A powerful technique for controlling risk in your diversified portfolio is threshold rebalancing.

Like other rebalancing strategies, threshold rebalancing is used to prevent your asset allocation veering too far off-target due to the diverging returns of the assets you hold.

There is endless debate about the ‘best’ rebalancing strategies and whether they can juice up returns.

It ultimately depends on future market conditions and the unique contents of your portfolio – in other words, whip out your crystal ball.

We therefore think it’s better for passive investors with a broadly diversified mix of equities and bonds to be aware of the rebalancing techniques available, and to choose a mix that best suits them.

I’ve already mentioned threshold rebalancing. The other main school of rebalancing is calendar rebalancing.

Calendar rebalancing is the simplest option – you just rebalance at the same time(s) every year, or every number of years.

However the threshold approach enables you to better fine tune your operations to take more control over costs and to reduce the impact of choppy markets.

Threshold rebalancing

As the name implies, with threshold rebalancing you set asset allocation boundaries and then rebalance whenever they are breached, as opposed to automatically rebalancing your portfolio on a pre-determined date.

Picture a portfolio with a 50/50 equity/bond allocation.

• If the rebalancing threshold is set at 5% then you would swing into action when either asset accounted for 55/45 of the mix.

• At that point you would sell enough of the dominant asset to rebalance the portfolio back to its original 50/50 asset allocation split.

The idea of threshold rebalancing is that you’re only forced to act when there’s a significant shift in your asset allocation.

You don’t tinker with tiny percentages that make little real difference, just because the calendar tells you to do so.

This can help to control trading costs, where applicable. In a fairly steady market you may not need to rebalance for a number of years, if you can live within a generous threshold.

The less you rebalance, the less you may pay out in trading fees. You could also save on taxes (although ideally you’ll have squirreled everything away in ISAs and pensions, in which case you’re in a nicely tax-protected position already).

Choosing your threshold

The first step is to choose a threshold that suits your risk tolerance:

N.B. Based upon the conclusions of various rebalancing studies, not a guaranteed outcome.

The obvious conclusion is that the more risk you can take, the higher you can afford to set your threshold, the greater your returns are likely to be, and the lower your costs.

Even a relatively high threshold still needs to offer a decent level of risk control. There are a number of different levels to choose from:

Common or garden thresholds
5% or 10% bands are routinely used by the financial services industry in threshold rebalancing, triggered whenever any asset’s proportion of the total portfolio rises or falls by 5/10%.

Tim Hale’s risky/defensive manoeuvre
A 10% movement between aggregate risky and defensive asset classes is the rebalancing alarm bell. In other words, you act when the total number of equity assets in your portfolio swings 10% versus cash/bond assets.

William Bernstein’s urbane subtleties
Rebalancing occurs when an asset moves 20% from its specific target. So if an asset’s target allocation was 20%, you rebalance when it strays out of a 16-24% range i.e. 20% of 20%. This is obviously a better approach than a straight 10% threshold, which is too clunky to deal with assets that occupy small niches in your portfolio.

Larry Swedroe’s 5/25 rule
An even more subtle approach. Asset classes with a target allocation of 20% or more: rebalance when it moves by 5% versus the entire portfolio. Asset classes with a target allocation below 20%: rebalance when they drift by 25% in proportion to their target allocation.

Rebalancing ranges

You can refine your strategy still further by rebalancing towards a range, rather than strictly returning to an asset’s exact target allocation.

For example, let’s assume property occupies 20% of your portfolio with a range band of 5%.

If the asset drops 6% to 14% of your portfolio, you would only need to purchase an additional 1% to bring property back into your 15% to 25% tolerance band.

The idea of bands is to limit the costs you incur when rebalancing. If you only need to buy 1% worth of an asset class, then you may only have to sell one other asset in order to rebalance, for a total of two trades. Better still, you might be able to use new money or divert dividend or interest income to the cause for a total of one trade. The method also reduces any capital gains tax liabilities you may incur.

