There are several alternative investments, from old-school investment in arts to cryptocurrencies. Investors are looking for investment options that can provide them with steady returns, high volatility, and low risks. We have seen a rapid increase in demand for alternative investments in recent years. It is because the traditional investments and saving accounts are offering below-average interest that is not enough to keep up with inflation. Peer-to-peer lending is one of the most popular alternative finance options that can become a mainstream investment. People have been investing in stocks for hundreds of years, and that is why they know how to manage the risks associated with it and to get maximum profit. However, some people invest in both p2p loans and stocks, which is the best way to maximize income.
In this article, we are going to compare stocks and p2p investment. It will help you in choosing the right investment option.
Similarities And Differences In Stocks & P2p Investment
When you buy shares on the stock market, you own a little bit of the company in which you invest. Through shares, you can earn interest in two ways: if the company you invested in is performing well, the value of shares will increase, and you can sell your shares at a higher rate. Other than that, you can get dividends after a specific time, as the company shares a portion of its income with shareholders. It is much similar to equity-based crowdfunding.
On the other hand, peer-to-peer lending UK is different from stocks and shares. In p2p investment, you offer your money to the people who are looking to borrow. In return, you can get a high-interest rate. Now let’s take a closer look at the pros and cons of p2p lending in comparison to stocks.
Why Peer To Peer Investment Is Excellent
There is extreme volatility and unpredictability associated with stocks and shares. That is why it is not appropriate for short-term investment. Stock investment is
affected by economic turbulence. But it is not the case with the p2p loans. The interest rate that you get on p2p loans is fixed, and it is not disturbed by changes in the economy. Peer-to-peer investment bears less risk, short-term volatility, and high-interest rate than traditional investments. You can get steady monthly returns and make it a passive source of income. Another benefit that you can get with this investment is that you can earn tax-free interest by investing through Innovative Finance ISA (IFISA).
All p2p platforms operate online; it means you can start investing money from anywhere. It can be a perfect place to begin your investing adventure if you are a beginner. It allows you to create an investment portfolio by making an online account on a p2p platform. You can also diversify your portfolio by spreading your investment across multiple loans. It allows you to reduce the risk of borrowers defaulting.
In addition, it is really easy to use these platforms. It takes only a few minutes to create an account, transfer funds, and make an intelligent investment. In comparison, if you want to invest in stocks, you have to invest through brokers or banks, which is a costly and complicated process.
Resilience To Shocks
The value of stocks varies over a short period because they are highly sensitive to economic shocks. P2p lending, on the other hand, is highly de-correlated with the other investments and is much more resilient to external pressure or economic turbulence. Even the Covid-19 pandemic has not affected p2p loans as severely as it did to other investments. Of course, borrowers find it difficult to repay the loan due to the loss of their jobs. But thanks to the joint efforts of platforms, investors, and borrowers, the p2p sector is least affected by the pandemic.
Stocks Are Hard To Beat
Long Term Returns
If you want to invest money for the long term, then it is worth considering a stock investment. Although it has year to year, month to month, or day to day volatility, stocks can help you in making money. Most investors state that they are earning positive returns over 20 years. It means that you can get more benefits if you invest for a long time. Moreover, stocks also outperform in terms of returns compared to other asset classes.
Stocks offer more liquidity compared to peer-to-peer lending. When you invest in p2p loans, it is difficult to withdraw your funds before the end of loan terms. In contrast, you can withdraw your money from stocks within a matter of days. In p2p loans, you can get some of your money every month, but it takes a long time to recover all the money. You can sell your stocks whenever you are in need of cash.
All the investors know that stocks are great investments because they have been in the market for so long. Therefore, you can analyze the performance of stocks by the stock market record of 100 years. This way, you can get an idea of long-term performance and fluctuations patterns. On the other hand, peer-to-peer lending is a relatively new sector, and some platforms are new, so you can not see the track record. Therefore, you do not have enough data to analyze and predict what will be the future of investing money in peer-to-peer loans.
Now that you have information about peer-to-peer lending and stock investment, it will be better to choose the right one. Both investments have their own benefits and drawbacks, and it depends on your investment goals which one can be the best option. For example, if you want to invest for a short time and want to make high returns, you must go for a p2p investment. But if you have long-term investment goals, you can invest money in stocks to get maximum profit. However, we suggest you create a diversified portfolio and make different assets part of your investment portfolio to reduce risks and maximize profit.