The likelihood of investors seeking opportunities outside of their comfort zones (e.g., stocks, bonds, ETFs, & REITs) is highly unlikely. However, not allocating capital among various investment opportunities, be they traditional or alternative, increases risk and diminishes absolute returns.
While the traditional route of buying stocks, bonds, mutual funds, & ETFs through a broker, online or offline, has a proven track record which gives a sense of comfort to most investors, it also encourages investing complacency and offers no alternative means of growing wealth during down periods.
The good news is that in 2019, there are plenty of alternative investments that can deliver a high degree of ROI even when traditional investments are not doing so well. Three alternative investment ideas that are not only legitimate but have made savvy and adventurous investors money on top of what they are already getting from their traditional investment portfolio are other approaches that can be taken.
Peer-to-Peer Lending (P2P Lending)
The easiest way to think of Peer-to-Peer lending is to imagine an individual as a bank, but only this time the bank is lending to his or her friends & acquaintances.
This description is not accurate though, as today’s P2P investment opportunities do not have to be between friends & acquaintances – through online P2P platforms, an individual can lend to another individual without even knowing them!
Is there a market for this kind of loan?
Of course, there is because there will always be people who can not secure a loan from a bank due to having poor to fair credit ratings.
Doesn’t that make this type of lending risky?
Yes, but the rewards go up with the risk as with any other investment opportunity. When money is deposited in a bank, the returns are often puny, as low as .01% for a savings account and approximately 1% for a CD (certificate of deposit). However, the same type of lending, when done individual to individual, can garner anywhere between 4% and 8%.
The different levels of returns entirely depend upon on the past credit history of the payee. In other words, the better the credit, the lower the credit and the safer the investment. Likewise, the lower the credit rating, the higher the return but, the riskier the investment. There are four key factors investors/lenders need to consider when lending on a P2P platform to ensure that an adequate risk to reward ratio.
These factors include:
- Not focusing on the highest returns – the higher the return, the riskier the investment.
- Not Focusing on short-term gains because as with all investments, the longer the time frame, the less chance there is for loss.
- Diversifying loans among various payees to spread the risk.
- Paying attention to default rates.
About The Author
Jason Bond is a Professional Trader, Entrepreneur, and Founder of the popular swing trading program, Jason Bond Picks. He originally became interested in stock trading after finding success with the help of fellow trader, Jeff Bishop. Together, they launched the well-known trading program, Raging Bull Trading, in 2010, as a way to help other traders find success in the stock market. Today, Jason Bond remains at Raging Bull as a trader and educator, where he also offers his program, Jason Bond Picks.