In contrast, if you rebalance to exact targets, then it is likely that whenever one asset requires rebalancing they all will, meaning more trades and potentially cost.

Proceed with caution, however. By only moving the asset back to the extreme of its range, there’s a reasonable chance you will have to rebalance again in the near future.

It may well be advantageous to make a bigger trade to return it back to the original target allocation, thereby potentially reducing the proportion of any trading commission payable, and the overall number of trades made.

Of course, swapping money from one index fund to another may well be costless these days (as opposed to if you’ve built your portfolio out of ETFs or investment trusts, where you will certainly incur trading fees).

We rebalance the positions in our model Slow & Steady portfolio for free, for example.

So time and the faff-factor may be more of an issue for many passive investors than costs nowadays.

Also keep in mind that you may be out of the market for some time with a portion of your rebalanced funds, which is another potential (small) risk.

Hybrid rebalancing

The downside with pure threshold rebalancing is that it requires greater vigilance than calendar rebalancing. You have to check regularly that the thresholds have not been triggered.

One solution is to combine calendar and threshold rebalancing into one custom rebalancing strategy.

For example, you could decide that the portfolio will be rebalanced no more than annually but even then you will only intervene if an asset class has drifted by more than 20% in proportion to its target allocation.

Or you could decide to rebalance at least annually, but also to intervene if any asset deviates by more than 5% from its target during the year.

US index fund giant Vanguard has researched the rebalancing question and concluded:

“The relatively small differences in risk and return among the various rebalancing strategies suggests that the rebalancing strategies based on various reasonable monitoring frequencies (every year or so) and reasonable allocation thresholds (variations of 5% or so) may provide sufficient risk control relative to the target asset allocations for most portfolios with broadly diversified stock and bond holdings.”

So don’t drive yourself around the bend trying to find the ‘best’ rebalancing technique. Experiment with the options to find your own strategy that balances your personal risk tolerance against the administrative effort and potentially the costs of rebalancing.

Take it steady,

The Accumulator

1. May or may not be applicable, depending on the trading costs of your chosen funds and strategy. [↩]
2. May or may not be applicable, depending on the trading costs of your chosen funds and strategy. [↩]

Good reads from around the Web.

I have often sung the virtues of cash, which – despite my love affair with shares – I consider the king of the asset classes.

For example, I have been happy to suggest new investors start with a 50/50 cash and share portfolio, rather than bothering with bonds. And I have commented many times over the years that the official historical record underplays the benefits of cash as an asset class, because it considers cash from a stodgy institutional perspective, rather than that of a rate-tarting Monevator reader.

I’ve even argued with a certain UK blogger – an online chum who has long hated the stuff, and believes it’s a zero-gain asset after inflation – that cash can sometimes clean up, especially when you’re actively seeking the best rates. (We had that friendly tiff the last time research appeared showing that actually, cash could be surprisingly competitive).

Even my co-blogger is a secret rate tart, despite his feeling that we’re best-off assembling our portfolios with the more traditional building bricks of bonds.

So I wasn’t particular surprised this week when readers started pointing me towards research from Paul Lewis, the presenter of the BBC’s Moneybox program, that showed cash had beaten shares over various periods of time.

Making a splash via the FT [search result] and also writing on his own blog, Lewis stated:

Money in best-buy cash savings accounts produced a higher return than a FTSE 100 tracker over the majority of investment periods from 1995.

Money put into “active cash” beat the total returns from the tracker in 57 per cent of the 192 five-year periods beginning each month from 1 January 1995 to the end of 2015. No account is taken of inflation, which affects money in cash or in shares equally.

For longer periods, the difference was even more marked. In investments made over the 84 14-year periods from 1995 to 2015, cash beat shares 96 per cent of the time.

