Sponsored by LendingCrowd
There’s no such thing as a risk-free investment. However, as all savvy investors know, diversification helps to manage risk and improve your opportunity for higher returns.
A typical portfolio might include a mix of cash savings, stocks and shares, bonds and property. Increasingly, investors are turning to peer-to-peer (P2P) loans to further diversify their holdings while achieving attractive returns.
The UK has a wide choice of P2P platforms, offering you the opportunity to generate inflation-beating returns by joining forces with other investors and lending to consumers, property developers and businesses of all sizes. Some providers let you choose individual loans to invest in, while others automatically spread your money across a variety of loans.
Consumer-focused P2P platforms lend to people who won’t – or can’t – get a bank loan, so you need to consider whether you’re comfortable with this lack of diversity. You’re probably already investing in the property market, either with your own home or through buy-to-let. Do you want even more exposure to this sector?
LendingCrowd believes that lending to creditworthy small businesses across a wide range of sectors gives you the best opportunity to diversify within the P2P asset class
LendingCrowd Growth Account returns
Liquidity – the ability to convert assets into cash – is another important factor to consider. As an investor, you’re aiming to generate a return on your money, either for a specific goal or for a rainy day. But what happens when that proverbial rainy day arrives?
Property can take months to sell, but if you invest in a property fund you may want – or need – to access your money within a few days. This isn’t normally a problem, because funds hold cash for this very reason. However, following the Brexit vote in 2016, a rush for withdrawals saw properties sold at knock-down prices, causing some fund managers to temporarily prevent investors from withdrawing their cash altogether.
A key benefit of LendingCrowd is that you’re not locked in when you invest. The platform offers a secondary market, enabling you to sell loan holdings to other investors. Under normal market conditions, even large portfolios are sold down in a week.
Investors also need to consider correlation. You don’t want the value of all your investments to fall at exactly the same time. That’s why fund managers often hold government bonds to provide a source of stable returns, as these tend to rise in value when equities fall.
However, in the current low interest rate environment, gilts and cash struggle to provide returns above inflation, while stocks and shares tend to follow the same global economic trends in these times of increasing globalisation.
Business debt funding represents an excellent way for investors to diversify into a new asset class that doesn’t correlate with the fluctuations of the global stock markets yet provides inflation-beating returns. With P2P platforms such as LendingCrowd, you can build diverse portfolios of business loans by investing as little as £1,000.
LendingCrowd gives you instant access to a diverse range of sectors, from agriculture and healthcare to retail and transport. Each borrower is carefully assessed by its expert Credit Team, who ensure only the most creditworthy businesses are approved for loans.
With a LendingCrowd Growth Account, you can earn a target return of 6%* a year by opening an account with as little as £1,000 to instantly create a diversified portfolio of secured business loans. Your capital and interest repayments are reinvested automatically, increasing your diversification over time.
Analysis of LendingCrowd’s current loan book shows that no one sector accounts for more than 15% of its total lending. For example, loans to agricultural business make up less than 3% of overall lending by value, while manufacturing and engineering accounts for 7.1% and healthcare 7.3%. By taking this diversified and balanced approach, Growth Account investors have achieved an average return of 8.5% over the past 12 months. Remember that past performance is not a guide to future returns.
You can hold all of LendingCrowd’s accounts within its Innovative Finance ISA for tax-free** returns.
*Capital at risk. Target rate is variable, net of ongoing repayment fees and bad debt and before the 1% capital withdrawal fee. The ability to sell your investments depends on other investors buying your loans.
**Tax treatment depends on the individual circumstances of each investor and may be subject to change in future.