I only tried Mintos.
I put in around 1500 Euros over time. I made 200 in interest before tax, and right now 350 Euros are frozen, of which I’ll probably lose around 150 Euros.
The appeal of P2P was to get decent returns to create passive income over time.
Unfortunately, it is anything but passive, at least until you learn your lessons. And even then, it’s a shaky deal. Remember: You are buying junk bonds!
Initially I went with Invest & Access, but I soon noticed that it buys the crappiest loans - longest maturities with low interest rates. (BTW, the new tiers that you can choose are still fairly bad).
Invest & Access is responsible for most of my frozen money. Since I selected the higher quality Loan Originators, I have very few losses there despite the pandemic induced crisis.
My main criticism of the P2P market is the following:
**A: It’s not passive income, and taxwise it’s stupid, especially for Swiss investors."
You need to constantly keep up to date with the development of new and existing Loan Originators. Their health might change quickly. This makes you an active portfolio manager.
The return on time invested is (ROTI of you own time) is bad unless you have huge sums in there.
Also, note that the advertised interest is rarely what you’re getting. You pay tax on the interest and can’t write off any potential losses in Switzerland. This makes the 13 % on their website more look like 9.75 % (25 % marginal taxe rate) and is probably lower (see next point). Also, inflation in the Euro zone is higher than in Switzerland which leads to the Euro losing value over time compared to CHF.
To be fair, some people make a lot more than that, but they tend to focus on:
- on buying loans on discount on the secondary market (aim for at least 3 % discount) on which you make capital gains.
- or they have some scheme where they profit from cashbacks.
B: It’s a bad reward for risk.
OK, if everything goes right, you might get 10% after tax or a bit more. If you’re really good and lucky and find a few tricks.
But, if things go something, you may lose all your investment. As someone once said, “Return of Investment is more important than Return on Investment”.
C: The advertised rates are not the rates you’re getting.
If a loan says 15 %, there are a few ways for the borrower, Mintos and the loan originator to get you less than 15 % for the duration of the loan:
- The borrower can go bankrupt and if the loan has no buyback guarantee, you have to wait until what remains of the funds is collected, which can take years.
- LOs buy back the loan, sometimes as soon as 2 days after issuing it: Result: you get 15 % for 2 days and wait for up to a week for the loan the reappear in your account during which you don’t get interest.
- If you buy on the secondary market, the main interest payments may have often already happened, because the repayment is structured in a way that the share of interest is higher in the first instalments. You get less than the advertised interest rate.
D: The whole thing is not transparent and the incentives for Mintos are wrong
Mintos and most other platforms make money from supplying funds to the Loan Originators. The more money they make them available, the more they earn. They have every incentive to make LOs look good. If LOs have problems, Mintos has little incentive to report until it’s too late. Also, they never totally write off loans because then then they would have to report lower returns.
This is different from being a fraud. It’s not illegal. They are merely acting in their interest and not in yours. Don’t get me wrong, Mintos is one of the better P2P platforms out there. They undertake effort to improve transparency. I have the impression that they just raise unrealistic expectations.
Conclusion:
If you really want something like passive income from investments with risky assets, there are a few still crappy but better alternatives, in order of my preference:
- High Dividend ETFs, on which you might get 4-5 % per year.
- High Yield Bond ETFs 7-9 % (Junk Bonds)
- Barrier Reverse Convertibles: If things go wrong, at least you get some shares which are around 50-80 % of your initial investment. Coupons between 5 and 15 %.
- Bonds of Loan Originators (Buy the loans of Iute, Dolphin Group and Mogo from your broker (DeGiro, IB), and not on Mintos: The coupon is something between 9 and 14 %. Examples: XS1831877755, LV0000801363, XS2033386603
But if you want to take risks, take them where tax adjusted returns are good: Go for capital growth. Tech funds like ARKK and EQQQ (Nasdaq) have the potential for high earnings growth. Or you may even speculate with crypto. If you follow rules like “I’ll sell it all once it goes up 50 %” you’re likely to be better off on average than with P2P.
If you want to preserve your time and sanity, just stick to VT, VWRL or SP500 and stop looking for anything else. Or treat it as a hobby as I have for a while.
