P2P lending has returned 7.36pc per annum over the past decade
Peer-to-peer lending investments have returned an average of 7.36 per cent per annum over the past 10 years, new data has found.
The recently-launched 4thWay P2P And Direct Lending (PADL) Index has collated a decade’s worth of P2P data from some of the industry’s largest players. It found that P2P lending has outperformed stocks and shares investing by some margin. Over the past decade, share investors in FTSE 100 companies have made 4.90 per cent per annum, after reinvesting dividends and after costs.
The index also found that while there have been no down years for P2P lending investors, stocks and shares investors experienced three down years during the past decade.
“I wasn’t surprised that returns have averaged 7.36 per cent per year after bad debts, mostly because the bulk of lending is property-secured, so it should be somewhere in that ballpark,” said Neil Faulkner, chief executive and head of research at 4thWay.
Read more: Invest & Fund heralds P2P’s fixed income-like returns amid market volatility
“I don’t expect overall returns to go up over the next year. I currently expect them to be stable or perhaps slightly lower. However, forecasting these things reliably is beyond everyone’s ability.
“However, looking at new loans as opposed to ongoing returns, someone who is literally putting their money into new loans today will likely lock in the best returns after losses that I would expect to be higher than long-run average.”
Faulkner added that investors should take some precautionary measures before making their first investment in P2P loans.
They should have enough money to spread an equal amount of funds across a range of platforms and loans. He has also suggested that investors pause for a month before their first investment, while taking the time to read and learn more on the subject. They should only invest in platforms that are fully regulated and have a strong track record. And they need to understand that P2P lending is a relatively illiquid investment option, and it may be difficult to withdraw funds at short notice.
Read more: P2P has outperformed shares by 2pc over the past decade
