The long-term investor wins

Finance Tips

Disclaimer: The views and opinions expressed in this article are those of the guest blogger and do not necessarily reflect the official policy or position of Bondora.

Hi, I’m Aleks Bleck, founder of Northern Finance—the German P2P loans blog with the most traffic. Twice a week, I post new videos in German about increasing your income through P2P loans and ETFs. Apart from my YouTube channel, you can also view the videos or translated transcripts in English, Spanish, Italian, and other languages on my website.

Aleks Bleck
Aleks Bleck

Today’s topic is timing and how it can influence the success of your investment at Bondora. While investing with Go & Grow is quite simple, and timing won’t affect your investment because each investor has a share of the total loan portfolio and receives up to 6.75% returns p.a.*, investors who use Portfolio Pro or Portfolio Manager can achieve completely different results and generate significantly more or less returns depending on when and how they invest. Let’s take a deeper look at how timing can influence your investments.

Why the investment horizon and timing of the investment are crucial

Theoretically, anyone who builds their own loan portfolio with Portfolio Pro or Portfolio Manager could invest everything once-off. But it’s not advisable to do that, because a cluster risk can form. Here’s an example: Let’s say I want to build a new portfolio on Bondora with €10,000. To do this, I buy all the loans up to a C-rating in November 2020 and check the performance one year later. I invested the total amount of €10,000 in one month and didn’t spread the sum over several months or years. In this fictitious example, we find that, on average, borrowers paid back their loans better in November than they did the rest of the year. So, in this case, you got lucky.

Timing is crucial.
Timing is crucial.

But the opposite can also happen. Borrowers might not pay back their payments as well as they do in other months, which will negatively affect your investment. Since it’s impossible to estimate this beforehand, you should not build up your own portfolio too quickly (as you normally would with an equity or ETF savings plan), but rather diversify by making regular deposits and mitigating the risks.

Another factor to consider now is the limited geographical diversification. During the corona crisis, Bondora made the decision to only originate loans in its home market of Estonia, as this is where they have the most experience. Perhaps Spain and Finland will be reintroduced in a few months’ time, making investors less dependent on the economic development of only one country.

Profitable long-term investment

Just as month-on-month could bring about different borrower behavior, next year could produce better borrowers than this one. Since I invest in P2P loans with an investment horizon of about 10 years, I will also make regular deposits over this 10-year period. At the same time, my returns will be closer to the average over this period, as I don’t experiment with buying loans for my portfolio only in certain months, but simply want to invest profitably in the long run. The chances for this increase noticeably if you adjust the volatility of the return from individual countries and months to the average.

"I want to invest profitably in the long run."
“I want to invest profitably in the long run.”

Admittedly, this is not that easy and requires discipline. And that’s exactly why I’m so happy with Bondora Go & Grow. It does most of the work for me and has loans in the portfolio from previous years and months before I even started using Go & Grow. With a few clicks, you can own a share of the portfolio, which has grown organically over several years. It makes it easy for you to partake in this large and diversified portfolio, and avoid outliers in returns, even with larger deposits.

For me, Go & Grow was the starting point for another large portfolio on Bondora – Portfolio Pro. I am now building it up piece by piece next to my Go & Grow portfolio, which today has a value of €5,640 and generates roughly €1 returns per day. Since I diversify this portfolio geographically and by timing, I am in no hurry to build it up, and I am glad that I can continue to rely on Go & Grow.

Curious to see how it plays out? All further updates are available on my YouTube channel in German, and afterward on my website in English and other languages.

I wish you good returns!

This text was originally written in German and translated to English. All translations were done based on the translated English document. Even though we try our best to provide accurate translations, there might be slight differences due to the different languages and cultural nuances.


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