Only periods of 18 years or more showed shares outperforming cash more often than not. But assuming you can find 20 minutes a year to search for the best rate and move your money over a shorter period cash really can be king.

There’s more to his piece than that, and I obviously can’t excerpt it all here – please follow the links above for more on his methodology and findings.

It’s also worth noting that even he concludes:

Cash, of course, is not for everyone in all circumstances.

Over long periods, a simple share index tracker is probably best.

However that isn’t the headline of the article, and it’s certainly not the impression people were taking away from his piece.

Why bother with shares when you can do better with good old cash? That was the more appealing message.

Dash for cash?

If cash did deliver superior returns to investing in equities over most periods then there’d be absolutely no point in bothering with the ups, downs, and uncertainties of shares.

Indeed that would be the conclusion of most of us even if cash moderately under-performed.

An easy and stress-free life in the safety of cash earning say 6% would beat the scary and potentially ill-fated pursuit of say 7% any day.

But I don’t believe that’s what Lewis’ research really suggests, even on its own terms – and moreover that its own terms miss the bigger picture.

As Merryn Somerset-Webb – writing in the FT [search result] in a good piece that was annoyingly published just after I’d finished mentally drafting this one – Lewis’ comparison is a stretch:

Mr Lewis’s research makes an important behavioural assumption: that investors are too supine to move from the HSBC FTSE 100 tracker he uses for the comparison for the entire 21 years in question, but that savers have the energy to move to the best-buy account on the market every single year.

That makes his comparison a little bit apples and oranges: a lazy and utterly uninquisitive equity investor takes on a fantastically energetic and research-oriented cash depositor.

The FTSE 100 has been a dud of a market for decades. In the past I’ve considered it a good starter to get people comfortable with equity investing (although these days I am pointing friends who ask towards Vanguard’s LifeStrategy funds and other global trackers) but nobody should have it as their entire portfolio for Lewis’ 21-year period.

A better comparison would be with an investor with a properly diversified and regularly re-balanced portfolio that had money invested in other risk assets such as the US, Europe, Japan and the emerging markets, and property, bonds, and gold – as opposed to just one relatively odd index that has been through two deep bear markets during the period and has recently suffered from its skewed weightings towards commodities and banks.

Of course you might argue that during other times the FTSE 100 might benefit from its exposure to those sectors, but that brings me to my second big beef.

Lewis writes on his blog that:

“For a cautious person investing for periods of up to 20 years this research indicates that well managed active cash beat a FTSE100 tracker more often than not.”

But that is not what his research shows, in my opinion.

What he has pointed out – and as I said at the top, I think it’s worth pointing out – is that over a specific 20-year period from 1995 to 2015, cash has done well against the UK’s main market, and that you don’t hear much about that from the fund management industry.

But this is just one 20-year period out of, well, at least a hundred you could reasonably compare it to.

Lewis does analyze smaller multi-year periods in his research, but they are all from within that same two-decade block.

And why start in 1995 anyway? Why 20 years? Why not 23 years, or 17?

I wouldn’t be too hard on this – all looking backwards must by necessity have constraints – but equally I wouldn’t make too bold assumptions based on what I found.

It would in my view be foolish to turn your back on shares and their demonstrably superior returns over the past 100-odd years based on just this last 20-year period – not least when that period was marked out by banking craziness that put growth ahead of profits, and thus might lead you to suspect that the Best Buy booty we saw in the past might not lie in our future.

Lowly yielding world

On that last point, I’m not quite as bothered as some of Lewis’ critics by today’s low interest rates versus those he studied.

As I say, I think it’s quite possible that because of the beanfest that was consumer banking before the crisis, Best Buy rates were too generous back then and won’t be so in the future.

But when it comes to the wider low-yield world we seem to live in, there are two contrasting interpretations as to what it means for shares.

The optimistic view for equity investors – and the one I’ve tended to lean to – is that low rates on cash and bonds are mainly reflective of severe risk aversion among investors, and also of the artificial, remedial action (low rates and QE) taken by Central Banks to avoid the banking system going bust.

