Low diversification leads to higher risks
Loan diversification, as mentioned before, is one of the main investment strategies in peer-lending to reduce investment risks.
Even though it is possible to invest manually without any limits, it is always recommended to diversify between a number of loans, making small investments into each.
For example: if you are planning to invest 50,000 EUR, it is suggested to split the investments equally (e.g. 100 EUR/loan), rather than invest 50 EUR per borrower and then manually add 500 EUR into those loans, which seem safer or appear to have a higher potential ROI.
Even borrowers with the best credit ratings can get into financial difficulties and this may cause highly unfavorable consequences for investors.
Bondora+ speculation and low diversification
We have noticed that the introduction of our restricted marketplace Bondora+ created an opportunity where an active investor can invest larger amounts into Bondora+ loans, for the purpose of selling these investments on the secondary market for a premium.
Such investment strategy may lead to lower diversification level, in case there is not enough demand for the loan on the secondary market. In addition, since Bondora+ loans are considered higher risk, it also means that using this strategy may significantly reduce ROI and cause potential losses, in case the investments are not properly diversified.
It is recommended to use proper diversification for optimizing your returns and risk levels.
Bid limits for investors
If you are investing through an investment profile, each automated investment (into 1 loan) is subject to bid limits of 500 EUR or 20% of the loan application amount, whichever is smaller.
– you can invest up to 500 EUR into 10,000 EUR;
– you can invest 100 EUR into 500 EUR loan.
For manual investing there are no bid limits, meaning that a single investor could fund an entire loan, once it is available on the market.