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fru-gal

P2P Lending?

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Why aren't more people investing via P2P than the banks? Ok, there is risk but there is risk with the banks/stock market too. They are now much more regulated and the big difference I can see is that they don't (yet) have the £85k guarantee that banks have. The interest rate is much higher, for example on Funding Cirle, the average is about 8% after bad debts and their fees and that is lending to A+ businesses (those that have very good credit/history). Lending Works is the first P2P platform to have insurance against borrower default and probably more will follow so P2P will become much safer.

Apparently only 15% of the UK public have heard of P2P in contrast to 98% have heard of the main banks.

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Personally I'm having reasonable success with RateSetter. Since May 2014 I'm thus far achieving a CAGR of 3.8% in the 3 year market. RateSetter tell me my weighted average rate is 4.6%. The main reason for the difference seems to be that it can take a few days to get both new and reinvested money into the market.

My musings including investing for the first time plus perceived pro's and con's of RateSetter is here.

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Why aren't more people investing via P2P than the banks? Ok, there is risk but there is risk with the banks/stock market too. They are now much more regulated and the big difference I can see is that they don't (yet) have the £85k guarantee that banks have. The interest rate is much higher, for example on Funding Cirle, the average is about 8% after bad debts and their fees and that is lending to A+ businesses (those that have very good credit/history). Lending Works is the first P2P platform to have insurance against borrower default and probably more will follow so P2P will become much safer.

Apparently only 15% of the UK public have heard of P2P in contrast to 98% have heard of the main banks.

In a lot of P2P schemes you pay tax on gross interest, before bad debt is taken off, which kills it for higher rate payers. Zopa have introduced a safeguard fund that means they don't suffer from this problem.

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In a lot of P2P schemes you pay tax on gross interest, before bad debt is taken off, which kills it for higher rate payers. Zopa have introduced a safeguard fund that means they don't suffer from this problem.

I think the first to offer this type of scheme was RateSetter in 2010 with their Provision Fund. Since introducing the fund RateSetter claim no lenders have had a bad debt. Of course the future can result in a very different story.

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Sorry gf3, wasn't having a dig.

I personally look at P2P as just another asset class which is closest to cash in risk profile (obviously a bit higher risk because no FSCS scheme etc) and nothing like the risk of the stock market. I carry P2P along with cash, gilts, equity, property and gold within my overall wealth.

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Sorry gf3, wasn't having a dig.

I personally look at P2P as just another asset class which is closest to cash in risk profile (obviously a bit higher risk because no FSCS scheme etc) and nothing like the risk of the stock market. I carry P2P along with cash, gilts, equity, property and gold within my overall wealth.

I didn't think you were having a dig. I know you are a keen investor would be interested how FUNDSMITH has done compared to your portfolio.

I am moving more and more of my money into the fund If I come up with another good idea I will diversify

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I didn't think you were having a dig. I know you are a keen investor would be interested how FUNDSMITH has done compared to your portfolio.

I am moving more and more of my money into the fund If I come up with another good idea I will diversify

I analyse my portfolio on an annualised basis and after expenses (fund and wrapper expenses, investment spreads, trading commissions, withholding tax on some investments and deducted at source tax on savings interest). I ran a full analysis of my position only last week so have some data to share:

- Since the 05 January 2008 I've had a CAGR of 6.3%.

- More recently YTD I was up 3.1%.

Do you know how that compares to Fundsmith?

At a glance Fundsmith looks to be a world equity type fund so I would probably argue that my portfolio is significantly lower in risk. I track myself against a simple benchmark which is 68% (decreasing by 1% each year) FTSE 100 Total Return (Capital & Income) Index and 32% (increasing by 1% each year) iBoxx® Sterling Liquid Corporate Long-Dated Bond Total Return (Capital & Income) Index. This has been my performance since I went DIY against both this benchmark and the RPI:

141011-3.png

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I'm getting a whisker over 5% with Zopa on five year lending.

But I'm also getting about 5% (give or take a few basis points) on short dated corporate bonds (5years or less to redemption) like Helical Bar, St Modwen, and Workspace. Thames Water, which I don't hold, actually pays 5.6% and as long as Thames Water doesn't go bust before the redemption date of April 2019 you get your money back. Plus if you need to get your money back even sooner you can liquidate with one call to your broker and no penalties, something that can't be said for P to P lending.

I don't intend closing my Zopa loans, but I'm increasingly feeling like short dated corporate bonds is a safer and more flexible alternative.

Edited by silver surfer

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I'm getting a whisker over 5% with Zopa on five year lending.

But I'm also getting about 5% (give or take a few basis points) on short dated corporate bonds (5years or less to redemption) like Helical Bar, St Modwen, and Workspace. Thames Water, which I don't hold, actually pays 5.6% and as long as Thames Water doesn't go bust before the redemption date of April 2019 you get your money back. Plus if you need to get your money back even sooner you can liquidate with one call to your broker and no penalties, something that can't be said for P to P lending.

I don't intend closing my Zopa loans, but I'm increasingly feeling like short dated corporate bonds is a safer and more flexible alternative.

On Funding Circle (and possibly some of the others) you can sell loan parts early if you need cash.

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On Funding Circle (and possibly some of the others) you can sell loan parts early if you need cash.

On Zopa you can, but there's a 1% fee.

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I analyse my portfolio on an annualised basis and after expenses (fund and wrapper expenses, investment spreads, trading commissions, withholding tax on some investments and deducted at source tax on savings interest). I ran a full analysis of my position only last week so have some data to share:

- Since the 05 January 2008 I've had a CAGR of 6.3%.