Through this lens shares might be a bargain, because it could mean they are not relatively cheap compared to cash and bonds for any good reason except that people are scared of them.

However the other interpretation – which is surely at least half-right – is that low yields are reflective of a wounded, over-indebted global economy that will take many more years to get over the after-affects of the credit crunch.

If that’s true then shares only offer the seeming potential for higher returns (via higher dividend yields, say) because they are more risky. Their apparent cheapness could be because they are pricing in the possibility that those dividends will be cut in the face of more economic shocks.

We could debate this all weekend. The point is that you can’t really say “cash only pays 1.5% these days but shares have delivered 10% over the long-term” without at least considering that your projected 10% figure might be far too high too in today’s low-yield world.

So Lewis gets a pass from me on that complaint.

Digging into the data

A last and more niggly point is that in explaining his workings, Lewis highlights a laundry list of caveats.

Each one he says doesn’t really change the results – but what if they were all added up together?

For instance, he ignores tax despite using Best Buy interest rates that were available only on taxable accounts (as opposed to ISAs). He ignores the time lag affect of moving your money every year. I also wonder about the veracity of data systemically taken from the January issue of magazine that would have been physically written and printed in the prior month?

Again, I don’t want to come across as too harsh on his piece.

On the contrary I applaud Lewis for doing the research – I haven’t got the resources to do any better job here – and I think his main points about the benefits of seeking the best interest rate on cash, the non-trivial risk of losing money in shares, and that the vested interests of the finance industry will usually encourage you into products that make it money are all worthwhile.

However I wouldn’t start pretending you can enjoy equity-like returns from the comfort of cash indefinitely. As he himself says, cash should not be the main driver of any truly long-term strategy.

• If you want to read more, don’t forget Merryn Somerset-Webb’s article I linked to above.

• Lewis’ research was also picked up by ThisIsMoney, which among other things features a Hargreaves Lansdown analyst rather predictably comparing cash to a top-performing active fund, as well as more reasonably highlighting what he claims is the slight edge of the average UK fund over the FTSE during the period. (Perhaps true, but many UK active funds have enjoyed a big boost in recent years by being very underweight the commodity sector. Will this last? Also beware of survivorship bias, where dud funds that were shut down may have been stripped from the data).

• The Guardian was rather bowled over by the research.

[continue reading…]

The UK pioneer of peer-to-peer (P2P) lending, Zopa, has revamped its savings options for potential lenders like us.

These changes are another step away from how the company originally positioned its business – and from the Zopa I began sporadically covering way back in 2008.

In those early days Zopa was almost an eBay for individuals. Instead of depositing your money with a faceless and feckless High Street bank in return for a meager interest rate, why not lend it to somebody you didn’t know for a much higher return?

Heck, it worked for backstreet moneylenders for millennia…

Well, one reason to be hesitant might be because that somebody could be as faceless and feckless as any bank.

Which was where Zopa stepped in.

Conscious capitalism

First, Zopa put a face on your borrower.

No longer were you sticking your money into the Hali-BC-land Banking Group’s “Ultra Gold Premium High Interest Account” in exchange for a pathetic interest rate.

With P2p, you were lending to Barry who wanted a motorbike, to Tracy who wanted to top-up her tan in Ibiza, and to a seemingly endless stream of people who said they wanted to consolidate their loans.

And – in those juicy days before the wider interest rate crash that began in 2009 – you were earning 7-10% or more for your kindness.

Zopa borrowers even wrote little biographies, as if touting themselves on eHarmony. Charming.

Of course Barry or Tracey could be feckless too, and so Zopa did some credit checking for you.

It argued its robust procedures meant the higher interest rate you got with it compared to a bank was mostly due to the efficiency of its Internet-enabled P2P business model, rather than because you were taking huge risks.

