I opened a Twino and Mintos account

So far my P2P investing has been limited to Estonian portals since I just didn’t need to expand into that many sites (you want to reach reasonable diversification before adding in other portals). However, since my portfolio is growing and there is only so much money I want to invest into Bondora and only so much I can invest into Omaraha (and the tiny amount that Moneyzen can provide), expanding became rather necessary. So, off to Latvia we go – Twino and Mintos.

Setting up the accounts

Honestly, the setup process for both was rather identical, just the document verification was in different order. I could make the accounts and start investing within the same day already. I created business accounts so I was happy that there wasn’t much hassle with the additional documentation. The bank transfers arrived the same day as well, so good for being very smooth. While I’m testing them I’m investing equal amounts into both, started off with 250€ each, and planning to increase at a similar rate.

Strategy

Now, this is where I’m planning to act a bit differently from my Estonian portfolios. I would rather not keep the loan terms super long, which means that for both of the portals I set the autobidders to bid for 1-3 month loans with only buyback guarantees. This means that in case of problems arising it’s reasonably easy to make an exit (hope I don’t have to regret saying this!)

Also, while I do have some concerns overall about buyback guarantees then if you look into the overall math of it, it’s somewhat reasonable on loans that are essentially payday loans. To benchmark – an Estonian payday loan company releases bonds every year for about 12% to collect investors’ money. What P2P investors are doing is essentially the same – with the process actually being cheaper for them due to less legal expenses. Of course there is always the risk of economic downturns and all other P2P related risks, but those can never be fully eliminated.

First thoughts of Mintos

mintosOverall I’d say, firstly, that the process of registration was easy enough and most of the site is rather intuitive to use. With the notable exception of the portfolio manager that I think could use some work since firstly when activating it, I couldn’t figure out what was wrong, but apparently the LTV value is causing some issues? Also, hiding away the additional terms of things such as buyback seems rather counter intuitive and a waste of time to make people actually look for it. However, I’m looking forward to the first loans starting to make their rounds. While the buyback guarantee is good, then it activates rather slowly so it still causes cash drag, and the buybacks don’t all function as Twino’s – you don’t get to keep the interest (I’ll have to look into that a bit more, picking between the different loan originators seems like an intriguing task since they’re all foreign companies.) At this point however, Mintos has a longer history than Twino and people have had rather positive experiences with them. (The fact that they’re doing well is evidenced by the dropping interest rates as well.)

*Correction: seems like the buyback works with interest as well:

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First thoughts of Twino

With Twino first impressions of usability are also rather good. twinologo I like the simple and logical design, the portfolio manager was very intuitive to use. However, at this point they are still very new, and despite the loan volumes they are showing it’s a typical reliability issue that new portals suffer from. Also, as with Mintos some of the countries they service might be of somewhat questionable value and economic sense, which is something that only time will probably tell. However, they are part of a large corporation (FinaBay), which would imply that if things started to go wrong, they would have to go very wrong for the mother company as well. In addition to this some people might find Twino morally objectionable due to the fact that you’re investing into payday loans, so that might be problematic for some. Overall, looking forward to how things get moving.

My Bondora portfolio (2015, October)

There has been a significant amount of drama happening around Bondora this month.The new passive portfolio manager caused a fair bit of controversy and the API is still in testing so many investors have at least temporarily reduced investments. For me, the old PM is still active and can give out about 4K worth of loans, so I’m hoping that will tide me over until you can use the API to invest. This means that all the money I transferred into social lending this month went into Moneyzen and Estateguru. However, my Bondora portfolio is big enough that it just does its own thing even without adding in money.

octoberinvestments

Due to not adding much money into Bondora for the last couple of months, you can see the 60+ defaults becoming a more significant part of my portfolio. There are two reasons for this – firstly that the loans from the big growth months from last year are now defaulting, and the loan pieces that are defaulting at this point are starting to be the 15-25€ pieces as opposed to the 5€ pieces that used to default earlier. However, despite the continuously increasing defaults this was another record month for me in terms of interest earned:

octoberinterestearned

Total interest earned for October ended up being 108,29€, meaning that this year is likely to end at 110€/month from Bondora, so I’m quite happy with the overall result already due to how much less I’ve invested into Bondora this year compared to what I had originally planned. Adding in Estateguru and Moneyzen, my P2P monthly earnings come just close to 125€.

