Author Topic: Is P2P the best way to have steady growth with compound interest?  (Read 16947 times)

Watermen

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I have been searching the best way to growth money steadily. For example, a safe 10% return per year. So far, the closest I could find is P2P lending.

What do you guys think?

rawraw

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #1 on: March 09, 2013, 07:39:38 PM »
Heh. Wouldn't we all want a safe ten percent return...

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Zach

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #2 on: March 09, 2013, 07:47:45 PM »
I have been searching the best way to growth money steadily. For example, a safe 10% return per year. So far, the closest I could find is P2P lending.

What do you guys think?

Relatively 'safe' I suppose. It is a security just like any stock, so it holds a wide variety of different risks for loss of principal. To answer your question, yes, p2p lending is going to be the closest asset class to provide consistent, low volatility returns (but still with risk)

AnilG

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #3 on: March 09, 2013, 09:51:54 PM »
There is no 'safe' return. The closest you get to risk-free returns are US treasuries if you ignore the risk of some day US govt decides to stop making payments on its debts. The 3 Yr and 5 Yr Treasuries are paying 0.42% and 0.90% respectively. Any investment returning more than this is bound to come at added risk.
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rawraw

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #4 on: March 10, 2013, 11:42:05 AM »
There is no 'safe' return. The closest you get to risk-free returns are US treasuries if you ignore the risk of some day US govt decides to stop making payments on its debts. The 3 Yr and 5 Yr Treasuries are paying 0.42% and 0.90% respectively. Any investment returning more than this is bound to come at added risk.
I just want to clarify that AnilG is talking about "Credit risk".  A 5 year treasury at .90 has a huge amount of interest rate risk. 

Peter

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #5 on: March 10, 2013, 03:06:48 PM »
This is an interesting question. I think p2p lending is one of the safest ways to generate a consistent 10% return. Is it completely safe? Of course not. as Anil points out. But I find it relatively safe, particularly at Lending Club these days.

You will notice on the blog I will be expanding my focus beyond strictly p2p lending this year because I think other forms of direct lending also have tremendous potential. Business lending is still not readily available for the average investor but that is about to change and I think it will make for a very interesting investment opportunity. If I can get a 10% net return lending to a small business and have that loan secured by receivables or inventory then that is a compelling investment proposition.

Stay tuned to the blog. In coming months I hope to bring you several of these kinds of investments.
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See my returns here: http://www.lendacademy.com/returns

rawraw

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #6 on: March 10, 2013, 08:22:42 PM »
Everyone always thinks their investment is safe.  Until it blows up.  I really think you guys need to just read the past twenty years of finance -- plenty o example of 'safe' returns that blew up.  And it seems people never learn.  If LC ends up being as "safe" as a lot of the people have been led to believe over a couple years of history, those returns will surely come down as competitive pressures increase.  I'm a big fan of LC, but people always seem to have such short memory spans when 'greed' comes into play.  It's something I have to constantly remind myself as well.

Zach

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #7 on: March 10, 2013, 08:55:50 PM »
Everyone always thinks their investment is safe.  Until it blows up.  I really think you guys need to just read the past twenty years of finance -- plenty o example of 'safe' returns that blew up.  And it seems people never learn.  If LC ends up being as "safe" as a lot of the people have been led to believe over a couple years of history, those returns will surely come down as competitive pressures increase.  I'm a big fan of LC, but people always seem to have such short memory spans when 'greed' comes into play.  It's something I have to constantly remind myself as well.

I agree that the returns are bound to decrease as time goes on. Hopefully its still attractive at that point :)

dontvote

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Is P2P the best way to have steady growth with compound interest?
« Reply #8 on: March 11, 2013, 12:19:32 AM »
P. I'm a small business owner and I hope that some group if idiots is someday willing to lend me money financed by my stated receivables. That day will find you plugging your blog with fifty posts and myself oiling DanB up wherever he missed a spot.

I'm sure business lending will be te next thing but I wanted to pain out business loans are the only type if loans there is no argument about here.

Ill fund a breast implant loan first.
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writing2reality

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #9 on: March 11, 2013, 10:26:02 AM »
Not exactly sure what you meant dontvote, however, if it wasn't profitable to lend to businesses in any capacity, then there wouldn't be so many commercial bankers out there, right? Business lending, and lending in general, is all about scale, risk management, and diversification. Not all that different from Lending Club or Prosper. Pick up 800 notes, you have a positive return. Hold 8 notes, and you might find yourself in a sad situation.

I personally find it interesting to see where and how peer-to-peer lending develops in the next couple of years. Lending Club has shown it is viable and profitable from a corporate standpoint, therefore others will jump in the market to create their own niches to attract investors and borrowers.
WriteYourOwnReality Blog: http://www.writeyourownreality.com

dontvote

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #10 on: March 11, 2013, 03:50:46 PM »
Not exactly sure what you meant dontvote, however, if it wasn't profitable to lend to businesses in any capacity, then there wouldn't be so many commercial bankers out there, right? Business lending, and lending in general, is all about scale, risk management, and diversification. Not all that different from Lending Club or Prosper. Pick up 800 notes, you have a positive return. Hold 8 notes, and you might find yourself in a sad situation.

