Peer-to-Peer Lending vs. Stocks: Which Is Better?

At our business, we often discuss the benefits of different investment options, particularly peer-to-peer (P2P) lending and stocks. Both investment opportunities are unique and risky, and it's essential to weigh them carefully before making any investment decisions.

What are stocks in simple terms:

Stocks are proportionate ownership in the corporation. Simply meaning if you own stocks of the corporation you own a part of the company assets and earnings. So if you buy more stocks you own a bigger portion of the company and assets.

What are Peer-to-Peer platforms in simple terms:

Peer-to-peer platforms are investing options where you can lend money to other people or businesses. In return, you may receive a higher percentage of interest on the money you lend.

Let's break it down which is more risky

Stocks:

Risk is High. Investing in stocks entails market volatility and the potential for significant losses.

Stocks can go up in value and down in value based on stock markets. In general buying stocks you are betting that the company will increase in value in the future then you can sell the stocks for higher value and gain profit.

If you have to sell the stocks when the market is down, you might end up selling them for less money than you paid for them, which means you could make a loss. From the risk perspective investing in stocks definitely is more riskier, especially if you don't know what you are doing. And even if you know the companies you are investing in, you still can't predict the market all the time.

Peer-to-Peer Lending:

Moderate risk.

When you put your money into Peer-to-Peer (P2P) investing, there are a few things to watch out for.

🚦 First off, there's the risk that the people or businesses you lend to might not pay you back.

This is a biggie because it means you could lose some or all of the money you invested.

Then, there's the chance that the P2P platform itself could run into trouble or shut down. If that happens, getting your money back could be tricky.

Unlike a savings account at a bank, P2P investments don't have the same safety nets. So, while it's an exciting way to try and grow your money, it's super important to understand these risks before diving in.

Having said that, most platforms offer investment compensation schemes where if you lose money you can get it back from the bank. For example, the Mintos platform offers The maximum compensation an investor can claim under the investor compensation scheme is 90% of their net loss, up to a maximum of €20 000. Read more about it here.

Remember, always think it through and make your own investigation before putting real money in! 🤔💭

Some P2P platforms even offer to invest in ETFs and Obligations, like Mintos, for example.

If you would like to inspect some of the best and most reliable platforms check out our top platforms right now: Top 25 p2p apps in Europe.

💰 Potential Returns

• Peer-to-Peer Lending: While P2P lending platforms can provide steady returns, they are typically a bit lower compared to stocks. It is usually between 10% and 15% return per year.
• Stocks: Historically stocks offered higher returns over the long term, albeit with more volatility. In fact, the average market return from stocks in Europe in 2023 was approximately 12.64%. According to euronews.com research.

💧Liquidity:

• Peer-to-Peer Lending: Limited. P2P loans are typically for a fixed term, and accessing your funds before maturity can be challenging.
• Stocks: High. Stocks can be bought and sold easily on stock exchanges, providing greater liquidity.

🔒 Control:

• Peer-to-Peer Lending: Limited. Investors have limited control over the borrowers and the terms of the loans.
• Stocks: High. Investors can actively manage their stock portfolios, including choosing which stocks to buy and sell.

🌐 Diversification:

• Peer-to-Peer Lending: Limited. P2P lending platforms may offer some diversification options, but investors are still exposed to the risk of borrower defaults.
• Stocks: High. With stocks, investors can diversify their portfolios across different industries, sectors, and geographic regions, reducing overall risk.

Conclusion

In conclusion, both peer-to-peer lending and stocks have their pros and cons. P2P lending may offer moderate returns with moderate risk but limited control and diversification.

On the other hand, stocks have the potential for higher returns but come with higher risk and require active management.

Ultimately, the choice between P2P lending and stocks depends on your risk tolerance, investment goals, and time horizon. It's crucial to evaluate your options and diversify your investment portfolio accordingly carefully. Honestly I better sleep when investing in p2p platforms. And it's a very similar return.

Have a look at my opinion the best 25 p2p platforms ranking: Here

You can also check out the Best P2P Lending Platforms for Highest Returns Right Here.