As an investor in P2P lending, I’m doing as much due diligence as possible to make sure I have the right portfolio that matches my risk profile. I’m at the lower end of the risk spectrum because I’m using P2P among other investments to replace my CDs which are coming due over the next four years.
One of the important things all investors in any type of asset class should do is analyze historical data. Obviously, historical performance will not guarantee future performance. However, historical data does give us a glimpse of what we might expect if we follow similar investments. A lot has changed in the past three years, most notably a decline in the risk free rate, and a recovering stock market.
With the 10-year yield under 1.7% and the S&P 500 dividend yield under 2%, I now have a minimum bogie to shoot for. My goal is 3X the 10-year yield, hence 5-6%. Now it’s time to figure out how to get there!
As you can see from the detailed chart, investor returns are inversely correlated with the borrower’s rating. Makes sense given the lower the quality borrower you are, the higher the investor demands in return. The chart also calculates the weighted average credit score per borrower rating category. Interestingly, the credit scores are not that bad at all, especially for those in the D, E, and High Risk rating categories.