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Tips On Managing Your Portfolio

We previously talked about how to get higher returns by investing in a peer to peer platform (P2P) instead of a traditional saving product offered by the banks.

However P2P is now a very mature industry. Gone are the days when there were just two to three peer-to-peer lending platforms. What started from Zopa has evolved into a whole industry of alternative finance.

There are many options in P2P, each doing business in a slightly different way. Some platforms only offer loans for personal finance, while others deal exclusively in businesses loans and loans for real estate development. You have quite a choice when deciding what to invest in.

If you are a mature investor, the question facing you is not where and how to invest, but rather how to build and manage an effective portfolio.

  1.  Understand your risk profile

  2. Risk is an inherent part of any business. An effective portfolio is one that gives you the returns you need. And to understand what you need, you need to understand your risk profile. Are you risk averse or you are willing to take high risk for extremely high returns, or are you somewhere in between the two extremes?

    There are platforms which give out loans to people with low credit scores and bad histories. These are usually low quality loans, meaning unsecured loans. However you may get as much as 17% per annum from these loans. On the opposite end of the spectrum are platforms which will give you a guaranteed return, but percentages start from a bare minimum of 3%.

    To make your portfolio truly effective you will need to find a balance. Find out what you can afford to lose and the bare minimum return you need to achieve.

    Also if you research effectively you will find platforms that pay a good return while having security features like provision funds or secured loans in place (loans given against security).


  3.  Diversify

  4. No matter what you invest in, diversification is extremely essential. The age old saying, “Do not put all your eggs in one basket” holds very true when building an effective investment portfolio.

    Diversification works two ways when talking about investments in a peer to peer lending platform. First you should invest the bulk of your investment in one P2P platform. The second is a bit more complicated. Many P2P platforms automatically distribute your investment over a large number of loans, but in some platforms you yourself choose which loans to invest in.

    When you are manually selecting loans to invest in you have to take care of two things. Do not invest the bulk of your investment in one single loan and when spreading the investment over different loans, ensure that they are “different types of loans”. For example, some platforms like Landbay offer secured loans for buy-to-let mortgages. Others like Zopa are peer to peer lending platforms for personal loans. In times of recessions, the demand for personal loans may go down and there is a good chance people with funds may choose to invest in property.


  5.  Research

  6. The sage of Omaha is what he is because he does not trust his gut, instead he undertakes effective research.

    Let me give you an example of effective research. A few years back, Saving Stream was launched. Saving Stream is a pretty good platform giving a fixed return of 12% per annum. However back then a few investors online researched it so well they found out that its online banner ads had used a stock photo of a person and under that photo was a review by an investor singing praises of Saving Stream. It turned out the stock photo was a blunder but the review was real. Saving Stream finally got a good developer for their website and is doing great now. The point of the story is that those researchers went through everything before investing their money. That is how thorough you should be if you want good returns.

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