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Is crowdfunding (ie. Funding Societies, SeedIn) a good alternative form of investment?

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    • Yeo Enk Loui
      Yeo Enk Loui
      5 Answers, 17 Upvotes
      Answered 2w ago

      Personally, I am a small retail investor in Funding Societies, having invested approximately $500 in the platform.

      I think it is good in the sense it gives you a relatively high return (~10% on average) for your investment (assuming the firm does not default on its loans) and hence this could be a stable source of passive income.

      Having said that, some P2P lending platforms diversify the investor's risk by limiting the maximum investment from each investor (For example: An investor may be only to invest up to $50 for an Invoice Financing with a loan tenor of 90 days @12% returns per annum). This equates to an approximate return of $1.50 in 3 months and if you think about it from a liquidity perspective. While the annualised return seems attractive, the actual benefits are only "realised" when you invest in a substantial amount of loans on a continual basis.

      Given the illiquid nature of the loan, while it may "good" in terms of diversifying your portfolio, it can be perceived as "bad" as it means forgoing the opportunity to indulge in say $50 of whatever you love for the next 3 months and getting a mere $1.50 (before accounting for administrative fees).

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    • Isaac Chan
      Isaac Chan
      35 Answers, 58 Upvotes
      Answered 2w ago

      Here’s a brief response with a few different pointers

      First, it would really depend on how you would define “good”, and what you are looking out for. For example, are you looking for more high yield and high returns investment? Or are you looking to diversify your portfolio? Crowdfunding investments in general provide higher returns (8% per annum to even more than 20% per annum) than traditional bonds and blue-chip stocks, but of course it comes with higher default risk (risk where the company can’t pay back the money to you). If you are looking to diversify your portfolio, investing in this asset class might be a good strategy. Depending on which kind of crowdfunding products you invest in, the risk associated with these products are more firm-specific, rather than affected by market related events, like interest rates hike in the US for example. Such a strategy might help to diversify the kind of risk your portfolio is exposed to.

      Second, each form of crowdfunding product is different. For example, the risk and return of crowdfunding a loan to an SME is very different from that of just financing a company’s invoice. Hence, you probably would need to look at and try to understand what crowdfunding investments are on offer. To do this, you can simply sign up on the different platforms and try to understand what’s on offer there. Signing up is free and doesn’t take much time either!

      Finally, it also depends on how much of your portfolio you are committed to investing in such investments, and therefore really boils down to what your risk appetite is and what kind of returns you are looking for. In general, crowdfunding investments provide higher returns with higher associated risk, but that varies across different crowdfunding investments.

      Hope this helps!

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    Leonard Tan
    Leonard Tan
    17 Answers, 30 Upvotes
    15 Feb 2019

    Can't speak of testament to MoolahSense since I have never used their platform. I too use Funding Societies as a platform to divest my portfolio(been using it since Dec 2017)

    Here's how I see it.

    FS has a current track record of 0.89% default rate https://fundingsocieties.com/progress

    It used to be ~1.3%- but as far as i know that number is aggregated for their SG, IND & MY platforms- and SG held a perfect track record(not sure how things changed since Oct 2018)

    But lets take a conservative estimate of lets say 2% of companies default(and all of them defaulting since the first premium i.e you lose all your capital), with an even more conservative interest return of say 8% pa(my account is currently averaging 11%) and assuming you continuously invest at every opportunity(can be automated using autoinvest function),

    Expected returns can be said to be

    E(r)= 0.98(1.08) +0.02(-1) -1.00 = 3.84% (which already beats FDs, SSB, & most savings plans out there, not even comparing liquidity-FS loans range from 1 to 12mths)

    A 10% avg interest p.a return causes E(r) to jump to 5.8%.

    I must state I do not work for or am affiliated to FS in any way, nor am I incentivised to promote them. The numbers simply speaks to me. Besides FS itself divests its loans to a spread of SMEs in various industries. Essentially continously investing in their platform is akin to diversifying risks in an index- albeit fixed returns.

    That said, as Enk Loui pointed out, individual investors are usually capped at say $50 for each investment to allow more investors the opportunity to join in and that might translate to more miniscule returns psychologically(~$1.50 over a 3 month loan).

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