Peer-to-peer investing (also called “p2p” investing) is exploding in popularity because it is a win-win for both borrowers and investors. Borrowers achieve a lower rate of interest, and investors achieve an attractive rate of return. It’s that simple… in concept anyway. NSR Invest was founded to make it that simple in practice too.
We allow investors to earn real returns by investing in real people(™)
While we recognize that every investor has different investment objectives, financial situation, and risk tolerance, here are seven reasons we feel that p2p may be an attractive addition to your portfolio.
1. Opportunity to earn an attractive yield
With average savings account and CD interest rates so low, your portfolio can benefit by earning a higher risk-adjusted return. As of 5/26/2016, Bankrate.com indicated that the highest paying 5-year CD pays a measly 2.1% - with little to nothing left for growth after factoring inflation. Consumer credit has been one of the highest returning asset classes for decades, previously reserved only for banks
- Due to the risks and uncertainties of the underlying investments of the Fully-Managed Assertive strategy, actual events, results and/or performance of the Strategy may differ materially from the target net return.
- For a broad-based portfolio of $1.44 billion of consumer unsecured loans (over 134,000 individual loans) originated at Lending Club and Prosper, for the fully matured vintages 2007-2012. We measure mature vintages because they have had a full opportunity to experience defaults, which reduce returns overall. Source: nsrplatform.com
- E-Loan APY for 5-year CD. Source: Bankrate.com accessed 5/26/16
2. Steady Returns
As demonstrated in the chart below, p2p lending provides relatively consistent cash flows that are not subject to the ups and downs of the broader markets - but rather, the performance of the real economy.
Peer-to-peer lending is built on transparency. Marketplaces like Lending Club and Prosper make their entire multi-year loan history available to the public for download and analysis. Investors can analyze this history using desktop applications like Excel, commercial software like SAS, or through platforms like NSR Invest. Our Ph.D. statisticians and experienced credit analysts derive sophisticated loan selection algorithms for our clients.
4. High-Quality Borrowers
P2P allows you to invest in high-quality borrowers that have established themselves as creditworthy. Most of these borrowers have many options when seeking a loan, but they choose p2p because the interest rates are often lower than what they can find elsewhere.
5. You can choose your risk/reward profile
Marketplaces like Lending Club and Prosper assign grades to each loan - commensurate with perceived levels of risk. In addition to the marketplace assigned grade, utilizing an independent third-party investment manager, like NSR Invest, may help to enhance returns while better mitigating risk. Clients may select from one of three proprietary strategies that are most suitable for their risk appetite.
6. Greater diversification
Adding p2p to your portfolio as a relatively uncorrelated asset class may help to minimize downside risk and act as a buffer when the broader markets have poor performance. While we will discuss diversification more broadly in an upcoming lesson, it’s also important to diversify your p2p portfolio amongst hundreds or thousands of notes.
7. Longer-term investment
With typical loan maturities ranging from 36 to 60 months, converting an entire portfolio to cash takes time. While there is consistent cash flow coming into investment accounts each month, and limited access to liquidity through secondary markets, p2p is designed as a longer-term asset. As such, investors can enjoy higher returns for a while to come - and we think that makes for an attractive investment opportunity.