Asked by Anonymous
Asked on 06 Feb 2019
Hey there! I’m Cass, the community manager from CoAssets!
There are many crowdfunding types, hence the definition of “good” may be quite subjective. 😅😅 In terms of returns, you would like to note that the average returns of P2P platforms in 2018 range between 8.33% to 12.95% which you might consider "good". The breakdown of weighted average returns in 2018 (based on platforms), is shown below:
Minterest: Weighted ave returns: 12.95%
CoAssets: Weighted Ave returns: 9.91%
Moolahsense: Weighted Ave returns: 9.9%
Funding Societies: Weighted Ave returns: 9.32%
SeedIn: Weighted Ave: 8.33%
Interestingly, when you compare that against the STI, which gave returns of -6.5% in 2018 (source:https://www.channelnewsasia.com/news/business/sti-sgx-singapore-stocks-total-returns-2018-11083026) it is actually not that bad.
If you measure “good” in terms of default rate, you would be able to see the range of default rates (measured as non-performing loan rate beyond 30days) in 2018, ranked in descending order below:
Funding Societies: 0.47%
While there are some platforms giving near 0% defaults, other platforms have defaults that are as high as 14%. These are just some measures - however if you are an investor, these are probably some of the key things you will look out for in ascertaining what a “good” platform is.
I hope this answers your question :)
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).
About half of my investments in Moolahsense are lost ($15-20k) through defaults and subsequent bankruptcy of the companies taking the loan. And most of these come with personal guarantees from the owner/directors which are useless... Invest at your own risk
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!
SeedIn and Coassets currently have a zero default rate, and I have a referral code for SeedIn that may help priortize your choice of available investment, so I'd start with those.
They give you high, non-guaranteed returns for short durations. So it's perfect if you want more return- risk than SSB (a typical short term instrument) - I generally recommend it to clients who have big events coming up in a short time, like a wedding or downpayment in a year or two years.
28 Sep 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
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).
I was an early investor onto Moolahsense, one of the main crowdfunding platforms.
Definitely some experience that I can answer your question with.
There has been about $6.6k worth of gains clocked thus far.
The bulk was in the earlier days.
Along the journey there had been defaults also.
The risk is sometimes understated and the potential returns sometimes overstated.
Good alternative? Maybe only for small amounts that you don't mind speculating?
Depends on what you mean by an "alternative form of investment". What you invest in always depends on your risk appetite, and how much effort you are willing to put in.
Crowd funding is generally considered a more risky venture, although I know that Funding Societies are rather strict on their regulations, so as to make every investment safer.
Yes, crowdfunding can be a good form of investment. Crowdfunding enables you to spread yourself across different small investments. That way, if any one investment fails you can focus on others.