Author Topic: What Percentage of Your Investments Should be in P2P Lending? - Revisited  (Read 8213 times)

Anonymous1

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Greetings,

I've had my LC IRA for a year now and appear to be doing fairly decent and appears to hover around the 75th percentile of similar portfolios.  So far I've stuck with Peter's (and LC's) limitation of the 10% limit of funds.  However, I've been thinking of bumping that amount up by a fair amount.  Things have changed since Peter wrote that article 5 years ago in that the industry has somewhat matured.  In addition, I'm at the point of my life in which one normally rotates from stocks to bonds.  A possible thought would be to purchase shorter term notes on folio even at a premium.

So my question for the community is what is your own personal maximum recommendation for my LC piece of the investment pie and what are the risks you currently see in investing more in LC? 

Thanks in advance for your thoughts.  And if this topic has been addressed ad nauseam, please point me to that thread as a quick search did not turn one up.

Jim Steele

lascott

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In addition, I'm at the point of my life in which one normally rotates from stocks to bonds.
Just use A/B/C LC notes for Asset Alloc (Stocks and P2P vs Stocks and bonds)
http://www.lendacademy.com/forum/index.php?topic=3221.0
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Emmanuel

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Based on our estimation, about 13% of an investment portfolio:
http://www.lendingrobot.com/HowMuchToInvest

Fred

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Based on our estimation, about 13% of an investment portfolio:
http://www.lendingrobot.com/HowMuchToInvest

Your 1.91 return-to-risk ratio for Marketplace Lending on page 6 is too good to be true, due to your 0.027 volatility.

All other asset classes on page 3 have return-to-risk ratios < 0.4.

What do we miss?  Your Marketplace Lending volatility seems awfully low.

dmosh

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"What percent of my portfolio to put in LC" has also been greatly bothering me. I started LC in 2007 with just a few thousand in LC. It has always been great with returns from 7 to 10 percent. Slowly I have added to LC. Now I have 60% of my portfolio in LC. I am worried about this, but I don't do real estate for now. I also hate and don't trust the stock market after the crash. So, i have a lot of cash earning 1%. I want to move more of the cash into LC. I am losing money each month by not investing it in LC.
Of course, the flip side is risk.

Thoughts? 

lascott

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"What percent of my portfolio to put in LC" has also been greatly bothering me. I started LC in 2007 with just a few thousand in LC. It has always been great with returns from 7 to 10 percent. Slowly I have added to LC. Now I have 60% of my portfolio in LC. I am worried about this, but I don't do real estate for now. I also hate and don't trust the stock market after the crash. So, i have a lot of cash earning 1%. I want to move more of the cash into LC. I am losing money each month by not investing it in LC.
Of course, the flip side is risk.
Thoughts?
1%!!!!!   Diversify in various sense of the word.
Real estate investment trust (REIT) from the big boys Vanguard/Fidelity. 
Total stock market mutual fund indexes from the big boys Vanguard/Fidelity.
X amount per month to dollar cost avg in.
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kbenson99

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Oh my!  60% of your entire portfolio in LC?  You're taking on waaaaay too much risk by putting such a large percentage in one basket.  Read LendingRobot's https://www.lendingrobot.com/static/media/other/howmuchtoinvest.pdf analysis on how much to invest; I personally think Emmanuel's 12-14% conclusion is a little high, but the explanation regarding correlation is sound.  I only invest about 8% of my entire portfolio in LC and will never go above 10%.  If you're putting such as large % in one basket, you may want to consider talking with a fee-only financial advisor.

REIT ETFs such as SCHH (exp ratio .07%) and VNQ (exp ratio .12%).
Total Return ETFs such as SCHB (exp ratio .04%) and VTI (exp ratio .05%).

jheizer

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My max allocation is 10%.  That comes from I don't allow any single holding (Not counting broad Funds/ETFs) to cross that threshold, and most are way under.  In this case I feel I almost "have" to have more money in as I have a considerable amount of time into planning, writing my software, etc that it's just not worth it otherwise.  But still a good hobby :) 
Replacement to P2P Quant's Percentile Tool http://lc.geekminute.com

Rob L

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An investor's age should play a role too. Less risk as one gets older since there's less future earnings potential and less time to make it up.

Marketplace lending is immature, risky and illiquid. The exit door is small and the possibility of total loss, while very small, is not zero.

Bottom line; possibly as much as 15-20% when young, 5-10% when older. Said another way; a total loss should be painful but not catastrophic. The high returns and low volatility of this investment class are very seductive and make it a difficult choice.

lascott

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An investor's age should play a role too. Less risk as one gets older since there's less future earnings potential and less time to make it up.

Marketplace lending is immature, risky and illiquid. The exit door is small and the possibility of total loss, while very small, is not zero.

Bottom line; possibly as much as 15-20% when young, 5-10% when older. Said another way; a total loss should be painful but not catastrophic. The high returns and low volatility of this investment class are very seductive and make it a difficult choice.

Visually --- adjust 20% value in graphic to fit comfort level.
http://www.lendingmemo.com/returns-2015-q2/


Of course I'm using LC to replace a fair amount of bond investements which I have other dedicated threads on.
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

AnilG

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Re: What Percentage of Your Investments Should be in P2P Lending? - Revisited
« Reply #10 on: October 07, 2015, 06:09:32 PM »
I use a very simple decision tree procedure to decide how much to allocate to P2P Lending. Without the past performance data across different economic and business cycles, it is an exercise in futility to determine allocation based on past returns and return variability. I go on the basis of more of your portfolio allocated to bond, lower risk you desire.
« Last Edit: October 07, 2015, 06:14:32 PM by AnilG »
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

lascott

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Re: What Percentage of Your Investments Should be in P2P Lending? - Revisited
« Reply #11 on: October 07, 2015, 09:36:08 PM »
I use a very simple decision tree procedure to decide how much to allocate to P2P Lending. Without the past performance data across different economic and business cycles, it is an exercise in futility to determine allocation based on past returns and return variability. I go on the basis of more of your portfolio allocated to bond, lower risk you desire.
Is this how to read your decision tree?
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

AnilG

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Re: What Percentage of Your Investments Should be in P2P Lending? - Revisited
« Reply #12 on: October 07, 2015, 09:55:48 PM »
Yes, it is a simple two-way split. Your risk profile is assessed using the stock:bond allocation, more allocation to stock, higher your risk capacity. It could be enhanced by further segmenting your asset allocation and creating n-way splits.

I use a very simple decision tree procedure to decide how much to allocate to P2P Lending. Without the past performance data across different economic and business cycles, it is an exercise in futility to determine allocation based on past returns and return variability. I go on the basis of more of your portfolio allocated to bond, lower risk you desire.

Is this how to read your decision tree?

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PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

rawraw

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Re: What Percentage of Your Investments Should be in P2P Lending? - Revisited
« Reply #13 on: October 07, 2015, 10:55:05 PM »
I think comparing consumer credit and junk bonds is a bit of a stretch

reidy83

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Re: What Percentage of Your Investments Should be in P2P Lending? - Revisited
« Reply #14 on: October 10, 2015, 01:58:14 PM »
Anil,

Excellent work on your diagram. I have a question for you. I know you have been a long time advocate of marketplace lending but I have not seen you comment on marketplace real estate lending. Would your percentages change if P2P real estate was added to the mix? I have done 8 years with Prosper/LC and 3 years with various Real Estate marketplace lenders and my percentages are roughly 2% higher on overall return.

I was just curious to see what your thoughts were on the subject matter.

Kind Regards, Jack