Author Topic: Is diversification the best investing method?  (Read 4775 times)

Bilgefisher

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Is diversification the best investing method?
« on: October 21, 2011, 11:34:58 AM »
In effort to spur discussion on the forums here is a interesting topic I propose.

Do you diversify your p2p investment either via loan grade or smaller loan amounts and why?

Personally I invest in $50 to $200 amounts to save time.  I don't invest more than that per loan to maintain my ability to quickly sell notes on folio.  I also don't invest in lower interest rate loans even though the perceived risk is less.

Other thoughts?

Peter

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Re: Is diversification the best investing method?
« Reply #1 on: October 23, 2011, 05:11:47 PM »
Jason, I think by now you realize my stance on diversification. I believe every investor should have at least 200 loans in their portfolio preferably more. This is minimize the impact of potential defaults.

But whether you diversify across loan grades I think up to the individual's risk tolerance. I like the high interest loans because they provide the best potential and with filtering you can reduce the downside risk.

I err on the low side on a per note basis probably averaging $50-$75 between Lending Club and Prosper.
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Bilgefisher

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Re: Is diversification the best investing method?
« Reply #2 on: October 24, 2011, 09:36:44 AM »
I agree 100%.  An individuals risk tolerance makes a big difference.  I have far less than 10% of my assets on prosper.  I guess that's why I feel fine with the larger swings.  I figure as I add more loans steadily over time, the number will settle themselves out.

I feel staying under $100 per loan is more important for liquidity then anything else.  But then again, my objective for this account is probably different than most people.  I feel its a better holding bucket than a savings account.  It may have a few more leaks, but it fills up much faster.

Peter

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Re: Is diversification the best investing method?
« Reply #3 on: October 25, 2011, 08:33:38 AM »
I like that analogy, Jason. While you will never lose principal in an FDIC-insured savings account it does fill up very slowly. With p2p lending despite having some leaks the high return should well and truly make up for it - and if you use the trading platform you have the advantage of being able to get your cash out at any time.
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chasingbread

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Re: Is diversification the best investing method?
« Reply #4 on: October 25, 2011, 09:14:13 AM »
I believe diversification is the best method, but I am stubborn, so when do I listen to those who came before me....

Of course I invest money I can afford to lose, and I like to spin the roulette once in a while. I have a few 13k,12k,9k loans who have been current for up all over 15 months or so. They are all at 33%+. They are real money makers, but VERY VERY VERY RISKY. Most of them are current, but one 11k and 9k defaulted a while ago. It took that to get me to diversify at a lower amount. I have 251 notes, so I am working on upping that number, but some loans I am still tempted to fund them like Aberdeen.

Do any of you ever get tempted like that? Locking in 10+k at 34% (old prosper rates) have been my true money makers being that they are up to 18 months old.

Bilgefisher

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Re: Is diversification the best investing method?
« Reply #5 on: October 25, 2011, 09:24:05 AM »
Its rare for me to see a quality loan that meets my criteria above 25% these days with repeat borrowers.  Its very tempting to invest larger chunks in the good ones i see.  I actually would invest larger amounts if prosper would allow me to have multiple notes on each loan.  Liquidity is king for me. 

Btw Peter, it seems lately savings accounts are starting to see more leaks.  All those little fees add up.

Peter

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Re: Is diversification the best investing method?
« Reply #6 on: October 28, 2011, 12:38:23 PM »
@Chasingbread, Wow that is a lot to commit to one loan and as you say it is very risky. I have never been tempted to go to those levels but sometimes I think I should be putting in more than I do. But after being burned early on where I didn't think diversification was a big deal I am probably more cautious than most people.

@Bilgefisher, I agree that there are few good loans above 25% these days. particularly since the reduction in interest rates for repeat borrowers a couple of weeks ago.
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