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Why Did You Start Investing in P2P Lending?

by Peter Renton on July 30, 2012

Last week I noticed on Twitter that someone is doing a dissertation on the motivations behind investing in p2p lending. It made me think of my own motivations for investing and I thought it would be interesting to run a quick poll to find out why other people decided to invest.

For me, the primary reason that I invest is for the potential high returns. I also like the exposure to the asset class of consumer lending which further diversifies my overall portfolio.

What about you? Why did you decide to start investing in p2p lending? Please take the poll below and leave more details about your choice in the comments. You can have multiple reasons so feel free to vote for more than one choice.

{ 19 comments… read them below or add one }

Dan B July 30, 2012 at 10:58 am

Since the title of “expert” has already been tainted, I mean taken,…………………I continue investing, writing about & assisting others because I want to be known as a “Grandmaster” of p2p (aka direct lending) :)

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Peter Renton July 30, 2012 at 1:33 pm

There is plenty of room for multiple experts (if you are comfortable calling yourself that :-) ) or if you prefer you can be known as the Grandmaster of p2p….I also believe p2p sage, p2p pundit or p2p big kahuna are all still available….

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Danny S July 30, 2012 at 3:16 pm

Dibs on the title of p2p Big Kahuna

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Dan B July 30, 2012 at 3:35 pm

I’m sticking with Grandmaster…………….though I’m guessing that some people reading all this are probably thinking I should go with p2p bullsh*tter too :)

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Bilgefisher August 1, 2012 at 10:20 am

I always thought they were one in the same.

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Dan B August 1, 2012 at 2:10 pm

Well, given your background I can understand why you’d think that. After all, the concept of nuance can be a challenge. As always, no offence Jason. :)

Danny S July 30, 2012 at 3:15 pm

The potential for high returns and diversification were my big motivating factors for getting into p2p lending.

I’m diversified across numerous investment types, from real estate to stocks to bond funds and precious metals, etc. Adding another type of investment seemed like a no-brainer after I did some homework

Cherry on top was the potential to earn high returns. Honestly, even if I could achieve 8%, I’d be pretty happy… so right now that I’m hovering around 12%, I consider it outstanding, and one of the best potential investment opportunities around.

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Peter Renton July 31, 2012 at 7:33 am

Danny, I agree that diversification is the name of the game – both inside your p2p portfolio as well as across all investments.

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Frankie C July 30, 2012 at 4:45 pm

To quote Kevin O’Leary:

“Here’s how I think of my money – as soldiers – I send them out to war everyday. I want them to take prisoners and come home, so there’s more of them.”

That’s why I invest in P2P

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Peter Renton July 31, 2012 at 7:34 am

Good one Frankie, I hadn’t heard that one. But it is an apt analogy – we want our money to work hard for us. Something that has proven difficult in most investments these last few years.

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Dan B July 31, 2012 at 12:45 pm

Hardly an analogy you’d want to suggest in front of most soldiers actually. But the point is taken, I suppose.

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Marc August 1, 2012 at 11:13 am

Remind me of the analogy in Richest Man in Babylon. Your money are workers that work for you.

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Megan August 1, 2012 at 6:46 am

I really feel that P2P lending is powerful because it democratizes the individual lending process. I love that a vehicle is available to average investors that has the potential to make the great returns at a low risk. I feel that these other vehicles like this (low risk, great returns) are usually only available to insider traders and corporate elites. That’s really why I like this investment platform because I feel that it treats all investors fairly. Especially with

My fear is that it’s only a matter of time before there are some amazing programmers out there or a financial institution who automate the process of investing so much that they are pulling all the great loans off the platforms before “normal” investors have a chance to review them. (see http://en.wikipedia.org/wiki/High-frequency_trading)

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Peter Renton August 1, 2012 at 8:07 am

Megan, This is something that both Prosper and Lending Club are acutely aware of. Lending Club has strict controls in place so institutional investors cannot get to the loans before the retail investor has had their turn. Prosper is weaker in this area but they are working on tightening this as well. Despite the large amount of institutional money both companies seem very committed to the retail investor.

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Dan B August 1, 2012 at 3:18 pm

I can understand your fears but I’d have to agree with Peter on this in that I don’t see your “automation” concerns as a looming problem. It’s important to keep in mind that the reason that high frequency trading in stocks is a problem for retail investors & investors in general is because it screws with the basics of stock valuation, which is all about perception & with time horizon.

Though there are many ways to value stocks, there is nothing to say which type of valuation is more accurate nor is there anything to definitively say what normal valuation is. For example, who is to say whether a PE of say 12 or 10 or 15 is a fair valuation at any given time. To exacerbate the dynamics even more, high frequency trades divorces itself from all of that & is incongruous with the interests of flesh & blood investors…………….which by comparison all humans are long term stock holders regardless of whether they hold a stock for 1 or 5-10 years or 1 to10 days.

None of these issues face the future of p2p direct lending imo.

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Bilgefisher August 1, 2012 at 10:26 am

I see p2p lending as a better place to hold my reserves while working on my other investments. By keeping my money in a bank, I am losing value as true inflation (not the inflation falsely reported by our govt.) far exceeds their returns. It makes no sense to me. Its a somewhat liquid place to hold my money between real estate purchases.

Jason

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Peter Renton August 1, 2012 at 7:41 pm

Good to hear from you Jason. Well I suspect you are in the minority when it comes to using p2p lending as a holding place for your real estate money – but everyone has their own reasons.

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Marc August 1, 2012 at 11:19 am

I mainly started out of curiosity, testing the waters. Now that I’ve had a taste, I’ll definitely be back for more (as soon as I finish this real estate transaction).

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Peter Renton August 1, 2012 at 7:44 pm

Looking forward to when you come back Marc. And seeing what more interesting information you can share on your blog.

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