I personally find it interesting to see where and how peer-to-peer lending develops in the next couple of years. Lending Club has shown it is viable and profitable from a corporate standpoint, therefore others will jump in the market to create their own niches to attract investors and borrowers.

I mean that unsecured loans to 'small business' applicants on these p2p sites are the uncontested dogs of the 'industry'. I don't know of a selective lender that doesn't skip those loans. Of course, they do get funded so somebody can hopefully educate me about how they select winning ones and I'll pile on with everyone else :)

The idea of funding a loan based on stated receivables without seeing tax returns, corporate documents, the name and address of the business is a bad idea. I can easy inflate my receivables to any number I want and I pity the fool who is willing to lend me a significant amount based on that alone.  Commercial banking is a relationship business and they get to know the people and businesses they lend money to in a way that p2p cannot (yet). The idea of loaning money directly to a business who can just disappear without any recourse is laughable.

The only thing that is worth remembering about lending to businesses on these sites is that you're not. You're still lending to an individual who has basically told you they're going to waste the money on some scheme (that probably didn't work when they used their family's money) rather than do the most profitable thing which is change their 30% interest rate into a 15% one and use the savings to pay down that debt.

Yes, commercial lending is a real thing and yes there will be a p2p way to enter this field soon, but it will rely (just as prosper and LC live and die by) on a really strong validation scheme to only let in the best risks in  the first place.

If you think about what we 'investors' really do on these sites is spend a bunch of time 'tuning' LC's existing portfolio to try to eek out a few additional percentages. The fact is that the bulk of the work is getting the 'average return' above zero and we don't do that. LC does.
dontvote

Interest Radar IRR: 46.11%
NSR ROI: 41.22%
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faeriering

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #11 on: March 11, 2013, 09:29:42 PM »
So dontvote, I generally agree that investing in small business as bad at least on LC.  (by bad i mean higher losses and lower ROI, that other categories).  But there have been several that have worked out well for me too.  They tend to be doctor's offices of one specialization or another.  I think there might be other small business out there that have an adequately priced risk profile.  I share your view point that we simply don't have enough information generally speaking about the financials of the businesses that are requesting loans on LC.

writing2reality

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #12 on: March 12, 2013, 11:27:27 AM »
Not exactly sure what you meant dontvote, however, if it wasn't profitable to lend to businesses in any capacity, then there wouldn't be so many commercial bankers out there, right? Business lending, and lending in general, is all about scale, risk management, and diversification. Not all that different from Lending Club or Prosper. Pick up 800 notes, you have a positive return. Hold 8 notes, and you might find yourself in a sad situation.

I personally find it interesting to see where and how peer-to-peer lending develops in the next couple of years. Lending Club has shown it is viable and profitable from a corporate standpoint, therefore others will jump in the market to create their own niches to attract investors and borrowers.

I mean that unsecured loans to 'small business' applicants on these p2p sites are the uncontested dogs of the 'industry'. I don't know of a selective lender that doesn't skip those loans. Of course, they do get funded so somebody can hopefully educate me about how they select winning ones and I'll pile on with everyone else :)

The idea of funding a loan based on stated receivables without seeing tax returns, corporate documents, the name and address of the business is a bad idea. I can easy inflate my receivables to any number I want and I pity the fool who is willing to lend me a significant amount based on that alone.  Commercial banking is a relationship business and they get to know the people and businesses they lend money to in a way that p2p cannot (yet). The idea of loaning money directly to a business who can just disappear without any recourse is laughable.

The only thing that is worth remembering about lending to businesses on these sites is that you're not. You're still lending to an individual who has basically told you they're going to waste the money on some scheme (that probably didn't work when they used their family's money) rather than do the most profitable thing which is change their 30% interest rate into a 15% one and use the savings to pay down that debt.

Yes, commercial lending is a real thing and yes there will be a p2p way to enter this field soon, but it will rely (just as prosper and LC live and die by) on a really strong validation scheme to only let in the best risks in  the first place.

If you think about what we 'investors' really do on these sites is spend a bunch of time 'tuning' LC's existing portfolio to try to eek out a few additional percentages. The fact is that the bulk of the work is getting the 'average return' above zero and we don't do that. LC does.

I totally agree with you dontvote. Both LC and Prosper eliminate the lion's share of risk in only accepting a fraction of the applicants. And you are right, on the current P2P lending platforms small business loans have been the low men on the ROI totem pole. However, much like LC and Prosper have developed the validation criteria required to even accept an applicant, all future crowdfunding styled operations will do the same.
WriteYourOwnReality Blog: http://www.writeyourownreality.com

rawraw

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #13 on: March 12, 2013, 06:54:05 PM »
However, much like LC and Prosper have developed the validation criteria required to even accept an applicant, all future crowdfunding styled operations will do the same.

You aren't very familiar with mortgage securitization and underwriting, are you?  Very close comparisons

rawraw

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Re: Is P2P the best way to have steady growth with compound interest?
« Reply #14 on: March 12, 2013, 07:01:05 PM »
And even in banking, lending against receivables is extremely risky.  It's called factoring.