I am in the process of fine tuning my asset allocation and rebalancing. I have a good chunk in lending club and prosper (P2P lending) and it's generated a very steady 6.5-9% CAGR the past 3-4 years. Very steady, bond-like returns, very little volatility and it's incredibly well diversified (500 plus loans at 25-100 $ ea). I have been wondering if I should include that in my bond allocation or "alternative" allocation. I'm sticking with "bond" for now, following the "if it walks like a duck it probably is one' theory. It might be a new and unusual product, but it performs like a bond fund, in fact I'd say it most closely represents a mortgage backed security fund like AGNC ... except there's NO collateral! Anyway, any thoughts appreciated. Not a huge deal ... I'll probably retire the same day whether I call it an alternative investement or a bond holding!
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I say alternative investment most similar to junk bonds. It is way too early to have even a 1/2 way decent model of P2P lending. My experience early on with Prosper was also -2% annual loss over almost 4 years. Which was probably better than the stock market during the same time period. I haven't tried The Lending Club, since have fooled around with Prosper the newness appeal isn't there.
My guess is that P2P are more sensitive to economic conditions than interest rates and as such behave more like junk bonds, than something like a mortgage bond. The fact you got decent returns during this economy is both surprising and heartening.
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