I was drawn to peer to peer (P2P) investing as it seemed to be a good way to get some regular fixed income. Ultra low interest rates in savings accounts provided by banks or building societies just weren’t worth looking at and while a lot of people are busy churning premium current accounts, it’s not something I really fancy doing.
As mentioned recently
, I’ve been happily investing in P2P for a year now. I haven’t added any new funds into P2P since my initial investments, just been reinvesting the capital repayments and interest as they get paid.
I came across this post
by 7 Circles about building a P2P portfolio a couple of months back – splitting your cash across more established platforms but also investing in smaller, newer (and perhaps riskier) platforms, much in the same way you would diversify a fund or share portfolio. I had already spread my risk across three different platforms but hadn’t thought beyond that, probably because I didn’t know of many other P2P platforms other than the ones I was already invested in. The post mentioned several P2P platforms I’d never heard of before, so I spent some time checking them out. While doing my own research, I came across many other P2P platforms – it certainly is a rapidly expanding way to invest!
What made me choose these two?
loans out to businesses but some of these are renewable energy
businesses, which I hadn’t come across with Funding Circle. Risky yes, especially in light of cuts in government subsidy but I’m only investing a small amount here and well, if subsidies are being cut, hopefully I am providing some much needed financial help for these sorts of companies.
A tick in the box for some ethical investing on my part anyway. My average interest rate here is 8.4%.
‘s loans are on buy-to-let mortgages, so the loans are secured against property. The rates on offer aren’t as high as some of the other platforms (only around 4.4%
), yet this offers some different exposure and diversification in the P2P realm for me, Again, quite risky given the recent unfavourable proposed tax changes to BTL but I’m only investing small amounts here. Their website is simple, no frills, no nonsense. All loans are for a minimum of 3 years, which suits my long term investing plan.
According to some, a tick in the box for some ‘unethical’ investing!
Funding Knight is similar to Funding Circle in that you can choose who you want to lend to, read about the businesses, check out basic financials, get a bit more involved etc.
Of the two, Funding Knight doesn’t charge lender fees, whereas Landbay charges 0.50% – 1.00%.
I’m going to try to aim for the following allocation ultimately:
Funding Circle 30%
Lending Works 20%
That’s a 75/25 split, namely:
- 75% in the more established and ‘safer’ Funding Circle, RateSetter and Lending Works
- 25% in smaller and newer platforms, Landbay and FundingKnight.
As stated earlier, I’m not changing my P2P investment strategy for the remainder of the year – the funds used for the above two new platforms have come from repayments from the other platforms (and also referral fees). Currently, I’m overweight in Funding Circle and RateSetter so I’ll be shifting some more repayments around.
I think I will review my strategy next year as I currently don’t factor in income from P2P into my plans.
A quick calculation shows that I’m currently receiving just over £10 a month in P2P interest (about 5.6%) so I will aim to increase this gradually by reinvesting and (from next year) a little more funding. The bulk of my money was lending at around 4.5% when I started – subsequent loans have been for a lot higher so the average should go up in time.
I’ve always lumped P2P in with the equity side of my investment portfolio. I don’t feel that it’s quite as safe as cash in the bank or premium bonds. While in the UK, P2P is governed by the FCA (Financial Conduct Authority), it’s not covered by the FSCS (Financials Services Compensation Scheme), so there’s a greater element of risk.
However, not everyone feels this way about P2P – RIT
acknowledges that P2P has a higher risk profile but doesn’t believe that it’s quite in the same ‘risk league as equity so he lumps his P2P in with his cash.
Maybe when I’ve got a couple more years under my belt, I may share a similar view, but regardless, P2P is still likely to only provide a small bit of diversification to my overall investment portfolio.
[NB – This post is not my recommendation to invest in any of the companies mentioned – I have invested in these companies personally. I also haven’t included any personal referral links. FundingKnight doesn’t have a referral scheme but if anyone wants a referral for Funding Circle, RateSetter, Landbay or Lending Works, please drop me a note and of course, do your own research!]