Rising inflation and stock market volatility are regular threats to investor portfolios, but peer-to-peer lending can provide an alternative place to put some of your money.
Here is why investors should consider P2P lending.
Spreading your money across different assets helps reduce how much your investment portfolio is damaged by economic turbulence.
New Covid variants and the prospect of interest rate rises in the UK are already scaring stock markets.
P2P lending has its own risks but it can also be a place to put some of your money so you have investments that are uncorrelated to the stock market.
“With a portfolio of investments, your funds are much less likely to be affected by economic turbulence,” Lending Works advises.
“The emergence of P2P lending has provided a new opportunity for investors looking to make low-risk investments, and another option for those looking to build up a diverse portfolio of assets.”
Bills are already on the rise and there are predictions that the cost-of-living measure could hit four per cent next year amid issues over supply chains and energy prices.
Increased costs means you need your investments to work harder.
This can be challenging with record low savings rates, while not everyone is comfortable with stock market volatility.
P2P lending can provide a middle-ground with interest rates that regularly beat inflation.
There is of course the risk of P2P loan payment delays and defaults, but this is often reflected in the rate on offer.
Unlike stock market investing, there are usually no fees when it comes to putting money into P2P loans.
The only charges you usually pay are when you use a platform’s secondary market.
Simple Crowdfunding highlights that in P2P property lending investors have complete control over their own investments at no cost.
“As an investor, you have complete control of your own investments at no cost to you,” Simple Crowdfunding says.
“You decide what projects you want to invest in taking into consideration the project timescale, opportunity type and risk.”
This mainly applies to property P2P lending platforms where users can choose projects as other providers such as business and consumer lenders tend to build automated diversified portfolios for you.
A traditional fund or investment platform would charge annual fees for this but P2P lenders get their money from borrowers and secondary market transactions.
Use your ISA or pension allowance
Most P2P lenders offer Innovative Finance ISAs (IFISAs) and some offer self-invested personal pensions (SIPPs).
This means you can earn high rates of interest on your money tax-free, subject to the £20,000 annual ISA allowance.
You can also use P2P lending to save for your retirement.
Read more: What IFAs want from P2P platforms