Does Greater Effort Yield Greater Portfolio Performance?
The data, charts, and models of the investing world often lead us away from a simple truth; the decision to become a passive or active investor is rooted in personality. Some investors enjoy the uncharted journey that is an active approach. Others, more focused on other areas of life, prefer to set a course and follow it to the end without interruption.
The rewards lie not just with the return on investment but also with knowing oneself. Shakespeare would have made a great investor, his character Polonius once remarked, “To thine own self be true.” We’ll look at what correlations exist between the efforts applied to portfolio management and its return and how this relates to the Bondora platform.
The Profile of the Active Investor
The active investor seeks to apply a level of rigor in the analysis of investments to outperform the market after accounting for all costs (e.g. trading fees, etc.). Their ability to beat the market depends on the quality of information used and strategies employed. This process requires time. To the devoted, active investor this is time well spent; the rewards can be great. The active approach allows investors to embrace their risk tolerance. Those comfortable with the higher risks inherent in active investing pursue a higher return; this is the ‘equity risk premium’ at work.
Active investors have a steep hill to climb. Consider the results from the Morningstar active/passive barometer, which seeks to gauge comparable results between passive and active styles. The 2015 findings reveal:
“The report finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.”
The efficient market hypothesis contradicts the active investor. The basis of this idea is that asset prices immediately reflect all current and relevant information. Therefore, one must possess a superior level of insight to capitalize on otherwise unseen forces creating transient opportunities in the market.
Active Investing With Bondora API
The benefit of the Bondora API system is that it allows the investor to choose the level of their active approach. Investors can customize their strategy by accessing granular reporting. This feature permits the altering of the Bondora platform thereby reconfiguring the DNA of the investment portfolio. This benefit is appropriate for the detail-oriented investor interested in examining specific loan bids. That type of engagement is in contrast with the broader style of a passive approach. Bondora API is a deeper dive for those who want to tailor the risk profile and potential return of their lending portfolio. The technology-enabled speed of borrowing and lending is secondary in its appeal to this investor. The intention is to earn greater returns for the superior data analysis.
For example, an active investor may choose to prioritize for different variables in making their investment decision. In one study from the University of Texas and the University of Connecticut, researchers determined that “Borrower maximum rate instead of credit grade is the most important variable for identifying risk and return for loans offered.”
The comprehensive data forming the core of Bondora API lets the investor gauge the default risk of their investment. This analysis is necessary because of the increasingly risk-averse stance of traditional lending institutions (i.e. banks) open opportunities for others. Frequently a borrower representing a minimal risk to a lender offers a valuable relationship. These relationships reside in the minutia of data available with Bondora API. Investors of this ilk can poise themselves for returns in excess of the 16.3% that is the Bondora annualized net return on investment in fixed-income investments in European personal loans. These returns are well north of the 7-9% that represent the general expectation of your average equity investor.
Passive Investing With Bondora Portfolio Manager
The passive investor eschews such voluminous data for a simplified portfolio. Bondora’s Portfolio Manager interface automates the investing process. With only a few decisions the investor can create an investment profile that offers a substantial return while adjusting for risk tolerance. With inputs like investment size and risk-return strategy, investors can start investing immediately.
This matrix of options has the aggregate effect of driving the largest possible return from a risk-adjusted portfolio. Investors can also choose the liquidity of their selections making it easier to access funds on a short-term basis if necessary. Achieving this liquidity comes from the practice of splitting investments into multiple smaller bids.
Aggregating smaller bids is a critical feature. In the same study referenced earlier researchers determined that “Risk adverse lenders need to diversify more to maximize return compared to risk taking lenders.” Understanding risk is important so investors can ascertain the depth of their tolerance.
Bondora’s Value for Both Styles
There are consistencies among both passive and active investors using Bondora. No matter how aggressive the investor is they’ll take comfort in knowing Bondora is the most licensed platform in Europe. Additionally, the SEC licenses Bondora in the US.
Investors will be reassured knowing that Bondora makes public all of the data underlying the loans so that there are no questions regarding the quality of each obligation forming a portfolio. The superior nature of the loans comes from the borrowers facing fewer options in countries like Finland, Spain, and Estonia. These countries are “underbanked.” Therefore even those with a strong credit history have few if any avenues to conventional borrowing. By accessing responsible borrowers, those interested in lending can enjoy a superior return while managing risk intelligently.
Some investors have more time than others, but we all have time to make money. Bondora API or Portfolio Manager both make excellent use of time to deliver the best investments. Get in on the ground floor of the largest P2P secondary market to earn the return so many others have discovered.