When peer to peer lending first began in the United States over ten years ago, it was on a small scale and considered a novelty more than an investment. Serious investors and investment managers did not immediately accept this new fixed income option. It simply was not considered viable is a component of a diversified portfolio. The risk was not easily evaluated, the market was relatively small and other investment options were numerous enough that P2P lending was not needed.
Jump forward to 2018 and we see that billions of dollars are being provided in peer to peer loans, which means that investors are willing to fund this large amount. There is very little information on the number of investors and the average amount they allocate to this area, however, professionals estimate that there are over 100,000 investors with investment amounts averaging approximately $10,000.
It should be noted that not all investors in peer to peer loans are individuals. Institutions are able to invest in these loans as well and many do so for their own accounts as well as for investors they represent. Therefore, it is even more difficult to estimate how many individuals are participating in P2P lending investing. But it is certainly a fact that the volume of loans is very large so the number of investors is also large. In just over ten years it has gained acceptance.
But what about the experience and results that investors have seen in this time? It is still a very short period to measure its’ success. Also, it must be noted that the Great Recession occurred during and in the early days of peer to peer lending. This fact further complicates the evaluation and comparison to other options. The information available indicates that some investors have done very well. Conversely, others have actually lost money. The bottom line is that successful lending club investing strategies that will determine who is successful and makes money. Knowing how to select loans, screen candidates and evaluate applications is important. This is more work than many investors care to undertake, however, those who are skilled in this area can achieve large returns.
Having watched as this investment went from unknown to accepted, we now wonder what the future looks like. As more and more institutions and individuals are taking an interest clearly the trend is upward. Is there anything that can stop the growth of investing in peer to peer loans? Bloggers have speculated that another significant recession could derail this train. However, if it survived the previous recession then it will likely survive the next one. Perhaps a bankruptcy by a major lender could cause panic. There is also the possibility of government regulation. These, and many more, reasons are cause for concern, however it seems unlikely that growth will not continued. The only question is how big the market will be and how many investors will participate.
It has been fascinating to watch as a new investment is adopted in the marketplace. This unprecedented growth of a fixed income investment is unusual. Of course, the evidence shows that it has a place in many portfolios. Whether one is managing this himself or using a professional advisor it is certainly something worth considering.