And bar a wobble early in the credit crisis1, I would say Zopa has performed admirably on the credit quality front.

Zopa has been running since 2005, its reputation was enhanced by its performance in the recession, and there’s been no deluge of bad debt that pessimists predicted at the outset.

But note that back then lenders also took some responsibility for what level of risk they were assuming, and hence for those potential bad debts.

As a lender you would set the minimum interest rate you were prepared to accept. Zopa’s credit checking divvied up its borrowers into buckets of increasing dodginess – but it was up to you to decide what interest rate you’d demand for each (or whether you’d bother with some bands at all).

Set too high a minimum interest rate for a particular cohort of motorbike-buyers and your money would never be lent out.

Finally, being a banker can be a lonely business, and so Zopa also offered community features. These ranged from the ability to see who else had chipped in on a particular loan to a thriving discussion forum.

Zigzagging Zopa

Throw in some portfolio analysis tools and whatnot and, in a nutshell, that was Zopa 1.0. It enabled you to Be Your Own Bank.

But Zopa has changed a lot since then – culminating in the most recent overhaul I mentioned.

I don’t propose to go through all the previous incremental changes, blow-by-blow. Others have been more much invested in Zopa than me, and I’m not an expert on the sector.

I’ve followed P2P out of curiosity and as an interesting sideshow to my true love – equities – whereas some early Zopa lenders seemed to be almost revolutionary in their hatred of the banks and their joy at having found a way to get hands-on with their savings.

Suffice to say, Zopa is now almost unrecognisable from the platform that won their hearts. I’m not saying it’s better or worse, but it is very different.

While progress over the years has followed the two steps forward and one or two back model, eventually Zopa scrapped the ability to see much about your borrowers, ditched an experiment to lend directly to individuals in size (a sort of Kickstarter for P2P), killed the community features, and in my view made it harder to look into your loan book.

Most dramatically, it removed the ability to set your own acceptable interest rates against the range of rates being offered by your peers – the very feature that gave Zopa its name (Zopa stands for Zone Of Possible Agreement).

Like some fusion chef on a budget, Zopa also merged and blended its various markets and the term length of loans it offered, further narrowing the options for lenders.

On a more positive note – in the eyes of most people – it introduced a greater measure of protection against bad debts, too.

Its so-called Safeguard fund is basically a stash of money set aside to repay soured loans, tithed from borrowers’ interest payments. The Safeguard fund had the affect of smoothing returns for all lenders in the applicable markets, rather than some unlucky lenders getting a string of bad debts while other savers were smugly blessed with an unblemished portfolio of outperforming loans.

The Safeguard protection was surely inspired by the similar provision fund at Ratesetter. Indeed evolution throughout the sector seems to be being driven by the plethora of competition that has sprung up to challenge Zopa and the other early pioneers.

This might indicate these so-called Fintech companies see abundant opportunities to revolutionize our personal finances.

On the other hand, it might imply that even older companies like Zopa have failed to erect many barriers to entry over the years, and also that it’s pretty easy to fund and launch a loss-making Fintech company.

I am not sure which as yet.

On the subject of losses, I should stress at this point the obligatory peer-to-peer warning – that your money with Zopa is NOT protected by the Financial Services Compensation Scheme, and thus even when lending under the auspices of Safeguard or Ratesetter’s Provision Fund, you could still lose some or all your money if bad debts eventually mount to outweigh the ability of these platforms to give you and your fellow lenders back all of your money.

So far with the big platforms Zopa and Ratesetter, this has been a theoretical concern rather than a reality. I had the odd bad loan with Zopa before the Safeguard came in, for instance, but the resultant losses were totally swamped by the higher interest payments I earned.

The risks are there though, and bad loans tend to snowball in a crisis, so we would expect to see a calm before any storm.

For this reason, P2P for me still occupies a different place in my portfolio to cash and corporate and government bonds. The interest rates are not 100% comparable to those mainstream alternatives.

