Thursday, 28 February 2019

First user experiences of RateSetter

RateSetter is the third Peer to Peer platform I’ve now signed up for and am actively investing on.  This blog focuses on my experiences on the sign up process and first impressions on using the site. 

The sign up progess was straight forward and could be completed in minutes.  You enter all the usual details, be sure to have your tax file number and drivers licience handy as part of the progess.  Interestingly you didn’t need to verify your email in the process so make sure you type it in correctly.

Once you have completed the sign up progress steps you are logged into the platform.  However it does come up with the note stating that your membership application is currently under consideration and that it should take one business day to confirm.  I registered on a Saturday morning, it wasn’t until Monday until my account was fully active and available to use.  While you are waiting for the application to be accepted, you cannot add any funds to your RateSetter account.

While waiting for approval you can still access everything on the website giving you an opportunity to get familiar with the platform.  The site also provided a user guide you download and refer to on how to use the site.  While the site is not hard to navigate there are a few little things which make me feel like the user interface is not as refined as it could be.  One that stood out to me is that in trying to looking at the detail behind your current investments, you have to go through multiple pages to get to them. 

Transferring money in is easy with a BPay code for your account or you could use a POLi bank transfer.  I’ve always stuck with the BPay given I can save the transaction in my Bank account to make it easier later on, but that is just my personal preference.  Once the money hits your account you are ready to loan.  RateSetter currently have five different markets you can loan your money in that have varying rates of return, 1 month, 3 year, 5 year, National Clean Energy and SA Renewable Energy.

Looking at the historical trends the 5 year market has the best rate of return.  As the money I’ve invested is for the future, I am targeting the longer term strategy and will be focusing on the 5 year market.

I found the market place a little strange.  I personally don’t like the fact that you have no visibility of the loans you are investing and don’t even know how many different loans you may be invested into and whether they are secured or unsecured.  The other thing about the platform I found strange is that you don’t get a premium for investing in an unsecured loan which would typically attract a higher borrower interest rate. 

To place an order you can either select one of their suggested interest rates (designed to get your money matched to a loan quickly) or pick your own rate.  Before picking your own rate you can review how much money is on the market and at what rates people have requested.  I decided to pick my own rate, in fact I split my money out over several rates all 0.1% apart.  I did this for two reasons. Firstly, I was curious how quickly the funds would get matched. Second was to try and create my own loan diversification.  My logic behind this is that if loans were being matched at different times it would indicate they were potentially allocated to a different loan, thus giving me diversification. 

What I found is that the higher percentage rates were still not matched after two weeks on the platform.  The reason for this is anyone can go and put in an offer to lend money at a lower interest rate thus jumping the queue in the fund matching process.  Having sat there for two weeks now I’ve lowered my rate to get them onto the market.  Once the funds are matched you sit back and receive principle and interest repayments over the 5 years (or whichever term) you chose to invest in.

There is an auto invest function that allows the system to reinvest your repayments when they come in (minimum reinvestment amount is $10).  While I like this function, what I notice is that it automatically drops it at the suggested lowest rate to loan quickly.  From my initial observation this could be up to 0.6% lower than if you were prepared to wait a day.  You can also choose to set you reinvestment rate but given it’s a fluctuating market I am reluctant to do this as you may be setting it too high (not going to match) or too low and leaving % return on the table.  Given my plan for maximum returns, I plan to manage my reinvestment manually at this stage.

The other significant feature of RateSetter is the provision fund which is designed to reimburse investors from potential defaults.  While it’s not guaranteed, the website does claim that to date in Australia no investors have lost any capital or interested owed to them.  While I think this is a great feature I feel this is at the detriment to potential returns.  The fund is paid for by borrowers contributing to it instead of the interest going to you.  However, given the lack of visibility of the loans I’m investing into, maybe the provision fund is a good thing on this platform.

There is a feature that allows you to access your remaining capital early on the 3 and 5 year loan terms.  Having a quick look, you enter how much money you would like access to and click to get a quote on how much it will cost.  There are two fees involved, the difference in cost of funding and 3% of the total as a “facilitation” fee.  To me this seems high given you would lose a fair amount of a years’ worth of interest just on the 3% fee. 

These are just my first impressions of the using RateSetter having only spent the last two weeks becoming familiar with the platform and learning how to get most out of it.  If you do have feedback would like to share your own experiences, I’d interested to hear them.

Wednesday, 13 February 2019

TruePillars Strategy Learnings

Now that I’ve been investing for about six months, I’ve learnt a few things while applying my initial TruePillars peer to peer investment strategy.  From those learnings I’ve started to adjust a little to accommodate and utilise this new found knowledge.  Sharing these, I want to cover off on three of the learnings I’ve experienced and how I’ve applied it to my investing style.  The three areas are selling a “bad” loan, loan potion sizes and investing in new loans.

Selling a “Bad” Loan

It was my strategy from the start to not buy existing loans with a late payment history and to sell any of the loans I own that have late payments.  While it made sense to me in theory and remains my philosophy in practice, there were a few things I learnt.  Firstly and most importantly is that you can’t sell a loan directly after there is a late payment. Originally I thought you could (offload the risk as soon as possible) as I had seen loans with overdue payment history up for purchase.  However, you can only sell the loan portion the after the next on time payment is made.  There is a risk the potential the business never recovers with on time repayment frequency and you are left with the bad debt.  To date I’ve had three loans with late payments, all I’ve managed to sell when on time payments were made. 

While I’ve not adjusted my current approach to selecting loans, it is in the back of my mind something I may adjust in the future depending on my ability to continue to sell out of potentially risky loans.

Loan Portion Sizes

I started out with a set figure in mind when I was first buying into new or existing loans.  As it has progressed, however, I’ve come to realise maybe I set it a little high and have started reducing the amounts I’ve invested in each loan.  Part of the driver was a bit of FOMO, fear that the availability of loans wouldn’t be able to keep up with my rate of desired investing. However I have not found this to be the case in reality, and there have been sufficient new and existing loans to buy into along the way to allow me to relax into the process. I’ve also found I’ve not been able to buy into every new loan or purchase all the existing loans that have come up for sale that I would have liked to.  The key here is to be patient while you are creating your diversification, I believe your portfolio will benefit in the long run. 

Investing in New Loans

When it has come to investing in new loans, my intent has been to invest at the highest interest rate available, I found myself in a couple of cases where I was outbid (due to placing bids late in the auction).  I subsequently started placing secondary bids at lower rates to ensure I won a piece of the loan.  While I don’t believe there is anything wrong with this, I’ve observed over the last few months that a surprising number of people sell out their loan portions after owning the loan a single month.  This means I could actually by a purchase a portion of the loan at the highest interest rate of the loan rather than accepting a 0.5% interest rate discount for the life of the same loan.

I think part of the issue stems from trying to keep as much of my available funds invested as possible.  Thus newly listed loans are waiting for funds to become available from my existing loan repayments or new funds added.  While I won’t be changing the strategy to keep as much money as I can invested, I will be holding off bidding on loans at less than the maximum available rate and take the gamble I’ll be able to purchase when/if it becomes available on the secondary market.

These are just a couple of the learnings I’ve experienced over my short time investing and hope they are of value to you wherever you are on your Peer to Peer investment Journey. I’ve found the last six months entering into the realm of Peer to Peer lending investing to be an enjoyable experience.  As always interested to hear from other investors and their experiences.

TruePillars: A change to the way you invest

TruePillars was the first Peer to Peer platform I invested through. When I started, their offerings were based on investing in the available...