In all businesses, improper investment is the main cause of losses and all the frustration that goes with it. You’d be surprised that, with all the strategies you could possibly come across, so many people still experience negative returns from peer to peer lending simply because they failed to diversify. They will tell you that P2P lending is a good way to lose money because of their own sad experience. But you should know better.
This is why many peer to peer lending platforms heavily encourage diversification to their investors. When you’ve got a platform that has proven to give more returns than losses, the best way to increase the chances for positive returns and lowering risks is to spread your capital across many investments.
They say that an investor that cannot or does not invest in at least 200 notes has an account that’s too unpredictable. Meaning, that account is at a high risk of incurring losing as much as it can earn positive returns, which isn’t strategic. This is drawn from the idea of diversification. Sadly, not everybody can afford to spread their wealth over to 200 notes equally, for very obvious reasons.
Fortunately, there have been many accounts of investors who have proven a stable investment with diversification over 100 notes, which is at least achievable to a larger scope of investors. This is how the 100-note threshold came to be. It became the concept that guaranteed at least positive returns.
Without diversification, those who invest will rest the results of their peer to peer lending on a few loans, which isn’t really safe. You’re better off with your cash balance distributed all over to get more returns.
For the advanced in peer to peer lending, diversification is actually complex. It goes beyond simple distribution of investment. The diversification could vary in terms of risk, economic periods, and even platforms.
- Varying your investments over different risk levels means your investments are more targeting in terms of the amount you think ought to be allotted to each risk grade. This allows you to invest on all levels at a rate you’re comfortable with.
- It’s also important to engage in peer to peer lending throughout the year. Otherwise, you might miss out on some economic highs or be stuck in some economic lows. Keep investing throughout the year to take advantage of good seasons when they come.
- And then there’s investing in more than just one peer to peer lending platform. There are so many good and reputable P2P lending sites which are worthy of your time and investment. It’s also a good way to address the inherent volatility of investments. You’ll at least have other platforms to rely on in case one you’re investing in has problems. If you stick to just one platform, you’re definitely missing out.
All in all, the message couldn’t be clearer: when it comes to peer to peer lending, the best way to go is to diversify. It’s safe, it’s most profitable, and it works.
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