Of all the P2P Lending websites out there, the one that got me started was Mintos (by clicking this link you will get an additional 0.5% on your investment and so will I).
Mintos is by far the largest P2P lending website in Europe, with constantly growing numbers of loan originators (being added every month) and a great variety of countries, types of loans, and maturities to choose from.
This website is the one I consider the most secure (i.e. lowest risk of default) among the other P2P lending sites in Europe: they are currently profitable, their business model seems to be working, and they give very detailed information about their loan originators (including default % statistics and capitalization rates).
What I like the most about Mintos is that it has a professional approach that appeals to sophisticated investors: it’s not just a simple website where you click “make money” and know nothing about the underlying products.
Mintos actually gives you the numbers for each loan originator, and has a credit rating system similar to the ones used for corporate bonds in finance, so you can tailor your portfolio according to your risk tolerance, country exposure and maturity dates.
Mintos also has a well-functioning secondary market with no fees, where you can buy or sell loans from other investors at a discount or premium. Make sure you understand how it all works (especially if you’re not familiar with yields on bonds, yield to maturity percentages and the like), otherwise you risk losing money if a loan is called early and you paid a premium for it.
5 Practical tips to use Mintos
I consider Mintos to be a “toolbox” for the P2P Investor, because you can both invest for the long term, with higher interest rates, or keep a very specific amount in short-term maturities that you can basically use as a substitute for your current account in case of liquidity needs.
Tip 1: Create a ladder of “auto-invest” portfolios (they can be given hierarchical priorities)
My advice is to give priority to one-month maturities, keeping the amount of “liquid” cash you might need on a month to month basis. Use this first auto-invest portfolio as a substitute for a bank account and withdraw as needed. When you want to withdraw, click on the auto-invest tab, and use the option “Set the limit of minimum funds in the account” to the amount you want to withdraw. If performed correctly you will have that amount available for withdrawal in less than a month.
Use the lower-ranked portfolios to invest in longer term maturities (which generally have higher interest rates) to maximize profitability.
Tip 2: Use the secondary market for sophisticated trading
If you know how the concept of “yield to maturity” works, you can profit by selling your higher-interest loans in the secondary market at a premium.
Here’s how it works: let’s say you buy a loan that yields 15%, with duration of one year. After a month, these loans cannot be found any more, and the platform only gives loans at 11%. At this point, you can choose to keep your loan for the entire maturity, or sell your loan on the secondary market at a premium (say, at 102 euros, when you bought it for 100). When this happens, you made 2% in one month (2 euros on a total of 100), which brings your annualized return to a number far higher than the 15% you started from.
Tip 3: Do not only look at interest rates, consider risk as well
The real difference from a rookie to a pro investor is being able to calculate risk. Not all that is important can be counted, and not all that can be counted is important. This means that even though you cannot put a number on the risk of a particular loan originator, the risk that it default does count. You can use mintos ratings to have an idea of the risk, and remember that a 9% loan from an A rated originator is far better than a 9.5% loan from a C originator.
Tip 4: Beware of how you setup the automatic “diversification” feature
While Mintos is laudable for the effort of introducing a diversification feature, it might have unwanted effects on your portfolio: it works by dividing your auto-invest portfolio into fixed percentages of a particular originator (so you might have 10% in 10 different originators).
This means, that even if you want your portfolio to contain 10k euros, you will only invest 1k into each originator, and considering that there is usually one or two companies offering the best risk/interest rate profile, you are limiting yourself to investing only 20% of your capital in those two companies, while buying 80% inferior choices in the name of diversification. Is this what you really want to do? I’d argue that most investors would be better off manually adjusting their positions
Tip 5: If you invest in different currencies, calculate the handicap you get with a round-trip of currency conversions, and understand the effect of time
If you want to convert your EUR to RUB, for example, you will pay a fixed 0.7% fee upon the first conversion, and you will pay another 0.7% when you convert back to EUR. This leaves you with -1.4% already. If you keep that investment for a year, it weights -1.4% on your annual rate of return, but if you do the whole conversion in six months, it actually weights -2.8%+ on your annualized return. Had you kept it for two years, the handicap would only be -0.7%. Hence why, it only makes sense to invest in different currencies if you plan to keep your money “converted” for a long period of time, certainly no less than a year.
All in all, I think Mintos is a valuable addition to any P2P investor portfolio, not only for the security it provides, but the the professionalism of the platform and the myriad of tools it can provide to the clever investor.