Your browser is out of date!

Update your browser to view this website correctly. Update my browser now

×

Diversification of assets. How to choose the best and set priorities

Chasing two rabbits you will catch neither, but in most cases, this principle cannot be applied to investing. A chosen project can be highly promising, but a failure can lead to loss of investments. Although the asset diversification is common knowledge for investors, some still ignore it. But how wrong they are!

Investors should understand that some projects may be unprofitable, but nobody knows which exactly. This means that in the long run, it is better to keep some funds with moderate returns as a “safety net”, and balance high-risk assets considering possible market risks. Ideally, the average portfolio returns will always remain positive, and even in the worst-case scenario, there will be a solution. The question however, is how to determine the proportion of funds correctly.

The simplest option is “reliable assets”. Being well-known, they are highly trusted, but the returns on them are not high. This category often includes government securities, bonds and preferred shares of large companies. An inexperienced investor should have a significant share of such assets to gain experience in comfortable conditions.

A certain part of the portfolio should also include cash or funds in a personal account. They do not bring returns but have the maximum liquidity for urgent transactions. In fact, this part of the portfolio is characterized by its share, but not by the sources. The only issue is that such assets bring even less profit with time.

The third group is the so-called “real” investments. There are a lot of opinions regarding them. Some think it’s worth investing in precious metals or IT-startups, others recommend considering property or cryptocurrencies. Any of these options can bring profits and lead to losses. Finding the undervalued and promising segment is a path to earning high income from investments. Such “treasures” are difficult to find, and one will hardly want to share it.

Despite this, we would like to talk about a sector, which belongs to our area of expertise and looks quite competitive — P2P lending, which is also called crowdlending.

In case of traditional lending, an investor of each contract is a bank. In P2P, this role is played by private investors with lending platforms as a third party. P2P loans can be issued for example, to SMEs or individuals underserved by banks. Investing in P2P is essentially an alternative form of lending, beneficial for both parties — borrowers receive the necessary funds, while investors have an opportunity to earn.

Statistics of the P2P platform Robo.cash and polls of investors confirm: alternative lending is a popular source of investments due to its availability, convenience and high profitability. Despite national differences, the data show that an average investor is a financially literate and pragmatic young person who prioritizes the reliability of services and automated investments with a 100% buyback guarantee.

However, even with the buyback guarantee, investors are still cautious. According to surveys, 95% use two or more P2P platforms. This confirms our point about the importance of asset diversification.

In conclusion, remember: investing is an individual process and responsibility. So, be ready to listen to the advice, but always make decisions yourself. We hope that your choice in favor of P2P lending will bring you successful investments!

2019-08-26