[Poll] Do you think P2P is a risky investment?


  • Community Manager

    Hey everyone!

    Many of us here have been investing in peer-to-peer lending for quite some time now, as we can see from the conversations, some in increasing amounts, some relying on the compounding of your original deposit amount.

    This topic highlights the % of funds the community's P2P investors place into P2P lending

    Would be interesting to know, by your personal definitions, is P2P lending still considered a risky investment to you now? (in the grand scheme of things - taking into account other "risky" investments like crypto, non-blue-chip stocks) Has your opinion changed since you invested your first dollar? And if so, what made you change your opinion?

    Do vote!

    Would be interesting for us to listen in on / share our perspectives :)

    Happy diversifying!



  • I have been investing in P2P loans since December 2016, and till this day I still consider it a risky investment, especially those without collateral. Hence there is a need for risk management, for instance:

    • Diversification into multiple loans, and
    • Invest what one can afford to lose (non-emergency funds).

  • Community Manager

    @limjimmy Indeed, these are important factors for risk management!

    Seems like we've 4 votes for "Yes and has always been" so far, and 1 for "Never really thought it was risky"!


  • Community Manager

    [Update]

    12 votes for "Yes and has always been" so far, and 3 for "Never really thought it was risky"!



  • @limjimmy said in [Poll] Do you think P2P is a risky investment?:

    I have been investing in P2P loans since December 2016, and till this day I still consider it a risky investment, especially those without collateral. Hence there is a need for risk management, for instance:

    • Diversification into multiple loans, and
    • Invest what one can afford to lose (non-emergency funds).

    Agreed, never put all your eggs into one basket. If you have diversified enough lets say to 100 different issuers, your portfolio can still take a very unlikely 10% default rate and still make decent returns. Currently all the p2p platforms in MY have default rate around 1-3% which are pretty good, then again p2p portfolio in MY still haven't "seasoned" enough yet. Once we've passed 24-36 months cycle then we will have better gauge on the portfolio quality.

    For comparison, most banks unsecured portfolio NPL rate hovers around 5-8%.



  • @kaweng88 why is 24-36 months considered a cycle?



  • No risk no gain, but I think the gains outweigh the risks. Love that we can diversify in such a micro and straightforward manner as well.



  • @interesting Time is required to evaluate a P2P platform and 24 to 36 months appear to be a good time period. Too short like 6 months or 12 months might see a near zero or less than 3% default rate. The greatest fear of the P2P investor is delayed or defaulted repayments by the borrowers. Even banks have a default rate of up to 5% or more. If the P2P platform is good at screening its borrowers then in 36 months its default rate might have plateau. The P2P platforms are still in their toddler state.



  • @englang-thai reasonable & prudent perspective there 👍



  • Hi all, Cass from CoAssets here again!

    The risk in P2P platforms comes in the form of borrower defaults.  At times, investors may lose a portion of their investment. On other occasions, they may lose 100% of their investment amount.

    Putting things into perspective, not all P2P investments are as high risk as one would think. The key question is - how does P2P’s risk compare against other forms of investing/business? Specifically, how you wondered what is the default rate of corporate bonds and the failure rate of businesses?
     
    Since November 2015, at least 13 issuers have defaulted on a total of 23 Singdollar bonds. This is 2.6% of the S$123 billion outstanding Singdollar corporate bond universe, which includes government agencies and statutory boards (source: https://www.businesstimes.com.sg/brunch/insolvency-limbo-the-sgd-bond-market)
     
    When it comes to businesses and start-ups, statistics show that there is a 90% failure rate of start-ups and 75% on venture-backed start ups (source:https://www.fastcompany.com/3003827/why-most-venture-backed-companies-fail)

    Of course, these aren’t exactly “apple to apple” comparison, nonetheless, it helps to give us some perspective.

    Ultimately, Warren Buffett said it best, ”risk is not knowing what you are doing”.  Whether it’s P2P, investing in stocks or bonds, starting your own company etc. It is risky when you just follow the crowd and not know what you are doing (or who to trust).

    On the other hand, if you work with credible stakeholders (with good track records), done your research and know what you are going, whatever investments you make (P2P included) will not be as risky as you assume :D.


  • Contributor

    P2P is a high risk fixed income. It had always been that way and it will be that way.

    Managing your risks is the best alternative.





  • This post is deleted!

  • Contributor

    I have created a post addressing latest P2P flunder: Lendy.
    Do have a look and let me know your opinion! :)



  • Hello!  I’m Jin Wen from CoAssets Pte Ltd (“CoAssets”) and would like to add on my two cents on top of what @Cassandra-Tho has shared.

    I totally agree on the saying by Warren Buffett - "Risk is not knowing what you are doing". Hence, it's important to always do your homework first before making investment-related decisions so to ensure that you are well-equipped with the information that you need.

    a. What is P2P lending?
    b. What kind of risk you will face?
    c. How does a P2P platform choose its deals?
    d. What's the default rate for each P2P platform?
    e. What happen if there is a default?

    What are the risks you will face on P2P platforms:

    Every investment comes with their own set of risks. The main risk that comes with P2P lending is the default risk which is defined as the risk of the Investor- Opportunity Provider (“OP”) defaulting on repayments in full or in part.

    Understanding Default Risk

    In accordance to Monetary Authority of Singapore (MAS), a non-performing loan (I.e. loan default) occurs when a repayment remains unpaid at least 30 days past the due date. Source: https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Securities-Futures-and-Fund-Management/Regulations-Guidance-and-Licensing/Circulars/CMI-27-2018-Controls-and-Disclosures-to-be-Implemented-by-Licensed-Securities-Based-Crowdfunding-Operators.pdf

    Default Risk and CoAssets

    Per MAS calculation, CoAssets Pte Ltd has achieved a default rate of 0% for 2018. Having said that, past performance is not an indicator of any future performance as P2P lending is high risk after all and default is always possible.

    Mitigating Default Risk

    Default risks cannot be eliminated. However, CoAssets performs comprehensive due diligence. The purpose of due diligence is to uncover risks (including default risk) and disclose such risks to potential investors.

    This is to ensure that the investors are equipped with information to make a decision.

    Risk Assessments performed on OP

    Just to share with you, CoAssets conducts risk assessment on potential OPs.

    Risk assessment is not to eliminate risk, but to evaluate and manage risks to ensure that the relevant materials and disclosures can be made to investors to a reasonable extent. Here are the 3 factors that CoAssets uses to assess a deal:

    1.Financial Performance Analysis and Macro & Micro Economic Analysis

    2. Operational and Compliance Due Diligence
    a. Anti-money laundering and terrorist financing checks
    b. Adverse news checks
    c. Litigation checks

    3.Continuous Risk Monitoring & Review

    Even after the online funding project is successfully funded and disbursed, we may continuously monitor risk factors that are material to the project. CoAssets Pte. Ltd. may collect ongoing financial records or other business documents to evaluate the performance and check if the project is progressing as per proposed by Opportunity Provider (“OP”).

    You may refer to the following link for the default rates comparison among P2P platforms (measured as non-performing loan rate beyond 30 days) in year 2018:
    https://crowdfundtalks.com/topic/362/coassets/10

    Conclusion
    Overall, it is advisable investors must do their own due diligence to determine if the products match their investment objectives and risk appetite. For more information, you can refer to P2P investing guide on CrowdFund Talks: https://crowdfundtalks.com/topic/535/complete-p2p-investing-guide

    Happy exploring!



  • @jinwen wow nice stats and plug.

    alt text


 

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