bondoraocttotal

I plan to add just a bit more money into Bondora this year to finish December with a total of 5K euros in deposits. My account will turn 3 years old in December and I guess I’ll have to write a longer overview into returns from Bondora and whether or not it’s been performing as I wished it to.

octoberrecovery

Another topic that’s starting to become more and more interesting as my portfolio ages is the recovery rate. I see pretty decent movement from recovery every month, and at this point I’m waiting for my monthly recovery to reach 20€/month. Should probably realistically happen mid-way through next spring. Recovery for last months looks like this:

recoverystatsoct

Overall, I’d say, keep calm and wait for the API. I’ll probably be looking into it soon as well, once other third parties have made their solutions accessible. Overall, I was thinking about it a bit and I don’t even need anything super complex. I’d probably set my PM to just what I had now – AA, A, B &C loans OR any kind of Estonian loan. Not rocket science, so I’d assume that with the help of some friends working in IT it should be doable once more details about how the API works come apparent (like how exactly do the loans get distributed between bids!)

My Bondora portfolio (2015, July)

Summer keeps ticking on, and sadly I can already see shops selling notebooks and pens, which is the first sign that holidays will soon be over. My Bondora portfolio is being just about as sunny as the current weather, but there is some growth, even though I’m not adding in much money currently.

Checkpoints

julyinvestments

A bit before the end of the month, my Bondora portfolio actually climbed over 6000€ in terms of outstanding principal and the total lifetime interest earned also managed to make the leap to over 1500€. Starting to make predictions for the end of the year, it looks like a realistic goal might be 8000€ for portfolio value and 2000€ something total (1300€ for 2015) in terms of interest earned, which isn’t bad overall and might put me onto the path of earning 2K in interest next year, which is something that I wouldn’t’ve been able to imagine last year :)

Interest earned

julyinterestearned

My interest earned graph keeps kinda bouncing back and forth, but the month once again ended up just a bit above one hundred euros (101,67€ to be precise). My original plan for the year was so push monthly interest earned up to 150€ per month, but since I’ve cut down in investments then seems like an optimistic goal might be 120€, depending on how I manage. Free money is going into paying back apartment related loans, and my salary for autumn is still unsure, so changes might happen.

Recovery

julyrecovery

As always, recovery seems to be going slowly, but this month actually added a 4th loan that’s been fully recovered. I manually looked over a part of my portfolio, especially the loans that are more than 6 months old and I’d say about 70% of the defaulted loans are paying something. They’re of course quite slow in terms of paying back, but they are on the path to breaking even at least, which is already a good result for recovery. Loans going bankrupt however, isn’t slowing down speed, so even the IRR that Bondora is showing me has started to drop since I’m not adding in so much money any more.

 

Can social lending lead a path to financial freedom?

The title of this post is an intriguing question that I saw posted in a discussion group I’m involved in. It’s definitely intriguing because social lending is currently both very accessible for small scale investors and offers much bigger returns (theoretically) than many other investments. This would make it a perfect investment for a quick path to financial independence, would it not? Reality, as always, is a bit more complicated.

What is necessary for FI?

There are two paths for reaching financial freedom. Either you have large enough assets that last you until the end of your life or you have enough cash flow to cover your monthly expenses. Social lending in this case would fall under the second path – you have constant monthly inflow of interest payments that you could transfer out of the portal to use for living expenses. If your portfolio is big enough then at some point you could in theory start selling loans off as well to reduce your portfolio, but this is an unlikely solution.

At current rates of return, you would need a social lending portfolio of about 100 000+ euros to earn enough to live off about 1000 euros (net) per month. (provided you have health insurance, otherwise it’s 1,5x the amount). This number is slowly increasing as returns of social lending drop as the industry evolves. (US sites give us a baseline of 7-10% to plan for in terms of the future). For a similar sum of money you wouldn’t be able to create an equal amount of yearly dividends or rental income (unless you leverage heavily against loans). Why don’t more people focus only on social lending then?

