INVESTORS who include peer-to-peer investments alongside their cash ISAs can substantially increase overall returns with only limited downside, Lendy claims.
The property lending platform assessed the performance of £100 either held just in a cash ISA paying two per cent or split with a P2P lender paying 12 per cent over two years.
The research found that putting just £10 of the £100 in a Lendy account with the rest in a cash ISA would earn 6.2 per cent overall, providing total returns of £106.18.
In contrast, putting the full £100 in a cash ISA would return four per cent or £104.40.
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Even when investors take into account that some loans may become non-performing, P2P investors still come out significantly ahead of the returns of the cash-only portfolio, the research suggests.
For example, in a situation where an investor with a diversified Lendy portfolio has 10 per cent of their loans in default after one year, their portfolio would still return five per cent after two years, Lendy said.
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It would take a 20 per cent default rate after one year on the Lendy loans, with no recovery of capital, for the cash investor to come out even marginally ahead. The Lendy investor’s overall return would fall to 3.9 per cent, compared with four per cent for cash only in this scenario.
“While adding a slice of P2P to a cash-only portfolio may add small amount of investment risk, all of Lendy’s loans are secured against property, which can be repossessed and sold in the event of a default,” Lendy said.
“That means the chance of an unrecoverable loss is greatly reduced in comparison with unsecured lending.
“For investors who are comfortable with taking just a limited amount of risk, adding a small, diversified P2P portfolio to their cash savings can be a great way to boost returns substantially. The more diversified the P2P portfolio, the lower the risk of defaults impacting returns.”
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