An experienced investor knows that his portfolio stability - low NAV (Net Asset Value) mainly depends on diversification. You can a have a very attractive assets, but due to its low diversification you are under higher threat of unsystematic risk (risk of a particular asset). Simple example:
A) 100 borrowers - 100 USD each (10k USD in total) vs.
B) 2 borrowers - 5k USD each (10k USD in total).
If 1 borrower from A) defaults on loan repayment - an investor losses 100 USD only, whereas if 1 borrower from B) defaults - an investor losses 5k USD. Different risk profiles for each variant.
It is worth to mention, that risk assessment models of P2P platforms are tested and
effective only for diversified portfolios. Therefore, investors are recommended to spread your wealth as much as possible among the best asset classes to achieve higher probability of getting returns according to the plan.
Diversification process can be a very time-consuming activity, therefore P2Port has come up with a variety of automation tools based on advanced built-in algorithms which can significantly facilitate your selection process. Check them here.
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