I'd want some in property/asset backed loans, and some (at higher rates!) in SME loans, and heck, let's mix it up and have SOME in P2P Investment Trusts. The net result will be that I'll never beat the best, but I'll (historically HAVE had) have lower variability, and never fare as badly as the worst. It also gives more scope to decide what to liquidate when. Comparing P2P risk with S&S risk is not comparing apples and oranges, it's more like comparing unknown mixed fruit with assorted building supplies. 8>.
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pikestaff
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Post by pikestaff on Sept 10, 2017 9:04:23 GMT
I lived through the 70s and I fully understand the difference between real and nominal returns. I was comparing like with like. The lion's share of my portfolio is on TC rather than AC. While I do have a small amount lent at 7% on AC I rarely go that low and it's only a tiny part of my portfolio. I expect to earn 5-6% real after losses on my portfolio as a whole, across the cycle. This is after adjusting for CPI rather than RPI, which tends to overstate inflation. CPI is currently 2.6%, though I attach little significance to one month's numbers. Over the time I've been lending it's averaged 1.2% but that is unusually low. When comparing to the S&P data, which has been adjusted for US CPI, it would actually be more appropriate to use another measure - CPIH. Both US CPI and CPIH include housing costs (which UK CPI does not), and they both calculate the average price increase as the geometric mean and not the arithmetic mean used in the RPI. The use of the arithmetic mean is the main reason why, over the long run, RPI is higher than both CPI and CPIH. The latest CPIH figure is also 2.6% and it has averaged 1.4% over the period I've been lending. We are having a short-term uptick in inflation because of the fall in sterling triggered by the Brexit vote. What happens in the medium term is anyone's guess. The B of E's CPI target is 2%. Pre Brexit I thought the risk of deflation was higher than the risk of a significant increase in inflation but now I'm not so sure. I think the risk of a 70s style wage-price spiral remains minimal. The unions are much weaker and the global pressures on the wages and conditions of the masses won't go away. However, future governments of either hue may be tempted to print money to get themselves out of the fiscal hole they will be in. Be all that as it may, I do not expect changes in the rate of inflation to be so abrupt as to have a devastating effect on my returns bearing in mind that the average remaining life of my loans at any point in time is 2-3 years. If there were to be a significant rise in inflation without a commensurate increase in rates on new loans I might stop investing in p2p and direct my repayments elsewhere. But that would depend on the alternatives at the time. With luck a big rise in inflation might panic the stock markets in which case I might pile in there... I agree with most of what you are saying. I do not think inflation is going to surge (although it is not a non zero risk). What I don't agree with is using the past as a comparison to emphasise the volatility/risk of equities and comparing it with the immediate future/past for P2P. I don't think you can say 'I don't expect inflation to surge in the next 2-3 years so my P2P returns will be OK but look at the real returns of equities in the 70's and 2008 and you can see how risky they are'. If P2P existed in the 70s there would have been large real loses. Much commercial property fell in value by over 50% in 2008-2009, if P2P existed then as it did now there would have been catastrophic losses. I don't think many investors understand this. If you consider the period most of these P2P platforms have existed (most 2012+) then equities have outperformed. On top of that I would say this period has seen magnified P2P returns due to a set of conditions that won't be repeated (new sector, lack of competition, banks in a mess, P2P companies losing money to print new business). Going forward rates of return will be much lower driven by market forces (look at AC, I used to average 11-12% now it's 7%). Personally I invest in both. I see the advantages of P2P being that it's a very inefficient market, I think I have an edge on most of the users. For example, something bad can happen on a loan or economically and I can still sell at par. The day after the brexit vote, equities got tanked but you could still sell anything at par on FC (if it had been an efficient market prices would have been off 10%) but autobid kept on buying. Prices on SS can't move but if they could they would have been off substantially - as it was the SM was flooded and no one could sell anything for a period. That's fine as confidence came back but if we had ended up in a 2008 situation, everyone would have been stuck with significant losses. If I had liquidated my equity portfolio that day I would have had a nasty loss. The day P2P becomes a true totally efficient market then I will probably leave or use one of the pooled investment schemes - for the same reasons I do not trade corporate bonds. In the long run I prefer equities and think they will outperform debt (but that's another discussion) but I do agree, right now investing in P2P is more fun and it's good to be diversified. I agree with most of that too . I completely agree about property. Many lenders underestimate the risks, and I think Lendy (for example) is unlikely to survive the next crash. Having said that, property is one area where p2p does in theory have a real edge over the banks because their capital rules and need for liquidity makes them forced sellers into a falling market. In theory, p2p lenders (or the platforms on their behalf) could be more patient although I fear the clamour from lenders for action will be hard for the platforms to resist. I too am in both equities and p2p. I did say I'm happy to be overweight in p2p for the time being and I agree with your reasons for why rates have been good. Whether rates will fall from here because the markets become more efficient or because investors become [more] over-exuberant is an open question but I agree they are likely to fall and if they fall too far I will adjust. One bad thing about p2p (particularly p2b) is that there are too many mouths to feed in the food chain so the spread between what lenders pay and what we get is high. The only people to lose from that once the platforms stop buying business (as some already have) will be us.
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agent69
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Post by agent69 on Sept 10, 2017 9:31:18 GMT
I did say I'm happy to be overweight in p2p for the time being I think P2P will be fine in the short term for those that diversify (accepting that all seasoned lenders will probably have fallen foul of a dodgy plumber, scrap metal dealer or west end restaurant). However, I wouldn't want to be around when the next financial downturn arises, when the rush for the door will make Lewis Hamilton look snail's pace. I think the timing of your exit from P2P2 is far more important that the timing of your entry.
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Post by elephantrosie on Sept 10, 2017 12:21:46 GMT
we all know exit time is important. but question is when to exit?
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pikestaff
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Post by pikestaff on Sept 10, 2017 16:51:08 GMT
we all know exit time is important. but question is when to exit? Just before everyone else 
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.I still think funds & IT are best for most people.But playing devils advocate(its fun on a wet Friday)would buying shares v funds be not as risky as p2p?.Say you had invested in Zopa a year ago verse's a Bell Pottinger situation-which is why some people will still see shares as risky.
But its like i also said with Building society's & insurance companies they all had new products that had to grow (a bit like MP3 players)