Risk level of social lending

One of the core truths of investing is that higher returns are intrinsically tied to higher levels of risk. This means that while you can enjoy high returns you must be ready to take significant losses as well. In terms of social lending this means that in case of a recession or any other significant economic drop you would potentially lose a lot of your projected monthly cash flow – I wouldn’t be surprised if the drop in payments was something close to half of what is expected. This would give you two options – either dip into the principal amount of your loans to cover your expenses or live off significantly less until recovery kicks in.

Most social lending sites have not gone through a severe recession – the US example only gives us a baseline that’s mixed with the newness of the industry from 2009, meaning it’s hard to project those numbers to the current economic climate. This means that the drop could be far steeper or less steep than expected, however it’s generally best to be prepared for anything when it comes to financial planning.

Managing risks

The reason why most financial gurus and bloggers talk about at least three different asset classes (though they may be very strongly focused on just one), is because it’s a way of balancing out risks. In the case of an economic downfall not all asset classes drop or recover in the same way. If you think of people losing their jobs then the first thing to drop is the commodities market because people start to cut back their expenses. Then it’s a balance between paying off your debts and keeping a roof over your head. People will likely switch to smaller apartments which will influence rental income, and lack of consumer demand will drop stock prices across the board.

This means while one part of the market is already dropping the others will hold steady for a while – the same for recovery. Real estate takes quite long to recover usually, and the same is likely true for loans as well, since bailiffs will take a while to start getting any payments because people will need to find jobs and get their finances back in order. The stock market might go up quickly with euphoria after a severe drop like it did this time around, but recovery might also last years.

For me personally this means that I’m making an effort to diversify my portfolio across different asset classes. While in numbers social lending makes sense in terms of high returns, even I don’t have the risk tolerance to invest only into social lending. Currently Bondora + Moneyzen make up about 60% of my portfolio. Crowdestate, which I would list under real estate (which I know is arguable), is about 10% and the last 30% consists of Baltic stock and SP500 index. In the long run, the value of social lending in my portfolio should slowly start dropping, but it will likely remain at the 50% level for a while.

My social lending portfolio (2014, October)

With only two months to go in this year I’m finally starting to be able to tell whether or not I’ll reach some investing goals that I set for social lending. I’m still short by quite a lot for my yearly goal of increasing my total investments in social lending to 4K€, but I haven’t given up hope on reaching it.

This month is the first time that my interest earned crossed the 64€ marker (It ended up with 65,5€ on Bondora + 0,43€ on Moneyzen). It’s a significant number mostly because of emotional reasons – 64€ used to be 1000 kroons, which way back used to be a significant amount of money. Also, I finished up last year with hitting 32€ in interest earned per month, so it took me 10 months to double the previous investment target. My next goal is to hit 100€ in interest per month, looking at the numbers that’s likely to happen by summer 2015.

2014oct

For some reason the amount of delayed loans remained relatively high at the end of this month. Usually they tend to drop down to 5%, but this month they remained at over 7%. This is likely the first mark of winter coming, since from my experience many people have problems with payments in the winter months, which is probably due to increased expenses on things like heating.

2014octinvest

The total amount invested ended up being 365€. Out of that 170€ was from repayments and 195€ was money that I added in. It’s been slow coming, reaching 200€ invested into Bondora (especially difficult since I’m adding 50€ per month to Moneyzen). Hopefully by December the actual total money invested every month will hit the 400€ limit.

2014octreturn

The overall Bondora returns chart keeps hovering at 25%, nothing new there. While the amount of defaults I have keeps increasing monthly, then I’m also starting to see some serious recovery from the first of the defaulted loans that I got. Some 60+ loans are making payments monthly, some even several times per month!

New loans

I ended up adding 39 new loans into my portfolio in October.

Out of those loans:

– 2 Finnish loans, 37 Estonian loans

– 4 B+ loans, 35 verified loans.

Out of the verified loans:

– 5xA1000, 3xB1000, 10xC1000

– 3×900 group loans, 6×800 group loans

– 5×700 group loans, 3×600 group loans

As you can see, the large amount of loans it largely due to opening up my lower credit group bidders again. I also started to slowly invest into Finland now that we have more data on it and I’m hoping to build up to 50+ Finnish loans by summer next year. To finish, this is the current look of my portfolio managers:

2014octporftoliomanager