Any seasoned investor will tell you that a diversified portfolio is the key to success. If all your investment eggs are in a single basket, or spread across only a few, you become susceptible to unforeseen events or changes that can harm the value of your investments. By spreading your capital more widely, you also spread – and typically reduce – the risk.
It’s no different in peer-to-peer lending. With Octopus Choice, you are investing in loans secured by property. Property-backed peer-to-peer investing may be relatively lower risk (Octopus Property, who manage our loans, has lent over £3.6bn since 2009 and seen losses of only 0.02%), but like every investment it does carry a risk of losing capital, for example if borrowers default on their loans during a downturn. Although past performance is not a reliable indicator of future results and your capital is at risk when investing in loans.
Diversification is one of the ways we can further reduce this risk. That’s why we’re pleased to say that we’re now investing across more loans than ever before. If you make a new investment of £600 or more, your funds should now be spread across up to 60 different loans (up from 30), subject to availability. Put simply, because your capital is invested in a broader portfolio of loans, it is likely that less of your investment will be affected, if any loan goes on hold.
On average, those invested with us for more than a year have over 130 loans, but with our increased loan diversification, this should only rise.
This is something we are able to do as we grow and fund more loans, giving us a larger portfolio and greater opportunity to diversify. But it’s important to note this may not last, as the amount of loans we have available may change over time.
Diversification is another way in which we are seeking to limit the risk of an investment with Octopus Choice. Already, we operate a ‘first loss’ position, in which Octopus Choice invests 5% in every loan, and only make a return after our investors have got back all their money and earned all of their interest. We put our money where our mouth is: prioritising your return on investment over ours. So, Choice investors have lost £0 of their capital and interest, so far – although please note that past performance is not a reliable indicator of future results and your capital is at risk when investing in loans.
By diversifying investments in Octopus Choice, we can limit the exposure to downside risk even further. That said, it remains the case that your capital is at risk and interest is not guaranteed.