Attractive Income Using Short Term Investments in Peer to Peer Lending - By: Scott Staudt

Successful investors keep a balanced blend of assets in their portfolio. A typical mix may be long term assets as compared to short term assets, and floating rate investments alongside fixed rate investments. Domestic investments may be balanced by international investments, etc.

Most investors with short term investments in their portfolios will have some type of loan assets in their portfolio. Treasury bills, which are a component of almost all portfolios can be considered the ultimate loan: to the government. Many investors prefer short term investments in bank CDs or money market funds. The flexibility and liquidity given by these investments is an attraction, but the yields are fairly low.

Investors who look to improve the yield of their short term investment portfolio compared to that of CDs or T-Bills should consider looking at new investment ideas. Peer to peer lending is a loan idea that allows investors to lend money directly to consumers, thereby giving them an opportunity for higher yields on their investments.

Any quest for diversity would be even further enhanced, since this is completely new asset class that would be added, that of consumer loans.

The peer to peer lending philosophy is a straight forward one. A specially designed site matches borrowers who are interested in getting loans with lenders who are seeking a better return on their investments. These lenders design a unique loan portfolio by looking over all of the loans available and choosing the ones that match his investment goals.

For example, an investor may review only those loans with excellent ratings, and very small loss ratios and assemble a portfolio comprised of only those types of loans. This conservative attitude could be further diversified by spreading the investment amount over many loans. Investors in peer to peer loans have the ability to construct their investment portfolio in such a way as to diversify risk substantially. A $5,000 investment may be lent to as many as 50 borrowers, reducing the risk of the loan very widely. His yield will, of course be higher as he raises his risk tolerance for the funds invested, but he can continue to use diversification in any blend of loans.

These loans are usually designed as loans that amortize over three years. This means that the monthly payments by the borrowers, that include principal and interest, are processed to the lenders immediately, so lenders do not have to wait for the maturity of the loans to recover their principal. Peer to peer loans are fixed rate loans, and as such, offer a more attractive alternative to falling rate CDs or other short term investments.

The method in which peer to peer loans work is not at all complicated. A borrower would merely list his loan requirements on the site and the site would automatically show his credit history and apply a rating. Prospective lenders then have the opportunity to review all of the borrowers listed and build a portfolio of loans that will meetsatisfy their short term investment strategy. In this manner, an investor meets his goals of risk/reward ratio, short term investment portfolio diversification with a new asset class, and further diversification by splitting that investment into many small pieces.

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More information about peer to peer lending at engagement ring financing and the easiest way to start short term investment

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