- More recently YTD I was up 3.1%.

Do you know how that compares to Fundsmith?

At a glance Fundsmith looks to be a world equity type fund so I would probably argue that my portfolio is significantly lower in risk. I track myself against a simple benchmark which is 68% (decreasing by 1% each year) FTSE 100 Total Return (Capital & Income) Index and 32% (increasing by 1% each year) iBoxx® Sterling Liquid Corporate Long-Dated Bond Total Return (Capital & Income) Index. This has been my performance since I went DIY against both this benchmark and the RPI:

141011-3.png

Well thanks for that. You seem to have gained 50% in 7 years. Fundsmith has gone up 72% in 4 years.

Terry smith has got quite a few Youtube video's well worth a watch.

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Well thanks for that. You seem to have gained 50% in 7 years. Fundsmith has gone up 72% in 4 years.

Terry smith has got quite a few Youtube video's well worth a watch.

...

The difference is of course that my portfolio (and hence my performance) has been through the fun of 2009 where his hasn't. As I mentioned above I'd also suggest that my portfolio carries much lower risk than his.

Personally, my belief is that over the short term active fund managers can beat the market average but over the very long term (for me that's my whole life) they will under perform against the average because of their expenses. Will be interesting to see if this guy is any different.

That said thanks for the links. When next I have a cup of team in hand I'll take a look as I'm always looking to learn and be proven wrong.

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The difference is of course that my portfolio (and hence my performance) has been through the fun of 2009 where his hasn't. As I mentioned above I'd also suggest that my portfolio carries much lower risk than his.

Personally, my belief is that over the short term active fund managers can beat the market average but over the very long term (for me that's my whole life) they will under perform against the average because of their expenses. Will be interesting to see if this guy is any different.

That said thanks for the links. When next I have a cup of team in hand I'll take a look as I'm always looking to learn and be proven wrong.

Could you report back on your findings?

BTW I think you have a healthy form of scepticism.

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Got this email from Funding Circle today:

"Today we have classified loan ID's XXXX & XXXX (XXXXXXXXX Limited) as ‘defaulted’.

As you have £YY.ZZ currently lent to this business, which represents 7.98% of your current lending, we wanted to give you a full update on how it affects your investment."

The borrower in question borrowed £70K+ and has made, I think, 4 repayments in a year. The government guarantees 10% of the loan !!!. Also, the borrower was class as A rating.

As I suspected, funding circle is going to turn into a big lemon for me.

I'll give it 6 more months then sell the whole loan book.

Meanwhile, over on Zopa. 0 losses so far.

Edited by TheCountOfNowhere

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I'm surprised, firstly that as much as 7.98% of your loan fund has been given to a single borrower, and secondly that there's no equivalent to Zopa's "Safeguard Fund" which compensates for default. As I remember it, Zopa budget for something like 2% defaults and have a default provision to cover that, in practise their default rate is something like (from memory) 0.5% so the fund is more than adequate.

The way I looked at the risk with Zopa was to assume that all would be well unless and until we next go into a serious recession, at which point the default rate will spike and I'd be on the hook for losses. So I took a punt with one tranche of a five year loan in late 2013 or early 2014 (I forget the exact timing), gambling that we'd get through to 2018/19 before it all goes Pete Tong.

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...The government guarantees 10% of the loan !!!

Government guarantee already? Didn't know that; so super innovative industry lobbies for consumer protection and regulates away most potential competition. I'd assume returns have been falling? Do you know if that's a guarantee of 10% principal investment or also the associated returns to that 10% principal?

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I'm surprised, firstly that as much as 7.98% of your loan fund has been given to a single borrower, and secondly that there's no equivalent to Zopa's "Safeguard Fund" which compensates for default. As I remember it, Zopa budget for something like 2% defaults and have a default provision to cover that, in practise their default rate is something like (from memory) 0.5% so the fund is more than adequate.

The way I looked at the risk with Zopa was to assume that all would be well unless and until we next go into a serious recession, at which point the default rate will spike and I'd be on the hook for losses. So I took a punt with one tranche of a five year loan in late 2013 or early 2014 (I forget the exact timing), gambling that we'd get through to 2018/19 before it all goes Pete Tong.

Yeah, the 7.89 % wasn't the wisest but with an A rating...should be low risk!!!!!!!

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Yeah, the 7.89 % wasn't the wisest but with an A rating...should be low risk!!!!!!!

Does that mean that on Funding Circle you choose how much you lend to individual borrowers? As far as I can recall on Zopa they do the loan allocation and you just set the risk parameters.

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Does that mean that on Funding Circle you choose how much you lend to individual borrowers? As far as I can recall on Zopa they do the loan allocation and you just set the risk parameters.

Pretty much.

From my experience their "auto" bid system results in ZERO loans, so you had to manually bib on various potential borrowers if you wanted to lend.

I did research in all the borrowers as much as I could and weighed up the risks before lending.

Obviously the higher risk clients had higher rates but I avoided them.

I always thought it was going to be hit or miss and only invested £1K, of which i've had £300 back so far, with about 2 years to roll.

Wait for it though, even with this loss, my total return is still 5% and 2% for the year....

As you say, Zopa could go belly up but you have to hope the risk is spread and even if the 5% doesnt materialise, 2% does.

It seems as much of a gamble as the stock market at the mo and much lower risk than putting all your hard earned into a house.

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