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The Whaley Report: Peer-to-peer pressure

What’s the biggest risk to your investment returns on an annual basis?

Central bank policy? An economic depression? Lying corporate executives? Shoddy advice from your Edward Jones guy? Nope. These are real risks for sure but they all come in a distant second to just one.

Your humanness. There is nothing our humanness loves more than getting involved in something that is being accepted by a large group of people. It’s the ego that wants to be a part of the crowd rather than standing alone and blazing its own trail. Let’s face it, it flat out feels good to be on the side of the majority.

Time and time again, investors readily buy into investment fads only to get their faces ripped off when the fad ends and reality sets in.

I read an article last week, “How Investors Can Earn 7% Returns in a 2.5% World” and  I’m convinced it’s the beginning of the end for some unsuspecting investors.

The author, Stephen McBride, discusses the benefits of peer to peer lending as an asset class for investors who want to enhance the yield on their portfolios in light of the current low yield environment.

P2P lending may not wipe out wealth like a good old fashioned financial crisis but there are certainly less risky situations. Bungee jumping in Mexico or “investing” your paycheck in lottery scratchers comes to mind.

This article wasn’t written by a middle-aged guy living in his mother’s basement and it wasn’t published on Bernie Madoff’s blog from the big house, I found it on Forbes.com.

McBride says, “If you want your wealth to grow in a time of rising inflation, you have to put your money to work. With bond yields still near all-time lows—and dividend stocks not offering a much better deal—P2P lending is a great alternative for astute investors.”

I’m not too familiar with P2P lending but I was intrigued by the assertion that it’s a good alternative to dividend stocks and bonds. McBride’s article was heavy on optimism and light on details, so I did some digging in preparation for this commentary.

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Landon Whaley

Landon Whaley is the Founder and CEO of Whaley Capital Group. Mr. Whaley launched Whaley Capital Group in the aftermath of the 2008 Financial Crisis because he wanted to provide real value and a unique client experience in an otherwise highly commoditized industry. Whaley Capital Group delivers on this mission by following a rigorous investment strategy that is committed to a global macro-style of investing, while simultaneously providing a world-class, boutique-style client experience. You can contact Landon at: landon@whaleycapitalgroup.com