5 alternative asset classes to consider

Investing » 5 Alternative Asset Classes To Consider

Board-game banker: Peer-to-peer loans
Board-game banker: Peer-to-peer loans © albund/

If you're always playing the banker in Monopoly or just want regular interest payments that will keep up with inflation, then peer-to-peer lending might be for you. Peer-to-peer loans have existed on the Internet since 2006 with the launch of the first online peer-to-peer loan platform.

The basic formula across peer-to-peer loan companies involves an online application process for borrowers after which they're assigned a credit score and an interest rate for their loan -- if they're approved. Lenders can look over the borrower biographies to choose individual loans in which to invest or they can set criteria such as loan length and credit ratings and have their money funneled into the best options for instant diversification.

According to the sites, the returns aren't too shabby. Lending Club notes have a projected return of between 5.38 percent and 8.55 percent on A-rated to C-rated loans. On the Prosper website, another peer-to-peer loan platform, the most recent statistics show select AA loans with a 5.65 percent return and a yield of 7.2 percent. On the next rung down the credit ladder, select A-rated loans return 6.57 percent and yield 9.91 percent.

"Lenders have made an average of over 9 percent. And in general, all lenders that have invested in 100 or more loans have all made money," says Kirk Inglis, chief operating officer of Prosper.

Take note that it's not a riskless investment: Some borrowers do default on their loans.


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