3 Reasons Why P2P lending is a Viable Alternative to Stocks and Shares
Traditional stocks and shares investments are gradually slowing to make way for opportunities that provide more predictable returns on investment, with peer-to-peer lending rapidly increasing in popularity among investors looking to make a nice profit. Here, Richard Litchfield, Head of Operations at peer-to-peer lending platform Lending Works, discusses why you might want to invest with P2P instead of stocks and shares.
Stocks and shares are becoming less favoured as a way to make money, with the uncertainty of Brexit taking its toll on the financial market and a predicted trade war between the US and China leaving people concerned about where their money is best off. And, with the BBC reporting that the FTSE 100 recently suffered its worst day in over three-and-a-half years, it’s no surprise that the prospect of an economic downturn is worrying those who have invested in stocks and shares.
Many people are choosing to take their profits and look for alternative forms of investment that aren’t as affected by the economic climate, such as peer-to-peer (P2P) lending. This form of investing is flourishing, with the current value of the UK market standing at £6.1 billion (AltFi). P2P lending could be a viable alternative to stocks and shares if you’re looking for a new way to invest your money and here’s why.
- P2P is more resilient to economic changes
All stocks and shares will fluctuate in value, but the level of risk will be determined by the size, age, and location of the firm you’re investing in. This means that neither the share price nor the dividend is guaranteed. As a result of this market unpredictability, it also means that speculating on the right time to purchase shares can be tricky and costly.
In comparison, P2P returns are typically stable, which means you’re likely to get a set rate of return on your investment, so you know what to expect.
- P2P lending platforms offer monetary protection
With stocks and shares, you’re investing in a firm that could experience unpredictable events such as a drastic drop in profit, so companies and the stock market won’t offer you protection when you choose to invest in this way.
One of the main advantages of P2P lending is that many of the platforms have protection in place for your investment. Although there is no cover afforded by the FSCS, firms invariably take other steps to mitigate risk. For example, at Lending Works, borrowers are checked for creditworthiness before they can place a request for a loan, while we also have the Lending Works Shield that is designed to protect you from losses on your loans.
P2P platforms will also have measures in place in case their company fails altogether, which could include having a back-up service provider who will manage any outstanding loan agreements and ensure repayments are made to investors.
On top of this, the entire P2P market is regulated by the Financial Conduct Authority (FCA). Aside from ensuring best practice across the sector, the regulator is also bringing in some additional measures to protect P2P investors, including a limit on how much you can put into P2P, as well as ensuring you have experience with investing before you register with lending platforms.
- P2P can allow you early access to your money
When you invest in shares, you will receive a dividend at the end of the firm’s financial year, which is the profit you’ve made on the share throughout the year. But, to access the full value of your shares, you’ll need to sell them, so a good chunk of your money could be locked up in these for years if you choose not to. It’s also worth noting that, if you are looking to sell your shares, there will be a dealing fee for doing so. Plus, accessing your money when the share price is lower than when you bought it will mean you lose money on your investment.
Although people will borrow your money for a fixed period through P2P lending, there’s still a chance for you to gain early access to your money. If you have to exit your agreement early, some P2P lending platforms will make this possible without you having to lose out. To do this, they’ll usually match your loan with another lender who wants to invest at the same time as you want to exit. The other lender will then take your loans and you’ll get repaid for them. However, be aware that not all P2P platforms will allow you to do this, so be sure to check your agreement with them.
Stocks and shares are easily impacted by the economy, so why not try investing your money somewhere less risky? Peer-to-peer lending is not only less affected by the economy, but it also offers better protection and flexibility for your money.