Dear Readers

Before publishing my last article [See: Peer-to-peer (P2P) Lending: Six months in], I invested an additional RM1,000.00 (in December 2017), as capital, in P2P lending, through Funding Societies Malaysia. In spite of only depositing RM2,000.00 into P2P lending, I've effectively invested RM4,300.00. This is because I reinvested all of the monthly capital and interest repayments, as soon as they're credited into my account. My previous write-up illustrates this [See: Peer-to-peer (P2P) Lending: Maximising gain and reducing risks].

Since June 2017, or about 8 months ago, I've attained a respectable yield of RM91.64 (see above screenshot), mainly from an initial investment of RM1,000.00, in May 2017.

At the moment, I've 10 ongoing P2P lending exercises which allow me to spread my investment capital across them, hence reducing the risk of losing a substantial chunk of my investment, should a default occur, without compromising much on the return rate.

Just the other day, a reader asked for my thoughts about introducing P2P lending into a portfolio, as a means of diversification. Like many other investors, that reader experienced the recent volatility in the stock market, in early February 2018, which was swiftly followed by a sharp correction in some markets, including Malaysia.

If you had all of your investments, in your portfolio, invested in equities, surely you would've experienced some anxiety and sleepless nights, during a market correction. If your anxiety and sleep deprivation were induced due to the volatility in the market, may be it's time that you reassess your risk tolerance and diversify your portfolio.

An aspect of diversification, at a portfolio level, can be achieved by reallocating some volatile assets classes, like equities, into less volatile asset classes, and vice versa. The main reasoning for diversification is to ensure that an asset class would not be severely affected by the non-performance of another asset class. The saying of not putting all of your eggs in one basket, comes to mind. According to a prominent American economist, Burton Malkiel, and other academic writers, diversification can be truly effective in mitigating risks when there is no correlation among the performance of the asset classes which constitute the said portfolio. This is because the performance of a non-correlated asset class tends to behave independently of the performance of another asset class within your portfolio.

For example, the performance of P2P lending, as an asset class, has no correlation, or bearing, on the performance of the stock market, and vice versa. Instead, the performance of P2P lending is subject to the ability of a borrowing SME to make repayments towards the satisfaction of a loan. Therefore, even when the stock market is affected by correction, or when sentiment is bearish, non-correlated assets, such as P2P lending, would still be able to maintain good returns, thus softening any major downside from the non-performance of equities.

It is also my view that P2P lending behaves like a counterbalance to most conventional asset classes, in a well-diversified portfolio, because it is not volatile (unlike equities), and it yields a return which is both certain (like bonds, you'll know its exact yield at the onset - unlike equities, which have uncertain yields) and decent (much better than most bonds and fixed deposits). Further, repayments from P2P lending, which are mostly set at monthly intervals, will provide a regular income stream or could be reinvest, to achieve a higher rate of compounding [See: Wealth Creation through Peer-to-peer (P2P) Lending].

While I can't be sure that P2P lending is suitable for all, I can only suggest that you give it a try. Consider investing a minimum of RM1,000.00 in P2P lending, as a test, and see whether it sits well with your investing style and portfolio, as it did with mine.

Register an account with Funding Societies Malaysia now as they will top up an additional RM50.00, for free, into your account when you deposit and invest a minimum of RM1,000.00. To participate in this special promotion, please register an account via this LINK (be careful not refresh the link before completing the registration as it will affect the promotion code) or alternatively, use the promotion code: j1mzpcw5 when registering through Funding Societies Malaysia.

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**This article is written in association with Funding Societies Malaysia.**

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