I realize that the topic of my past mistakes has been a little over-represented on the blog lately, but this time I’m going to keep it a bit more relevant to the theme (of investing) 😉 I promise I’ll be done talking about my mistakes after this one (yeah, right).
A couple of my friends and family members have asked my advice on crowdlending, since they learned of my involvement in it. I’ve thus been talking a lot about my crowdlending adventure lately, and figured I’d make a post out of some of that chatter – in the hopes that others might benefit from it.
So if you’re new to crowdlending, and are considering boarding the train (or just curious about my past escapades), here’s some examples of what NOT to do when entering the crowdlending scene 😛
Be sure to research the different platforms thoroughly, before you start to invest with any of them.
When you have selected your favorite platform(s), do not use your bank to transfer funds to the platform. Use a free service, like Revolut. – So actually, the first step you should do, is familiarize yourself with your favorite money transferring service, prior to selecting a platform.
I made the first handful of wire transfers via my bank, and while the fee was modest, it was still a fee that could have been avoided, had I spend a little more time investigating alternative money transfer solutions (I actually started out with TransferWise, but I never got around to use it, as it somehow seemed too cumbersome).
It was all new and overwhelming to me, so I felt “safer” using a (SEPA) bank transfer. If you feel the same way, consider holding off for a few days on your crowdlending adventure, because you’re obviously not ready yet 😛
When choosing your favorite platform(s), make sure you consider rule #1 of investing (which one is that again?). Diversify.
With each platform you enter, consider how the properties/features of this particular platform compliment your current portfolio. Try making a plan! If you start out with Mintos (most opt to start here), which platform should be your next choice?
- Another (proven) P2P-lending platform with auto-invest and buyback guarantee on (most) of the loans (like eg. RoboCash or Swaper)?
- A new P2P lending-platform, with some- or most of the features that Mintos offer (like eg. FastInvest)?
- Another unproven P2P-lending platform with none of the above features? (Like eg. insert-your-favorite-new-p2p-platform-here)
- A proven crowd-investing platform with a secondary market (like eg. Crowdestate)?
- A proven crowd-investing platform without a secondary market (like eg. EstateGuru)?
- An unproven crowd-investing platform with no secondary market, but with buyback guarantee (like eg. Grupeer)?
- An unproven mixed crowd-investing platform with no secondary market (Like eg. Crowdestor)?
Anyway, my point is – do your due-diligence before you start investing with anyone, and make sure you consider your risk tolerance before anything else. How much risk are you willing to take? 😉
Diversify your loans within the individual platform(s).
Looking back, I started out way too aggressive on the first couple of platforms. If I were to re-do it, I would pick 10 platforms, transfer €1000 to each and invest a maximum of €100 in one loan (€10 for the P2P platforms like Mintos). Had I done that I would have a serious amount of cash-drag right now (as platforms like Bulkestate, Crowdestor, Grupeer and Envestio typically doesn’t launch more than 1 project per. month), but I would be a lot more diversified than I am now (I’ve got more than €1000 in a single loan on several platforms).
With the strategy outlined above, I could lose 1-2 loans per platform, and still be back in the green after a little over 2 months (at my current dividend levels). Loosing an entire platform would lose me €1000 obviously, and that would take more than 1 year to recover from. But such is the risk of crowdlending 😉
I’m predisposed towards symmetry, so my perfect crowdlending portfolio would look like this:
I know, it’s odd, but somehow my predisposition towards “order” have never steered me wrong, so I’m going to hold on to that preference for now 😉
But this is MY perfect strategy (because I’m lazy and slightly autistic). What YOU should do (because you’ve already learned from lesson #2) is assign each platform a risk category – something like High, Medium, Low, and then distribute your funds out evenly, according to your risk profile. It could be something like this:
|Platform||Risk rating||Portfolio allotment (% of Total)|
Remember that crowdlending as a whole is to be considered a high risk asset class, so even the “Low” risk category is technically still high risk 😉
So that’s what you should do, if you’re hardcore. Of course this strategy is relatively time consuming, as you’d quickly find that the High-risk platforms would grow out of its 20% allotment (as these would/should have the highest yield), so you’d constantly have to re-balance your portfolio to stay within your desired risk profile. Also, platforms that are considered new and unproven today, will (hopefully) become solid and well-proven over time, which would require you to re-evaluate each platform on a regular basis (and consequently bump it down on the risk scale). Nobody said it was going to be easy – Hence, my lazy approach 😀
So there you have it, folks! That’s all the wisdom I wish to bestow upon you today, my dear readers.
Until next time.
What’s your biggest (investing) mistake(s)? 😉