5 Simple Ways To Avoid Losses In P2P Investing
“Never let the stumble in the road, Be the end of the journey”. Things do not look good right now. This pandemic has generated huge debate among investors about how something like this could go happen. Some investors have lost money they could not afford to lose. But others have help steer away from bad sites, avoid losses, and make more money.
Let’s understand how you can avoid losing money invested in P2P Lending in 5 simple ways –
- Diversify Your Portfolio
Diversification of lending amount among many borrowers is default risk mitigation. Optimal diversification can vastly improve the performance of your P2P investments. As a widely accepted practice, investors diversify their investment portfolio across various instruments to ensure that the collective performance of the portfolio sufficiently eclipses the losses of individual instruments. Optimal diversification ensures high returns.
- Do not go extravagant
P2P platforms offer you higher double-digit returns. But that doesn’t mean you must invest your entire savings on a P2P platform. Don’t put your entire saving in P2P lending. Choose the amount you wish to invest and then diversify.
- Choose the borrower wisely
One should understand the profile of the borrower she/he is lending money to. Keep a close watch on financial details like borrower’s average bank balance, quarterly bank balance, income tax return besides the salary or income mentioned. One should also clarify with the P2P platform regarding the borrower’s family background, number of dependants and educational background before going ahead with the loan. Nowadays, the P2P platform offers investment through Auto Invest algorithms. If the concern point is a time to choose a huge number of borrowers, you may opt for Auto Invest to better borrowers profiling and diversification.
- Stay invested
Try to remain invested for a reasonable period like 2 to 3 years and keep reinvesting the returned principal. This strategy will get you compounding effect on your return and may overachieve your return expectation.
- Be Patient
Chasing performance right after investing is one of the biggest mistakes that millennials make. Always think and re-think before investing. Take various aspects and key risks into consideration and always ask questions about the investment decision that you’re going to make. But once you’ve done your research, invest and be patient! Checking and re-checking your portfolio performance won’t help. Just keep a track if things are going in the right direction and if they are, you should only think of rebalancing your portfolio after giving a good amount of time for your asset to perform.
Nothing to worry about the losses if you follow the above 5 simple steps while investing in P2P Lending.