What I fear the most isn't poor returns but an event that takes out LC, or Prosper, etc. The cleanup is unproven, probably costly and very messy. The list of financial failures over recent history is long. There's Bear Stearns (Notes from the Chairman anyone?), Leahman Brothers, Knight Capital, Solomon Brothers, Drexel Burnham Lambert, LTCM, the S&L's of the 80's and these are just off the top of my head. They all went down surprisingly quickly, with little or no warning. Our P2P lending investments are extremely illiquid. Peter said in a post the other day referring to lower interest rates that he felt LC is more financially stable today than ever. This has lowered the lender's risk and provided some justification for lower interest rates we've seen recently. Agreed, but we're not talking TBTF institutions here. We have been warned. On rare occasions bad things happen to good companies. Fat tails, black swans whatever you want to call them; .... happens.
On the other hand, if you would be completely comfortable losing the entire investment at whatever % you choose then why not?