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One Worry For All Investors, Including P2P Lenders
How did I get here?
It's a question that many investors – in any investment – might be asking quicker than you think.
Let me get to the point in a laborious and roundabout route.
I've always been a fan of stock-market tracking funds: index trackers and ETFs. The most popular are the ones that simply track a whole index, such as the FTSE 100, by spreading your money across lots of shares without a manager trying to choose the best.
Some believe these robotic funds can't beat active fund managers, but the reverse is true: low-cost tracking funds beat almost all actively managed funds over the medium- and long-term by a considerable margin simply because of their lower costs. Usually it is the fund managers, or others who profit from them, that argue active funds are better.
Another concern about trackers has been that if these types of funds become too popular it will cause a bubble and the whole stock market could collapse due to over investment in the same companies.
But now there is such a huge number of tracking funds tracking all sorts of different, even imaginatively different, stock indices, that this looks highly improbable.
And even if it could still happen, these funds are still a long way off the size they need to be.
You could also argue that the stock market frequently has large crashes, so why should this one be any more extreme?
Now, though, I have read one reason to be wary that is worth some more thought, and this impacts all investments. Not just trackers.
Take a look at reason two in Citywire's Three reasons why we're heading for ‘peak passive'.
The first and third arguments in the article are the same old ones about the dangers of these funds becoming too popular and active funds outperforming (not true at all and with spurious short-term “evidence”).
The gist of the second, however, is about the undeniable fact that computers are already taking over more and more of our jobs. This will continue to snowball as technology improves to become more competent at more tasks than humans.
While some businesses will simply use the new technologies to cut costs, many others will be destroyed by the changes.
I think the last safe jobs will be those involving a lot of contact with people and their emotions, such as teachers, counsellors and musicians. Mechanical jobs and diagnostics jobs (which includes a lot of doctors' work as well, not just drivers and railroad-defect analysis!) will be better done by computers and robots.
And consider businesses like Manpower. What are they going to do when millions more people simply have no jobs available to go to?
When investing in shares and many other long-term investments, this is a good case to slowly start stripping out businesses that don't do basic essential functions that can't easily be replaced, or businesses that are likely to lose from their industries becoming automated or replaced by completely new robotic ones.
The risk in short- to medium-term investments, such as P2P lending, is lower, but we can still protect ourselves from any aftershocks. Here are some suggestions:
- When choosing platforms we might consider the types of lending on offer and whether any job-/business-destroying technology might be coming soon. Residential buy-to-let, such as that offered by Landbay*, looks pretty safe, since robots won't be taking the place of human, rent-paying occupants in all our homes any time soon.
- When selecting individual loans yourself, you might have an eye on technological trends that are worrying businesses in those industries.
- We should probably read the business pages and technology papers to keep an eye out for the spread of new technologies. Get interested, because it will affect your life!
- Simply spreading our risks across hundreds of low-risk businesses and consumers, and half a dozen or more P2P lending platforms, means that any impact surely can't affect a large majority of them at once. We'll have plenty of time to switch off lending when borrowers with great credit records start to lose their jobs in droves.
- You might also keep an eye out for the P2P lending companies take into account considerations that impact how long a borrower might be able to borrow for. Looking for a recent example, I see that Assetz Capital, the business and property P2P lending platform, did this when it lent to a business that makes money by helping people to reclaim their mis-sold payment protection insurance premiums from the banks. (Not the most positively received business model in consumer-help circles, but that's not the point.) The window of opportunity for reclaiming these mis-sold premiums has been restricted by the government, so the business borrower has a limited life and this was duly considered when Assetz reviewed the loan application.
So it might be a small worry, but perhaps it's another factor to add to the pile when you're considering lending on a new platform.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Landbay, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.