The Misconceptions Around P2P Investing
Its the Wild Wild West
As the loans you are investing in are unsecured, returns seem more uncertain than in traditional investment classes.
Too soften this risk and the fact that there is no EU standard to adhere to, platforms are co-investing themselves and offer the ability of buybacks.
Our recommendation is to go for platforms which are regulated and cater for these safety nets. This can be clearly found on the platform company pages. We urge and expect the financial authorities to offer tax incentives and let money invested in P2P fall under the so called EU wide deposit guarantee.
Its a Grey Market
In most EU countries P2P platforms fall under regulation, although there is not always enough supervision on daily operations. Much depends on the region and the country. In most EU menmber states the license for P2P lending platform to operate can be obtained at a securities regulatory agency, for example the Autorité des marchés financiers in France or the Financial Services Authority in the UK. Recent research has shown that the way netto yields are calculated are not the same as expected from these authorities.
Go for platforms operating in jurisdictions where there is clear control and openness in the ways number and default rates are published.
There are no Guarantees
Are there any guarantees in finance? Do you believe a traditional investment fund is going to do more than apologize if the expected and somewhat ‘promised’ return is not reached? Why do you think they state the interest based on past performance before stating directly thereafter that previous returns are no guarantee for future success. The fact is in finance and investing there are no guarantees. All platforms operating currently are striving to do their job as good as possible as the competition is fierce and they will be judged.
At Yieldport we show the average expected annualized return and yes we will check back on this as the term has passed.
The Market is not Liquid
Een demand from most investors is that they can get out when they want.
If you want to get close to the yield levels available in P2P you can look at distressed debt. Understand that the secondary market is not going to be there at that time of trouble, as who will want to buy when a market is falling (don’t catch a falling knife) or you might be able to receive a dime on the dollar.
Platforms offering guaranteed buybacks will be tested, but its up to the platform to comply with what they promise. Look for platforms offering 3, 6 months lending possibilities. Short and clear.
Too little Sources to check
As the P2P market is rather new, investors have to depend on few news sources such as blogs to make a decision. Understand that blogs write nice stuff for referral programs. Most platforms educate their own investors, but clearly advise here is biased.
That’s why we are there to discuss and educate, working together with the top P2P blogs. We are independent and let our our community educate themselves.