Look At Peer To Peer Lending To Add Diversification To Your Investment Strategy
Peer to peer lending programs were not designed to add diversity to an investment strategy, but rather to maximize returns for investors and lower costs for borrowers, yet diversity has become one of the strongest selling features of peer to peer loans. This is due to the degree of fine tuning that can be achieved with peer to peer loans.
These are loans that the investor/lender makes directly to a borrower using the means of online auction sites. The primary goal of these sites is to make loans cheaper for borrowers as well as more profitable for lenders by getting rid of the middle man.
The system not only has the dual advantage of allowing lenders to earn more on loans and borrowers to save on those loans, it also gives investors the opportunity to design a loan portfolio that suits their individual investment strategy.
The loans on a peer to peer lending site are arranged through a bid process, and borrowers bid by entering the rate they want to pay, and lenders bid by reviewing the loans available and offering an appropriate rate, based on the quality of the loan.
The investor firstly fixes a level of risk that he is willing to assume when the loan becomes part of his portfolio. This is achieved when the lender reviews the thousands of loans, via search filters, that should meet his risk/reward profile. Another benefit to investors of this choice process is that investors can even inject an investment goal into the portfolio that meets their investment strategy. Let us say an investor is interested in promoting educational endeavors, he can choose loans that achieve that end; if he is interested in the environment, he can pick loans that will finance energy friendly projects.
The mix can be further refined by picking a certain region of the country, either because the investor feels that the economy is strong there, or because he wants to help promote economic improvement in the area.
Diversification is one of the most critical elements of peer to peer lending, adding this critical factor to an investment strategy on a number of levels: an added asset group (consumer loans) and an added debt obligation (personal debt versus government or corporate debt.
A further refinement that is only available to investors in peer to peer lending is that investors' loan mix can be divided into very small increments. The investor is not committed to devoting his entire targeted investment of, for example, $10,000 to one single borrower. What happens is that he can divide $10,000 by 100 (or more) and make 100 smaller loans to individual borrowers. (The borrower on the other side of this equation is, of course, getting his loan from 100 investors.).
Peer to peer loans injects an unprecedented amount of transparency into the investment procedure and the investment strategy. This loan portfolio is comprised of individual loans for which the lender knows each borrower, his credit rating, the purpose of the loan, the region he is located and any other pertinent information that will help him make an informed decision.
These are loans that the investor/lender makes directly to a borrower using the means of online auction sites. The primary goal of these sites is to make loans cheaper for borrowers as well as more profitable for lenders by getting rid of the middle man.
The system not only has the dual advantage of allowing lenders to earn more on loans and borrowers to save on those loans, it also gives investors the opportunity to design a loan portfolio that suits their individual investment strategy.
The loans on a peer to peer lending site are arranged through a bid process, and borrowers bid by entering the rate they want to pay, and lenders bid by reviewing the loans available and offering an appropriate rate, based on the quality of the loan.
The investor firstly fixes a level of risk that he is willing to assume when the loan becomes part of his portfolio. This is achieved when the lender reviews the thousands of loans, via search filters, that should meet his risk/reward profile. Another benefit to investors of this choice process is that investors can even inject an investment goal into the portfolio that meets their investment strategy. Let us say an investor is interested in promoting educational endeavors, he can choose loans that achieve that end; if he is interested in the environment, he can pick loans that will finance energy friendly projects.
The mix can be further refined by picking a certain region of the country, either because the investor feels that the economy is strong there, or because he wants to help promote economic improvement in the area.
Diversification is one of the most critical elements of peer to peer lending, adding this critical factor to an investment strategy on a number of levels: an added asset group (consumer loans) and an added debt obligation (personal debt versus government or corporate debt.
A further refinement that is only available to investors in peer to peer lending is that investors' loan mix can be divided into very small increments. The investor is not committed to devoting his entire targeted investment of, for example, $10,000 to one single borrower. What happens is that he can divide $10,000 by 100 (or more) and make 100 smaller loans to individual borrowers. (The borrower on the other side of this equation is, of course, getting his loan from 100 investors.).
Peer to peer loans injects an unprecedented amount of transparency into the investment procedure and the investment strategy. This loan portfolio is comprised of individual loans for which the lender knows each borrower, his credit rating, the purpose of the loan, the region he is located and any other pertinent information that will help him make an informed decision.
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