You are taking on more risk with P2P, with no promise of State compensation if it goes wrong. This at least partly explains those higher expected returns.

Zopa three ways

At last we get to the news! (Which is in reality somewhat old, and which I’ve buried 941 words into this article. Ho hum, my style has always been more the rhomboid than the inverted pyramid!)

Sign up with Zopa today as a lender and you’ll be confronted by three options:

The new Zopa: Marketplace lending for the masses?

This is a far simpler menu than old Zopa at its most complicated. As such I think it’s designed to win more mass-market money to the platform. There’s a small nod to the diehards with the Plus option, but I don’t know if it will be enough to win them back.

The choices are fairly self-explanatory.

For all three options your money is as usual divvied up and spread out as micro-loans across various new Zopa borrowers – with a larger minimum lump sum demanded to enter the Zopa Plus market, on account of the greater risk. And you no longer lend money for a term you specify, regardless of which option(s) you go for.

You can withdraw borrower repayments for free with all options. In my experience a fairly high portion of borrowers actually repay their entire loan early2, which has up to now meant that over a period of a few months you can get a fair chunk out if you want to.

The key differences between Access, Classic, and Plus are:

• Zopa Access and Zopa Classic money is backed by the Safeguard fund3 whereas Zopa Plus is not. Which partly explains the higher predicted interest rate for Plus.

• Zopa Access and Zopa Classic money is lent to better-rated borrowers than Zopa Plus, which takes on riskier customers. This explains the rest of the higher interest rate for Plus, compared to Classic.

• You can sell your entire loan portfolio with Zopa Access for no charge. That makes it more liquid (but see below).

• For Zopa Classic and Zopa Plus a 1% fee is charged on loan sales, should you decide to withdraw your money before your loans have been repaid.

Note that the fee you’re charged to sell your loans may not be the only financial hit you have to take, should you choose to cash out early.

This is not made super clear in my opinion, but anyway you will only be able to sell your loans at the best price you can get for them at that time.

Ideally, a fellow lender would just take over your portfolio. But if interest rates at Zopa Access rise to 6%, say, then a portfolio that you accumulated when rates were below 4% will not be very attractive to potential buyers, who could lend into the new customer market instead and get a higher rate.

This means you would probably have to take a haircut to find buyers for your portfolio.

(In contrast, if you sat on your loans and waited until they all matured then you would expect to get all your principle back, with interest).

This is definitely something to be aware of, especially if and when interest rates start to rise.

What makes a market?

Boil it down, and Zopa Access is for P2P dilettantes, Classic is for people who want to keep money compounding with Zopa for many years to come, and Plus is for risk-seeking daredevils who trust the platform’s credit checking and resent seeing the Safeguard fund eating into their returns.

Plus then looks like a gesture towards those who were comfortable with the original P2P Zopa model. There’s no ability to set your rates or decide who to lend to though, so to be honest it’s sort of a disinterested Royal wave of a gesture, as opposed to a bear hug and a goosing.

At this point we could spend all day debating how these options compare to rivals like Ratesetter and the other platforms out there, and perhaps we will in the comments.

But what I’m more interested in is what it says about the state of P2P lending today.

For starters, should we even still call it peer-to-peer lending?

The term “marketplace lending” has been gaining ground for a while, and when you look at the Zopa revamp you can see why.

Yes, you’re still lending to individuals with Zopa, but you don’t really know who they are anymore. True, that was fairly useless knowledge in the past to be honest, but it did at least highlight the P2P difference.

Your cash stashed with the Halifax is also funding someone’s mortgage. Zopa may be more granular and may be more efficient but is it really that different now you’re just taking the prevailing rate you’re given, and you similarly don’t really know where it’s going?4

This same-difference seems even more the case when you consider the institutional money that has entered the P2P sector, whether through investment trusts such as P2P Global and GLI Alternative Finance, or via hedge funds and the like, particularly in the US.

