How do the returns vary depending on the diversification level?
Investing small amounts in as many loans as possible is a golden rule in P2P lending. It decreases the variability of your return.
The graph in this page illustrates the concept.
It’s real data displaying the actual annualized returns depending on the number of loans each investor had invested in.
Each dot is an investor in Klear.
The vertical axis represents the annualized return of each investor since the beginning of the investment until now.
The horizontal axis represents the average number of loans each investor has invested in. It’s a weighted average, the weights being the daily outstanding of the portfolio of the investor.
Are excluded from the graph the investors who had been significantly transacting on the secondary market. Why? Because loans on the Secondary Market are loans with problems and transacting on these loans increases the volatility of the return. The exact rule used is the following: an investor is excluded if the impact of the transactions on the Secondary Market on the profit is higher than 5%.
We also exclude investors who did not yet earned 1 BGN.