21 April 2021 - Is lending money to SME better than investing in stock ?

I would say for people who don't know how to invest in stock, P2P lending could actually be a good form of passive income due to the high return. Do note that P2P lending do have its' own risk and is fundamentally quite high (may be even higher than stock). 

To defend against such risk, we look for reliable platform to park our money for P2P lending. The target customers are usually the SMEs which are unable to secure other loans. The interests are usually very tempting at a high 10 - 15 % or even higher. This will simply put most of the dividend giving blue chips to shame. 

The main risk of such P2P lending is when the borrower is unable to pay and default on payment. Some companies defaulted on interest payment for 1 - 2 months and was subsequently able to repay everything. This is a slightly ideal situation. The worst case situation is whereby the company simply close down and default on payment. Investor will simply lose their investment. 

So why is P2P Lending still a viable option ? 

The default rate is rather low on majority of the platform. I won't say that there are no defaulter but the ratio is rather low (usually below 2 %) for most platform. 

A few common P2P lending platform in Singapore are (i) Funding Societies, (ii) BRDGE, (iii) CA funding, (iv) Minterest, (v) Moolasense and (vi) Capital Match. I won't be making any recommendation but personally I am using 1 of them. You may want to do you own due diligence before signing up an account with anyone of them. 

What are the factors to consider ?

(a) Platform Fee : The platforms are not charity and they will need to earn money. So do take note of their platform fee. 

(b) Default Rate : You know something is wrong if the platform has a default rate of 10 %

(c) Frequency of funding : How frequent are they able to rack in borrower ? 

Conclusion

P2P lending can be a sound option in your overall portfolio. The down side of P2P (other than potential defaulter) will be the fact that they do not grow in value. i.e You loan 10 K for the project at a 10 % P.A interest. You will be getting about about 11 K after 1 year and your 10 K won't grow. All you get will be the interest. However, if I am vested in the stock (i.e QQQ), the grow will cause my 10 K to 2 x or 3 x if I bought the dip. 

For somebody who know how to invest in stock by performing Technical or Fundamental analysis, stock investment will likely still be the best option for your money. However, for a person who always FOMO and lose money, P2P Lending may be a more viable option. 

SME don't simply default on payment just cause of small issue. Even during Covid-19 Pandemic, I continue to receive my interest and the projects that I funded did not default. This is because the platform did their best on their end to help to these companies. On the other hand, for a FOMO investors, they would most likely perform a major sell off during the crash and then say "Stock is dangerous". 

19 Apr 2021 - I offloaded majority of my SG listed stocks.

Due to the Covid-19 Situation in March 2020, I managed to "Kio durian" and those stocks that I have picked have since recovered and resulted in a profit for me. These gains were about 20 - 30 % on average and allowed my portfolio to increase significantly. 

I often asked myself on why I did not go big on US stock in 2020 when they were on a bargain but chosen to invest in SG instead. I have no regrets as I don't believed in 10 x 20 x in just a few months. A 20 % gain a year is already something that is very satisfying for me. 

Why I offloaded majority of my SG listed stocks. 

CapitaLand. 

Firstly, I offloaded CapitaLand due to the proposed restructuring as I know I will end up with odd lots if the offer proceed as planned. Secondly, my average price was about 2.8 SGD per shares and I sold them at about 3.8 SGD which meant that my profit is 1 SGD per share. Looking at the 10 years chart of CapitaLand, I don't have the confident that the value will go past 4.0 SGD and proceed even higher. If I am to hold onto CapitaLand, I will likely be sitting on a roller coaster with the price bouncing between 3 - 4 SGD. Though Dividend will be given yearly, I feel that the profit of 1 SGD per share will make more sense. 

YZJ.

Previously, I have strong conviction of it going even higher and my TP was 1.4 SGD. My average price was rather low as they were from Covid-19 crash and thus the profit was about 0.50 SGD per share. Though, I believed some day YZJ will sail to 2 SGD per share but it may be a very long ride. 

REITS.

I offloaded my REITS slightly earlier for capital gain. My initial plan was to keep REITs for dividend but I have found a better way for passive income which is to perform "Covered Call". Thus, the 5-6 % dividend no longer make sense to me. Furthermore, REITs may have rights issue which is something I want to avoid badly. 

So where do I place my money ? 

This is gonna sound lame but I place my money in ETF for SG market. Though dividend is lesser but they are stable. 

I have added my position in HK and US market. For both market, I keep the companies that I invested in to be less than 10 so I don't need to read so many reports. In order to generate passive income, I also only invested in companies that have options tradable. 

My passive income is now higher than previously by performing "Covered Call" as compared to collecting dividend. I am still learning and hope to learn more from proper channels.