Published on July 21st, 2020 | by Jenny0
5 benefits of incorporating peer to peer lending into your portfolio
Keeping your money diversified is important, and is often recommended by many financial planners to individuals no matter what stage they are on in their wealth-building journey. Whilst this normally comes in the form of stocks, shares, and cash, many are looking to peer to peer lending as a way to further diversify their wealth. But what are the benefits of putting your money in the peer to peer market? Here we break down some of them and how it can improve your portfolio.
Peer to peer lending offers attractive returns for retail investors
The attractive returns offered by peer to peer lending companies outperform those that can be found in most standard savings accounts; and for those that have the flexibility to lock money away for a certain period of time, the returns provided can be very lucrative. It is worth bearing in mind that the interest rates have been somewhat damaged by the general economic outlook and the lowering of interest rates by the Bank of England.
You further diversify your portfolio
Diversifying your portfolio helps to increase its security as you build wealth for the future. This means both diversification across the type of investments and even the peer to peer platforms that you use. This means you can benefit from the different benefits that each platform offers.
There are platforms out there which offer good security
Despite the risks that come with peer to peer lending, many lenders offer a provisional fund that helps give investors peace of mind that should their loans perform very poorly, some recoveries can be made.
Innovative lending is likely to be in demand in the future
With many businesses struggling to find the right funding and retail banks tightening their loan books many are looking to innovative different ways to work out how they get hold of capital to invest into the business. This means the industry is likely to see growth over the long term even if lending has fallen over the pandemic period.
They can be operated on the short, medium and long term
The peer to peer lending industry has become more flexible in recent years in terms of the products that they offer and the timeframes on which the investments operate. Many lenders offer loans and investments on 1 year, 3 year and 5 year markets. They can also be sold on the resale market if you decide to leave early. However, this option has been postponed by some of the major platforms.
Peer to peer lending does come with risk
The benefits of peer to peer lending are attractive to retail investors, however, it is important now more than ever to consider where you put the money and the potential risk it exposes you and your assets to. Peer to peer lending is not normally covered by FSCS protection and this makes it an inherently risky investment. To counteract this, make sure you monitor your investments and make sure you are diversified across different P2P platforms and areas.