Peer-to-peer (P2P) investing is a type of investment that allows individuals to lend money directly to other individuals or businesses, bypassing traditional banks or financial institutions. P2P investing platforms typically connect borrowers with lenders through an online marketplace, and investors can choose which loans they want to fund based on factors such as the borrower's creditworthiness, loan term, and interest rate.
This can provide investors with the potential for higher returns than traditional fixed-income investments. Additionally, P2P investing can provide diversification benefits, as investors can spread their investments across multiple loans.
Investors can opt for two different investment strategies with P2P investing:
Compounding: By reinvesting the interest earned on their P2P investments, investors can take advantage of compounding. Reinvesting the earned interest allows the investment to grow exponentially over time, potentially accelerating wealth accumulation.
Passive Income: Alternatively, investors can withdraw the interest earned on their P2P investments at regular periods, creating a steady stream of passive income. This income can be used to supplement one's regular income or meet specific financial goals.
Most platforms have a secondary market meaning you can sell on your loans to other users on the platform but this does not always mean you will be able to liquidate all your investments especially without potential loses. A longer-term strategy should be considered and if you want to withdraw your investment plan ahead of time to give it time to maximise your return on investment.
Want to dip your toes into P2P, here are 2 platforms that work well averaging around 10%. Mintos one of the more established leaders in P2P with many loans available and a good secondary market. You are able to manual invest in each loan or setup a simple strategy to make an automated investment. For example, you can setup to only invest a maximum €50 per each investment from a certain range of countries provide interest of 8%-12% and then set it and leave it.
Peerberry is another nice platform working in a similar way to Mintos with automated or annual investing, though generally for short term loans and without a secondary market.
Why should you invest in this? A good way to provide compounding wealth or passive income
Percentage of portfolio to invest? 5%-15%
Our Risk rating? With small diversification over several companies and platforms 3.5/5
Our overall rating? Good possibilities to earn 10% annualised 4/5