Managing a P2P lending portfolio can be hard work – here’s how having the right tools can help:
Peer to Peer lending (P2P) has rapidly advanced in accessibility and popularity in recent years.
You don’t have to be an “accredited investor” to participate, anyone who has funds available to invest has the opportunity to do so.
P2P lending is a way to cut out the middleman and bring the investor and borrower together. Traditionally, borrowers might need to go to a lending institution, but now they have platforms like Prosper. Most loans on these platforms are financed by multiple investors, somewhat helping to spread the risk.
In saying that, P2P lending is more than just a few platforms bringing investors and borrowers together, it has bloomed into a large marketplace, one in which even the traditional lenders are now looking for a piece of the pie. Goldman Sachs created their own platform, Marcus for P2P lending.
Traditional lending institutions are also using algorithms to quickly identify quality lending opportunities on P2P platforms and automatically snap them up as soon as they are listed. For the regular investor, you might get frustrated at the thought of prime opportunities all going to the institutions, but there are solutions to help you get to them too.
There are automated investment tools which are available to everyday investors, allowing you to grab those promising opportunities too. Let’s look at a couple of tools for P2P lenders:
1. LendingRobot
First of all, in order to use tools like LendingRobot, you need to have an account set up on a P2P lending platform such as Prosper, Lending Club or Funding Circle. If you’ve already got an account on such a platform, you’ll easily understand the need for a tool like LendingRobot.
On any of those P2P platforms, you have hundreds, perhaps thousands of potential opportunities to invest at any time. You select your preferences in terms of the types of loans and risk level you’re interested in and those platforms do make recommendations, but often there are so many that it almost becomes a full-time job to sort through them and select your investments.
This is where LendingRobot comes in.
Lending Robot can take some of the “manual” work off you and ensure that you get in on good opportunities by managing your account for you. If you don’t like the sound of this, they have a self-select option which will present you with recommendations that you give the final say-so for. Source: LendingRobot
At its heart, LendingRobot is a bot which has, through machine learning, the knowledge to select investments according to your preferences. They are a registered investment advisor and deal with investors of all levels.
When you set up your account, you choose your desired return based on a range from conservative to aggressive. Lending Robot will automatically pick investments based on the preferences you have set. This means that when those great opportunities come up, you should be able to get in as quickly as the institutions with their algorithms do. Lending Robot can recognize that a loan fits your criteria within seconds of it being listed and snap up the investment.
A good feature to know about is their “advanced mode.” This allows you to set loan criteria beyond that of the conservative to aggressive setting. You can specify multiple rules for both primary and secondary markets, so it’s worth taking the time to set it up well and according to how you would normally do this work manually. If you so choose, LendingRobot can also sell your notes automatically.
This note selling feature is something quite unique. Whereas usually, if you invest on a platform such as Prosper there is no secondary market to sell your notes should you decide you need to, LendingRobot has set up their own, with partner Folio Investing.
LendingRobot uses unique secondary market automation that puts thousands of notes for sale, and adjusts pricing on them on an ongoing basis until the target price is reached. As an investor, this can be an advantage to you both for selling notes and for buying existing notes where pricing might be advantageous.
Another shortcoming of most P2P lending platforms is that they don’t usually reinvest as your notes pay off. This means, unless you’re working to keep yourself invested, your investment position can decline. LendingRobot has taken care of this by including an automated reinvestment feature. This means you should be maximizing your investment funds and continuously earning interest, rather than having unused funds sitting.
A feature I like about LendingRobot is that you maintain full transparency over how your money is invested, expected returns, cash flow forecasts and your risk profile. They also provide a lot of educational resources to guide you through.
The cost to use LendingRobot is free for the first $5000 of your account value and is charged at 0.45% for amounts over $5000. They only include loans which were invested in through the platform, so if you’ve been with your P2P platform for a while and made a few investments, those won’t be counted when you link your account up.
Performance data shows that LendingRobot investments have done better on average than U.S. Bonds or the S&P 500.
2. NSR Invest
NSR Invest operates in a similar way to LendingRobot in that they are a registered investment advisor and allow you to connect your current P2P lending platforms to your account (at the moment, those are Prosper, Lending Club and Funding Circle). Just as an investment advisor will manage a client’s stock portfolio for an annual fee, NSR Invest does the same with marketplace loan portfolios.
The team behind NSR Invest are very experienced in the world of P2P lending – they have even started a popular annual conference, “Lendit” which attracts fund managers and investors from all over. They have built their own proprietary technology which forms the backbone of NSR Invest.
This again utilizes machine learning. This means that their technology can analyze and interpret financial data, allowing it to quickly recognize appropriate investment opportunities. Like LendingRobot, NSR Invest has users set up their preferences and guides them through setting up their account.
Again, you have automatic investing at your disposal. NSR Invest’s technology will recognize appropriate opportunities within seconds of them being posted and will scoop those up for you if they fit. If you’re uncomfortable with this, you can still use their technology to help develop a strategy for your own self-directed account. Their performance over time has steadily been slightly above the average, as seen below:
While NSR Invest also has a secondary market feature for selling notes, only those with self-directed accounts can access it. Additionally, out of those accounts, only those with at least $20,000 in their account can use the feature.
The minimum investment required is $10,000 and their fee is 0.60% annually, or $60 for every $10,000. They also provide excellent, educated support for their investors.
The Risks
I’m assuming that if you’re interested in using an automated tool such as LendRobot or NSR Invest that you’ve probably already made some P2P investments. Hopefully, this means you are fully aware of the risks involved, but here is the bottom line – never invest more than you’re willing to lose.
P2P lending is inherently risky. You’re taking on the role of a bank, even where sometimes, the borrower wouldn’t be approved by a traditional bank. There’s always the risk of the borrower defaulting and you losing your investment.
This is one of the reasons why these P2P platforms are so useful for investors. It makes sense to spread your risk by investing smaller amounts in many different opportunities, but that would be very time-consuming on your own. These automated tools learn your preferences and can take your place, hopefully making picks that you would have yourself.
I would suggest using the advanced criteria for choosing your loan investments on both platforms. The more specific you can be the better in terms of you getting investments you approve of.
What are your thoughts? Would you be happy to let artificial intelligence do the job of picking out investments for you? We can’t dispute how quickly these platforms work – you’d have to be watching like a hawk all day on your own, but the bots can pick out a good opportunity within seconds of it listing. It’s great to be able to level the playing field against institutional investors!