I don’t have any figures for Zopa – and from what I can tell it still remains largely focused on individual savers – but you can see the appeal of institutional money for these platforms.

All the platforms need to scale fast to stay ahead of the competition, improve margins, and ultimately generate decent profits.

But scaling fast is always risky and especially so in finance, and it’s easier and perhaps safer to do it by finding a few hundred institutional investors with £5 million to spare as opposed to attracting and servicing another 50,000 finickity retail customers.

Yet however you do it, growing quickly can lead to problems. For example, the US platform Lending Club has been rocked by issues involving incorrectly classified loans, as well as by its admission that any lack of access to further institutional money could ultimately be bad for its shareholders.

The debacle is uncomfortably redolent of the subprime mortgage crisis in the US, and the still-emerging P2P / marketplace lending industry now needs to work twice as hard to win the wider public’s trust.

Only the loan-ly

As Zopa and the other P2p pioneers – and the host of new entrants – search for the perfect mix that maximizes growth without stashing timebombs throughout their operations, they will continue to evolve.

Already I think we can see that to take substantial market share from the global banking industry, the marketplace approach may have the edge over the fiddly and fine-grained pure P2P model.

This isn’t to say that there’s not room for multiple approaches – but even sector granddaddy Zopa has only facilitated £1.5bn in loans since its launch in 2005.

Compared to the £700 billion held in savings accounts, that’s not so much a drop in the ocean as a healthy bonus in some rarefied corners of the finance industry.

Hence the revamped approach from Zopa, which I believe is a bid to parlay the trust it has rightly won for itself and its longer track record into a simpler proposition for both lenders and borrowers.

Forget all that stuff about knowing your borrower’s favourite brand of biscuit. Just give Zopa the money, trust in its algorithms, and earn most of any differential that Zopa can eek out versus a traditional bank savings account.

Meanwhile the platform aims for scale, and tries to lock-in its first-mover advantage. True P2P enthusiasts can go take their chances with the upstarts.

Zopa then is not really looking to cut out the middlemen – the banks – with a radical new model.

Rather it’s now trying to replace those middlemen with itself as a middleman, with something that feels altogether more familiar.

As of last September, Zopa was not yet profitable however, which as with Ratesetter’s £100 sign-up bonus does make you wonder if it’s all too good to be true.

Z is for zeitgeist

Can Zopa achieve the scale it requires to make money?

Will banks acquire the best players before they do so if P2P does go truly mainstream – as happened with the Internet banking pioneers like Egg and Cahoot, which were acquired and then left to go cobwebby when online banking became everyday banking?

Hargreaves Lansdown is now working on its own in-house P2P platform. Hardly a plucky band of brothers seeking to upend the status quo – Hargreaves already has over 800,000 customers and more than £60 billion in assets under management.

Time will tell, but for me the shifting business models are yet another reason not to put all your eggs in one basket, both in terms of spreading your money between P2p platforms but also not putting all (or even most) of your cash-like assets – let alone all of your portfolio – into peer-to-peer lending, which I do see some people doing online.

Personally less than 4% of my total wealth is in P2P, I use both Zopa and Ratesetter, I have owned one of the investment trusts I mentioned above on and off, and I will probably try some of the newer platforms eventually – especially if and when the delayed Innovative Finance ISA options are rolled out more widely.

To quote Francis Bacon who was writing in 1625: Money is like muck, no good except it be spread around.

1. That I was scoffed at for highlighting, but that was later recognised by at least some Zopa-heads as a short-term systemic glitch rather than just bad luck on my part. [↩]
2. Beware this may be due to falling interest rates over the period Zopa has been active. [↩]
3. For so long as there is money in the fund. This backing is not guaranteed. [↩]
4. You can download your loan book as a spreadsheet which has a username attached to each of your micro-loans, but this is hardly a Who’s Who? of your customer base. [↩]