Peer-to-Peer (P2P) lending has risen in popularity in recent years, and as the possibility of a near term recession increases, many investors may be looking into the P2P space as a potential alternative to the stock market. However, before making any decisions, it’s worth considering how P2P loans might perform during an economic downturn. Moreover, in times of uncertainty, it’s helpful to explore all available options, and online platforms like Yieldstreet make it easier to find and invest in other alternatives that might perform more favorably in the current environment.
Let’s take a brief look at the pros and cons of investing in P2P during a recession, before speaking to the potential benefits of other alternative investment opportunities.
Pros of Investing in P2P During a Recession
One advantage of investing in P2P is accessibility; investors can choose from a variety of platforms, most of which have relatively low barriers to entry. Naturally, many investors will feel the need to be conservative in regards to the amount of capital they invest during a recession, and P2P lending can be a good option for those looking to start small.
Many investors also like P2P lending for the notably high returns due to healthy interest rates, and the ability to generate passive income almost immediately is also an attractive perk.
Cons of Investing in P2P During a Recession
Unfortunately, a recession involves a fair amount of uncertainty, and as economic conditions worsen, the reliability of the above benefits could be significantly diminished.
First of all, many people cut back on spending during a recession, meaning there could be less interest in borrowing money at high interest rates. Additionally, the vast majority of P2P loans are unsecured, and in the event of a default, investors can be forced to take on considerable losses. To make matters worse, loan defaults are much more likely to increase during a recession, which heightens the overall risk of investing in the P2P space.
Explore Other Alternative Assets Outside of the Stock Market
It’s hard to determine exactly how P2P loans will perform during a recession, but it’s safe to say that investments into the space will become much more risky as the economy declines. Fortunately, there are plenty of other alternative assets outside of the stock market that have a more proven track record for success.
Investing in real estate, for example, is often considered a smart long term investment, even as stock market volatility remains high. Vehicles such as real estate investment trusts (REITs) earn passive income much like P2P loans, but are typically more diversified, less volatile, and more reliable as a hedge against inflation. Alternatively, investors might consider a professionally managed fixed-income portfolio, such as Yieldstreet’s Prism Fund. Containing more than 5 different asset classes, including art, legal, and corporate financing, the fund offers instant diversification for an initial investment as low as $500.