Attractive Income Using Short Term Investments in Peer to Peer Lending

Balancing a portfolio with a mix of assets is the hallmark of a well designed investment plan. Most investors attempt to have a mix of short term assets with long term assets, as well as floating rate investments with fixed rate. Another way to add diversification would be to add some international equities to a domestic portfolio.

Short term investment portfolios will usually include some investments in loans of one kind or another. For example, T-bills, which are essentially loans to the government, are usually a part of a short term investment plan. Many investors invest in short term investments in bank CDs or money market assets. The flexibility and liquidity given by these investments is attractive, but the yields are fairly low.

Investors who seek to improve the yield of their short term investment portfolio compared to that of CDs or T-Bills should consider looking at new investment ideas. This new alternative is peer to peer loans, which allow investors to invest in loans directly to consumers, which have a higher rate of return than other traditional short term investments.

Any quest for diversity will be even further enhanced, since this is an entirely new asset class that would be added, that of consumer loans.

Peer to peer loans are not a complicated idea. A specially designed site matches borrowers who are interested in short term loans with lenders who are seeking a better yield on their investments. These lenders create a unique loan portfolio by looking over all of the loans available and choosing the ones that match his investment goals.

One investor may prefer a very conservative loan portfolio in his short term investment strategy and just choose those loans with the highest rating and the lowest loss ratios. He could even spread that moderate risk out even more by picking many borrowers to lend to. Investors in peer to peer loans have the ability to construct their investment program in such a way as to diversify risk substantially. A $5,000 investment may be lent to as many as 50 borrowers, spreading the risk of the loan very widely. Yields will be dependant on how conservative or aggressive the portfolio is, but the investor can spread the risk as thinly as he wishes.

An average peer to peer loan is a three year amortizing loan. This means that the monthly payments by the borrowers, that include principal and interest, are processed to the lenders immediately, so lenders do not have to wait for loans to mature to recover their principal. Peer to peer loans are fixed rate loans, and since they are, offer a more attractive alternative to falling rate CDs or other short term investments.

The method in which peer to peer loans work is not at all complicated. The online peer to peer loan site allows prospective borrowers to list their personal qualities and loan requirements and the site will list their credit information. These listings are available for lenders to view, and any investor/lender can choose a particular mix of loans to construct a loan portfolio that suits his strategy for short term investments. This means that each portfolio is exactly tailored to each investor, who has total control over the loans he will put in his investment portfolio.
Get a loan today with investment opportunities and find great rates on short term investment