Strategies to maximize your investment.
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 my money in Harmoney – you could say, I have put my money where my mouth is. There will be an equivalent organization like Harmoney in your country.
I love the idea I can make money from home, on line by using the Internet. There’s also a few things you can do to maximise your investment too:
Be consistent – the biggest killer for any investment scheme is not being consistent. Set an achievable amount you can deposit into your investment each pay. Remember – the beauty of this investment is the small amounts you can deposit to build it up. It doesn’t require a lump sum, so make the most of it by depositing each pay day. People tend to focus on the amount rather than the frequency they deposit into their investment account. Down the track, if something comes up and you can’t make the full amount, you tend to think it’s not worth depositing a smaller amount – wrong!
One of the nicest things about P2P lending investment is you can deposit anything, it doesn’t have to be $25 or more. It goes into a bank account and when there is $25 or more, you can buy a note with it. If you can’t spare $25, depositing less this pay, is better than nothing. When you see it grow and get to say $22.00, you’ll be motivated to put an extra $3 in to afford to buy another note.
Make a rule at the very start, to deposit every pay, regardless of the amount, then select a manageable amount to deposit. Because my wages were up and down like a yoyo, I decided to put in only $25 a week. There were a few weeks where I couldn’t spare that, so I put in only $5.00 (2016 had some wild ups and downs for me – redundancy, workplace injury etc, in hindsight, a crap year but I still put something away every week).
Make a plan and stick to it – As your investment grows your attitude will change. Many people start taking more and more risks as they see the returns growing their investment. It’s the greed syndrome. What they forget is they are raising their risks of failure. Each loan has a credit risk from A1 being the lowest risk, to F5 being the highest risk of default. When you see a B3 rated loan at 15.16% and compare it to an F3 loan at 39.61%, it’s tempting to take the F3 loan but there is a significant difference in the chance of a default. Set out with a plan on day one and stick to it. My plan was to distribute my notes over all the categories evenly. This way I spread the risk of any defaults. Today I still use that same strategy.
If you feel this is a high risk investment strategy, then plan to have most of your notes in A and B loans.
Diversify – this is something Harmoney also stresses heavily but it applies to any investment.. Invest a single note in each loan rather than many notes in one loan. You will reduce the risk of losses from any defaults. Defaults are not common but they can happen so we have to factor them into our planning.
The way I look at it is: Murphy’s Law says that if only one person will default, the chances are it will be the one I have invested in. By investing in many people, The chances of all of them defaulting is much less than just one person. If I make 20% each on 5 notes and if the 6th one defaults, I haven’t lost any money (I haven’t gained either). The returns on the 5 will make up the loss on the 6th.
But it gets better – this only applies if the 6th person defaults on the very first payment. That’s rare. Most defaults occur down the track, when part of the loan is already paid off. In this case, you are not even losing the full value of your note, part of it will have been repaid already. In my portfolio, I would have to have every third note default before I would lose money. That’s highly unlikely.