Peer to peer lending and stock shares both are popular ways to grow your wealth. But stocks and shares are losing popularity because of low return rates, and P2P investment is increasing rapidly because of high return rates. Peer to peer lending that is commonly known as P2P lending, is a financing methods that matches borrowers to the investors without any financial institution’s involvement. The main thing that attracts investors towards P2P lending is that they can get high return by lending their money instead of saving it. Although borrowers can get low-interest rates as compared to traditional financing method.
If you buy shares in the market, you get to own a little bit of the company you invested in. you can earn profit from stocks in two ways. First is in terms of asset appreciation; if a company grows well, you can sell your shares at higher rates. The second way of earning profit is in the form of dividend. However, in stocks and shares, including the best stocks to buy in the market, it is difficult for investors to handle volatility and predict the return rates.
Let’s dive deeper into the comparison of the peers to peers lending and stocks investment.
Liquidity
The liquidity in the stock market is more as compared to the P2P market. In the stock market, you can sell your investment and receive funds within a few days. Also, you get your dividend every quarter till you reinvest them. While in P2P investment, it is different, and the liquidity varies from one platform to another. Although you will get some money every month, it can take a long time to recover all the funds. Some P2P platforms offer a facility to liquidate your investment more quickly in the secondary market, but you may need some time to retrieve your money in time of need. Therefore, if you want to liquidate your investments quickly, you should choose stock over P2P lending.
Returns
Return rate in the case of stocks depends on various factors such as how long you invest, what you invest in and the strategy that you adopt at the time of investing. You might be an individual stock picker if it is, so you will know about your return on investment. If you are a passive investor for more than 20 years and use low-cost index funds, historical data suggests that you can have a return of about 8%. When you invest through professionally managed funds, the fund manager will send you updates about your portfolio return. On the other hand, most of the P2P platforms display the return rate on their website’s first page. P2P investment, you are less ambiguous and more predictable about the return rate. So, it is a better alternative if you want to have the highest predictable return in a short time.
Resilience To Shocks
The prices of stocks vary over the short term because they are much sensitive to economic shocks and turmoil in the finance market. The level of risk depends on the age, size, and location of the company you are investing in. it means that in stocks and share price and the dividend are not guaranteed. P2P lending is much more resilient and least affected by external economic pressure. Therefore, investing in peer to peer lending is a better way to boost your portfolio income.
Safety And Risk
The stock market has been in the market for centuries with a proven historical record. Although it is volatile in the short term, it is predictable in the long term. If you are investing for a long time and have diversified investments and a low-cost portfolio, the stock market is not very risky for you. However, if you are inexperienced and like stock picking, then the stock market can be a lot riskier, and you may lose all your investment.
Peer to peer investing has been around only for a bit more than a decade and has a shorter track record. It is an investment that has many potential risks, such as the borrower may take a longer time to repay or default on their payments. It is quite difficult to say which investment is more riskier than the other; it all depends on the P2P platform you invest in and how you choose to invest in the stock market.
Investment knowledge is a key factor that helps you to make sensible financial decisions. However, if you are a beginner investor or have no interest in learning about the stock market, then P2P investment is perfect for you.
Both peer to peer lending and stock investment have their own merits and risks, and choosing the correct one depends on your needs, objectives, and individual circumstances. Including both investments in your portfolio is the best way to go. However, if you want to invest for a short time with a small amount of money, P2P is less risky. And if you want to invest for more than 20 years and have a large capital to invest in, the stock market is the best option for you.