Investor profile: Calculated risk

Former pharmaceuticals professional Phil Sloan (pictured), based in the Peak District, invests in over a dozen peer-to-peer lending platforms. He talks to Peer-to-Peer Finance News about when, how and why he become an enthusiastic advocate of the sector…

Phil Sloan’s first foray into the world of investing was not his most successful. He put money into technology-focused unit trusts at the time of the tech boom in the UK – the golden goose that got everyone excited before the market crashed in 2001.

“I enjoyed the rise and suffered the fall,” he tells Peer-to-Peer Finance News.

“Even so, that experience didn’t put me off. I moved on to investing in individual shares and over the years, I put as much as I could into stocks and shares ISAs and built up a reasonable-sized portfolio.

“Now I’m semi-retired and live off the income from my stocks and shares portfolio. I’m invested in income stocks primarily.”

With historically low interest rates making it unattractive to keep savings in a bank account, Sloan started to look elsewhere for higher returns. P2P was not a totally new concept for him as he had already invested in the sector’s funds through his stocks and shares portfolio, such as P2P Global Investments.

Read more: Revealed: The top rates for P2P lenders and borrowers          

“I hadn’t started directly lending via P2P platforms until early summer last year,” he says.

“It was really just a case of interest rates getting too low. I thought, ‘this is crazy, I’m not going to have money tied up in building societies earning less than one per cent, I’ve got to do better than this’.”

Reaffirming one of the industry’s worst fears, Sloan explains that negative media coverage around P2P had initially deterred him.

“I think I would have been involved in the industry quite a bit earlier if it hadn’t been for some of the negative media coverage,” he asserts.

“You’d listen on the radio and hear what Lord Turner said, 12 months ago now, and it was pretty damning.

“I guess I was forced into it really, by low rates. I was happy enough earning around three per cent, but when it dropped below two per cent, it made me rethink. I thought well, some people obviously see the merit in the industry, so maybe it is a way of making money.”

Sloan initially opted for passive investments in some of the industry’s largest names such as RateSetter and Zopa, before taking a more hands-on approach to his portfolio. Marketing and cashback offers drove his first investment choices, but now Sloan is more interested in doing his own research into individual loans. 

“As I continued to do my research, I started to find other websites and platforms that were offering better rates,” he says.

“The other thing I was conscious of, aside from risk against loans and defaults, was the risk of platforms getting into trouble. So I decided to spread myself fairly thinly across quite a few platforms.”

Read more: Lord Lee: The Careful Investor

Sloan invests in over a dozen P2P platforms to diversify his risks and is always open to new opportunities within the sector.

His favourite platforms are MoneyThing and Collateral. He still has some investments with RateSetter and Zopa, but the former pharmaceuticals professional says his main priority going forward – aside from diversity – is that the loans are secured.

“I’ve also gone into BondMason recently, because they’ve got invoice financing as well, so they’ve got a wide spectrum,” he says. “Again, that is more passive investing, but they are offering security against that and better rates than some of the other platforms.”

Sloan defines himself as a “relatively cautious” P2P investor, opting for good security and low loan-to-value over the highest returns. He prefers investing directly through the platforms rather than via the sector-focused investment trusts nowadays – as long as he does his research.

“Being relatively new to the area, I’m aware there are things I could trip up on,” he comments.

“I use one or two other resources. One of the reasons I’ve subscribed to Peer-to-Peer Finance News online is so I can read as much as I can about the sector on a daily basis.

“I also use the P2P Independent Forum [an online message board for P2P investors] because there are lots of really experienced people who’ve been doing this for years. You can learn a lot just from reading the posts.”

P2P lending plays an important part in Sloan’s portfolio now, accounting for around 20 per cent of his monthly income. The majority of his portfolio is still weighted towards stocks and shares and he owns two properties.

Read more: Headache for savers as inflation soars to three-and-a-half year high

“It’s difficult to compare the risk of P2P lending compared to stocks and shares, but I’m comfortable with the amount of funds I’ve put towards P2P,” he asserts.

“Logic says the higher interest is on offer, the more risk is involved, but I think the rates are pretty good at the moment for the risk involved.

“One of the reasons I wanted to get away from having all my eggs in the stock market basket was because of the risk of a crash. I saw that in the early days, when my tech investments halved in the course of a few months.

“It’s important you haven’t got that risk in P2P. If things run smoothly, you’re getting a regular income without the stock market share price volatility.”

Going forward, Sloan is eagerly waiting for his favourite platforms to launch the Innovative Finance ISA (IFISA) so he can take advantage of tax-free earnings on his P2P investments. He says he is planning to transfer money from an old cash ISA into an IFISA once the likes of MoneyThing offer the wrapper. “Long term, the more I can move into tax-free wrappers, the better really,” he adds.

Sloan believes the sector’s spate of negative media coverage last year was undeserved. “It’s like investing in the stock market,” he says. “If you went straight out there and hadn’t done your research, you could get into trouble and buy shares that are over-valued.

“Similarly, in P2P, I’m invested across quite a few different platforms, but having read what I’ve read, there are certain platforms that I wouldn’t touch with a barge pole.

“Care is needed but I feel there’s a bias at times with the press.”

Sloan is wholeheartedly committed to P2P and is keen to continue with his diversified investment strategy. He would not even be deterred if a high-profile platform fell into bankruptcy.

“It might make me re-evaluate where I put my money I guess, but it wouldn’t put me off,” he says. “I feel quite comfortable with the industry now; I feel it’s got a long-term place in my overall investments.”