Investment Alternative – P2P Lending

In these days of turbulent stock markets and low yield bonds, investors are seeking relatively safe investments with a good rate of return. Large swings in the stock market make investors appreciate the safety of bond investments and the likelihood that they will not lose money. Conversely, the low yields on bonds and debt investments for the past ten years has made them concerned about growing their portfolio’s value. These objectives and concerns have led many investors to look for alternatives that offer a good return with limited risk.

While there are many alternative investments, most are not available to the average investor. These include private equity, managed futures, real estate, hedge funds and derivatives contracts. While there are some alternatives to traditional stock and bond investments, like gold and commodities, these can be very risky in that the prices fluctuate significantly and you can lose most or even all of your investment. There is, however, one alternative investment that is available to most investors: P2P Lending Investing. This investment can be made for as little as 2,500 and the investor has complete control over their portfolio as well as how and when their money is invested.

 

P2P lending investing is a relatively new way for borrowers to get personal loans. Instead of going to a bank or traditional lender, borrowers can go to an online platform like Lending Club and apply for a loan of up to $40,000. The funding for these loans comes from individual investors who have set up an account and deposited funds with the online platform. The platform handles all aspects of the loan application, underwriting and approval process. They also take care of all administrative tasks such as process payments, answering borrower questions, and collecting late payments if that is necessary.

 

In terms of risk and reward, P2P lending looks like a good investment in many ways for certain investors. The biggest risk is that borrowers will default and not pay back their loans. Therefore, it is important for investors to spread their money around to as many loans as possible. The minimum investment in a loan is $25, so investors typically fund at least 100 loans. This provides the diversification that is essential to minimizing risk.

 

The other important aspect of any investment is the rate of return. Of course, investors want to know how much can you make peer to peer lending. P2P lending investing has a good track record in this area. Investors can expect to earn, on average, 5% to 7%. While rates of return vary for a lot of reasons, most investors earn a reasonable return. Some do extremely well with returns over 10%. Others make very little and a small number lose a little. However, losses are small and not nearly as damaging to a portfolio as a downturn in the stock market.

 

If you are looking for an alternative investment then P2P lending may be right for you. While it is not prudent to invest all of your money this way, it can be a strong part of your larger portfolio of assets and investments. Carefully weigh your options and decide if this is right for you.

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