Episode 030 – P2P Lending Deep Dive; minimising risk, surviving recessions and auto-invest strategy | Jorgen Wolf from Financially Free
Welcome to another episode with our p2p expert Jorgen! In this episode we dive deeper than our first episode, and we discuss Jorgen’s total asset allocation, what investors can do to minimise risk and the future of p2p lending.
We also talk about:
- The different kinds of p2p platforms
- How investors can minimise risk
- What would happen to p2p platforms during a recession
- The best auto invest settings
- How Jorgen invests efficiently
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Investors can minimse the risk when using p2p platforms
P2P investing sounds amazing and all but what shy away from the most is the risk involved – you’re giving your money away to this lender in some random foreign country to some random person who is promising to pay you back with interest. Risqué.
Jorgen tells us you can mimise this risk by only investing with loan originators that offer buyback guarantee. This means that if the person cannot pay the loan back, the platform steps in and pays back your investments + interest. Not bad.
What people don’t tell you is that getting that money back could take ages, even years. So even though there is buyback guarantee, be careful and be aware that you may not see that money in a while.
Should I invest in a big or small p2p platform?
Jorgen explains the pros and cons of investing in big platforms such as Mintos verus investing in smaller ones such as LendingWorks.
The advantage of smaller platforms is that they will do more to protect their investors, since they need to prove the platform to them. This usually means higher annual interest rate.
However the advantage of bigger platforms is that they do provide extra security and are probably less likely to go bankrupt. They are also more likely to take on the risk and offer buyback guarantee. 😎
What would happen to p2p platforms during a recession?
P2P platform Zopa was launched in 2005 and the 08 recession did not affect them too negatively, offering investors a return of 4%.
However, Jorgen says it’s important to have extra money in your bank account for when there is a recession. He explains that p2p platforms will probably be more critical to whom they give loans out during a recession, but if it’s a bigger platform they will always work hard to make sure the buyback guarantee happens – for them it’s easy to cut overheads just so they can offer buybacks to their investors.
Jorgen also believes that platforms such as Mintos could potentially become a bank 😱
For more juicy info on p2p lending listen to the episode above ⬆️
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