P2P lending vs Stocks

3 Reasons why Investing in Peer to Peer Lending is better than Stocks during a crisis

16 June, 2020

By Antonet Fehmi

The Covid-19 pandemic has taken aback the globe with serious implications for healthcare and has affected many businesses. It has brought a knee-jerk reaction to financial markets worldwide. With the continuous economic downturn, the recuperation remains questionable. While there has been panic, many people find this troubling time as an opportunity to gain their financial freedom. As sir John Templeton said, "The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." 

1. P2P lending is predictable during a crisis

The stock market has been on the limelight for its vacillating prices throughout the decades. On 20th February 2020, the market saw an 11-year bull market come to an end. The stock markets globally reported price drops due to the COVID - 19 pandemic and the oil price wars between Russia and the OPEC countries. Though bear markets are the opportune moments for methodological investors, it always comes as a shock and makes them calibrate the risks involved with investing during a crisis. 

The risks associated with investing money in any portfolio is undeniable, but P2P has proven to be adaptable during the crisis. The risk can be foreseen, and it depends on the bet that the borrower will be consistent in their payments. There is a fixed amount that comes as returns every month, as compared to that of the fitful stocks.

2. The stock market is not everyone's cup of tea

The assumption that the stocks are the simplest way to earn passive income has remained unaltered in the minds of several people. They look up a 20-minute tutorial and dive into the pool straight away, only to find themselves dipped in frying oil. The idea of having a small amount of ownership in the company sounds gaudy, but the Stock Market is like planting a seed. If you don't water it with knowledge and discipline, it doesn't grow. You don't pull out the seeds the next day to find the fruit, but instead, you wait patiently for it to grow over time. Just as there are different ways of growing different seeds, each stock has different techniques of approach.

P2P lending on the other hand requires moderate knowledge and is easier to apprehend. It provides a platform for the lenders, who give out loans to the borrowers. Many platforms carefully evaluate the credit score of the borrower so that the decision-making process is easier. There is no need for constant monitoring throughout the day. P2P lending gives you the advantage of sitting back and awaiting the message of money credited into your account.

3. P2P lending provides security for your money

Stock trading is an emotional roller coaster ride, you either "Go big or Go home". Stocks are determined by the performance of a company, nonetheless, unexpected pitfalls can lead to a loss in share value, leaving the money at stake with negative returns. Due to the pandemic, the world witnessed single-price drops in a day since 1987. Stocks across Europe and America fell more than 9%. The stock market fell more than 20% in the United States, within 15 days of trading surpassing the Great Stock Crash of 1929 which took 30 days. The impact of the stock market crash was felt globally. Investment portfolios that had been made over the years were wiped off in a week, leaving the investors squatting with their hands on the head in disbelief. 

The risk generated with the P2P platforms is on the lower side, as it gives the possibility of selling the loans to other lenders in times of emergency. It is also being regulated according to the RBI guidelines. The P2P lending platforms usually have a third party to manage the money. It safeguards the money in case the company falls apart and can pay off any outstanding loans and agreements. 

Shares offer higher returns with an unguaranteed risk. P2P lending is better than stocks as it involves less volatility. It also provides clarity to mitigate the risks and provides fixed returns in shorter periods. Keeping your money idle in the bank cannot generate any return and hence it is wise to invest your money and put it to work. In times of crisis, it is best to diversify and put your eggs on less risky investments.