Experienced investors don't rely on a single investment - they allocate their investments in a way that ensures that each euro works efficiently and that they are protected against unexpected losses. Find out how to do the same for you by reading on!
Imagine you have €500 and decide to invest it. You choose where to invest and you put your money to work. You invest the whole amount in one loan. Everything looks great - the borrower repays the loan on time and you get the expected return. One day, however, the borrower runs into financial difficulties and starts to default on his repayments. Suddenly, your €500 becomes inactive and you are dependent on one person.
Is this really every investor's daily routine? You've probably heard of people who invest all the time, and often wonder where they get the money to invest? The secret is often not only in the resources they have, but also in their strategic approach. Experienced investors don't rely on a single investment - they allocate their investments in such a way that every euro works efficiently and protects against unexpected losses.
How do I diversify my P2P portfolio?
To avoid a repeat of the above situation and to ensure that your total of €500 has a better chance of making a profit, diversification is essential. In the context of investing, diversification is the allocation of investments between different loans, loan types and risk levels. To return to our example: instead of investing the whole amount in one loan, you should choose several, different consumer loans.
What happens if you diversify your €500?
If you spread your €500 over 10 different loans, you can invest €50 in each project. This is a good start to diversification, as your return will not depend on just one loan (or person). In addition, when investing in those 10 loans, you can take into account their ratings, which indicate the level of risk. This will make your funds even more diversified.
Diversification between platforms
Diversification is not limited to different loans, loan types or risk levels. You can also spread your investments between different platforms. For example, you can split your €500 into two parts: €250 to invest in 10 different loans at NEO Finance platform and the other €250 in projects on the crowdfunding platform FinoMark. This way, your money will not only be spread across different loans, but also protected from potential problems with one particular platform.
Why is this important?
By spreading your investment across different projects and platforms:
- You'll ensure a more stable return.
- Reduce the risk of your money becoming inactive.
- You will benefit from the different return opportunities offered by different loan ratings.
Diversification is one of the simplest yet most effective ways to protect your investments and increase the stability of your investment portfolio.
