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You’ve probably heard the phrase ‘don’t put all your eggs in one basket’. When it comes to investing, this phrase could not be more relevant. Therefore, at Mintos we have our own saying: don’t put all your money into one loan, diversify!
The majority of investment professionals agree that diversification is the most important component of reaching long-range financial goals while minimising risk. Just a quick glance at statistics on Mintos also proves that investors who diversify their portfolio are more likely to experience less volatility and more solid returns than those with more concentrated holdings.
On Mintos, there are unparalleled options for diversification. You can diversify your loan portfolio across different loan types, maturities, geographies, currencies, return rates, risk levels and loan originators. To help you get the best from investing on our marketplace, we present an article series detailing how you can diversify your investment portfolio on Mintos – starting first with investing in different loan types.
Investing in different types of loans
In essence, investing in different types of loans is important to get exposure to different borrower markets. This exposure allows for different opportunities and risks depending on the differing characteristics of each borrower segment.
For example, the profile of short-term borrowers who take a EUR 100 loan for a month is much different from the profile of those borrowers who take a EUR 1500 personal loan for a bigger purchase. Both of these are also different to mortgage or car loan borrowers. Invoice financing and business loans offer yet another level of diversification because these allow to invest in loans from companies instead of private individuals.
Why is it important? Diversification across different borrower segments helps you to gain from the fact that the performance of different borrower groups is correlated less than the performance of the borrowers within any of those groups.
For example, a global economic recession is likely to bring along an increase in the unemployment rate, which in turn would lead to higher default rates on loans as borrowers are unable to meet their payment deadlines. However, rising unemployment rates would hit different borrower groups at different degrees. It may impact payday loan borrowers more than borrowers who have car loans. In such a scenario, if you have invested in both of those loan types, your losses will be smaller than if for some reason you have invested only in short-term loans. Thus, the more borrower groups are included in your investment portfolio, the better the outcome.
How to diversify across loan types on Mintos?
Currently, there is a total of eight different loan types available for investment on the Mintos marketplace: agricultural, business, car, invoice financing, mortgage, pawnbroking, personal and short-term. If you spread your investments across different borrower segments, you have access to borrowers with different life situations and levels of income. Each loan type brings different demographics, income levels, debt-to-income profiles and understanding of finance by the borrowers.
If you invest manually, you can diversify your loan portfolio by selecting specific types of loans needed to make your portfolio more diverse. You can select those in the “Loan Type” filter on the left-hand side of the Mintos Primary and Secondary market pages:
Once you have selected the parameters, all available loans matching the criteria will be displayed for you to invest in, and all other loan types will be excluded.
Alternatively, if you use Auto Invest tool, you can do the same when defining the parameters of each portfolio by using “Loan Type” filter.
Give yourself the best chance of success by diversifying your loan portfolio with different loan types on Mintos. Stay tuned for the rest of the articles in this series and invest smartly!