Creating personal wealth through Local P2P Investment
After looking at a few options for P2P investment, I chose Harmoney. I can make money from home and on line, using the Internet. By depositing small amounts I can afford, on an intermittent basis, I can build up a substantial investment I could not afford otherwise.
This is not a sales pitch for Harmoney or P2P lending and I’m no investment adviser nor registered finance consultant. I will not receive any rewards from anyone for writing and publishing this information. I just found something that’s working well for me, that could do likewise for you too and unlike investment advisers, who charge a fat fee and get commissions, I personally have invested in Harmoney – you could say, I have put my money where my mouth is.
The interest rates with Harmoney P2P loans range from 9.99% to over 39%. The risks rise accordingly in relation to the interest rate. The higher the rate, the higher their assessment of the risk of default but there are some ways to reduce the effects a default would have on your total portfolio:
Only buy one note in each loan. If you want to buy 5 notes, buy one note in 5 different loans, as opposed to 5 notes in a single loan. The chances of a default wiping out your investment are reduced through diversification. If one person defaults you will only lose $25, not $125. At 20% interest rate, you can lose one in 5 loans and still break even (actually due to the compounding effect, this is possible with just 2 loans at a high interest rate). It’s now January, 10 months since I started investing in Harmony. I have 74 notes and only two have defaulted. Even then, they didn’t default on day one, so I still got some money back. I didn’t lose the whole $25 outlaid for each loan. The proceeds from all the other loans will still yield me a return of 23% on my investment portfolio and that’s with those defaulted loans factored into the calculations.
Your greatest risk is at the very beginning when you have the least number of notes to diversify with. One default when you only have one or two notes, is devastating. One default when you have 50 notes is not a tragedy.
Accept the fact that there will be some defaults and they can occur in any assessment score category. Just because the person is scored A1, doesn’t mean the loan is bullet proof either. It does mean that statistically there is less risk of a default than an F5 loan.
To reduce the risks, invest in many notes right across the risk range. Reign in the greed impulse to invest only in the high interest notes. It’s easy to see the A1 notes at 9.99% as low returns, compared to those at 39.99% but even at 9.99% you are investing at a rate far higher than any bank will offer you and you are able to invest small amounts. Try that with a bank!
I started with 10 notes in March this year. They were spread across each score category. To date none of them have defaulted, all have been making payments on time. Today (December 2016), I have 49 notes, one has been fully repaid, four are late with one payment and none have defaulted (so far!). Even if all four default the total return after tax, on my Harmoney protfolio will be 16.47%. Try getting that from any institution and in only $25 investment increments!
In the next installment we’ll look at some strategies to maximize your return, supplement your portfolio and reduce your risks as you create a P2P investment portfolio.