(BPT) - As a volatile market sends ripples through the global economy, many investors are worried about how events overseas will impact their portfolio. In addition, concerns about political instability in much of the world have contributed to a heightened sense of worry and stress among investors. However, while the risks in traditional markets are real, 2016 is full of opportunities for the investor who is willing to think a little differently.
In the face of these uncertainties, the standard advice is for investors to diversify their portfolio. Many have been doing this by taking money out of their dividend-paying stocks and corporate bonds and investing in marketplace lending.
Marketplace lending
Marketplace lending platforms, sometimes called peer-to-peer (P2P) lenders, are online marketplaces that connect credit-worthy borrowers with individuals seeking investment opportunities. This gives individual investors low-cost access to high-yield consumer loans – an attractive new asset class that was previously only accessible to large institutions.
As an alternative investment strategy, investing in marketplace loans has helped investors diversify their portfolio.
Early investors discovered five secrets that are still the keys to understanding why more people are choosing to diversify their portfolios through marketplace lending. They are:
Proven returns. Individuals who invest through Prosper, a leading marketplace lending platform, can earn an estimated 6.8 percent in returns.
Simple and fast. Investors go through an authorization process on a marketplace lending website to link their profile with their bank, or do a money transfer, in order to establish bank or institutional credentials. The process can be completed within a short period of time, allowing people to start investing in a matter of days.
Reduced risk. With marketplace lending, investors can diversify by investing in many different loans (in $25 increments). Many choose to invest in a number of different loans in order to build a diverse portfolio and reduce risk.
Risk-adjusted returns. Marketplace lending platforms provide a product that offers competitive return rates relative to other investment products. Investors can choose to peruse the marketplace lending website manually to find the loans that match their risk tolerance. They can also use a tool available on some of the marketplace lending sites that will run a search to help the user easily invest in the specific type of loans they are looking for.
Positive social impact. P2P lending is not only a way to strengthen your financial plans, it offers real benefits to individuals and the community. Prosper Marketplace recently conducted a study and found that over 60 percent of Americans have credit card debt and two-thirds are going deeper into debt by not paying them off in full. With so many Americans struggling with debt, it’s no surprise that marketplace loans are becoming a popular option for debt consolidation. Individuals can invest in this debt knowing that marketplace lending platforms leverage technology to assess risk and determine a credit rating.