Loans as asset class
We have repeatedly reported in our blog posts about financing of various kinds. But for the functioning of our Good lender platform, investing in the loans offered is just as important.
Investing in loans as a modern form of savings account.
The investment of a part of the private assets in credits has various interesting aspects. One can imagine investing in loans as a modern form of savings account.
What does what mean?
Regular interest income is very difficult to obtain in today’s interest rate environment. So you get for money in the bank account typically nothing or you are even punished with negative interest. Saving does not seem worthwhile anymore. Lending offers an attractive alternative here. Even in the safest risk class, after deducting the costs, you get a return of more than 4%. Such investments are otherwise only accessible to major investors such as pension funds.
Who says yield, must also say risk. This is no different when it comes to investing in loans. Depending on risk class A, B +, B, C + or C, you get more interest, but the risk of default increases. In extreme cases, you can lose the entire amount invested in a loan. So it is important not to invest all the money in a single loan, but to diversify. For example, you’d better invest CHF 2,000 in 10 different loans than in a single one.
If, for example, Novartis shares lose value, there is a high probability that Roche shares will fall as well. This correlation is called the correlation between two investment titles. An often overlooked benefit of investing in loans is the low correlation to all other asset classes. This means that the constant compounding of loans has virtually no connection with other investments. So you can optimize the totality of your invested assets by investing in loans.
From the credit projects, the investor can freely choose the type of loan (personal loan, company financing or real estate financing), the term and the risk class according to his needs. If he wants to deposit this choice according to systematic rules, the function Auto-Invest even offers us the possibility to implement his ideas automatically.