Private Lending: High Yields With Zero Stock Market Risk
Private lending is the next big investment opportunity for High-Yield Masters.
Taking place directly between individuals, it is all about connecting borrowers to investors. The Internet brings the two parties together.
It is the ultimate way in which we can become the bank and use this platform to achieve higher returns than what we would normally receive from other types of investments.
Apart from owning ultra-profitable businesses, it is critical to have off Wall-Street income streams.
Borrowers, on the other hand, use private lending as a means to get funding even when they are not qualified to receive conventional loans.
Private lenders have already funded hundreds of millions of dollars’ worth of loans.
The rapid increase in popularity of private lending has a direct correlation with the stronger restrictions set by banks. The process allows borrowers to buy some time before they settle their debts.
The chances of success are high, especially if the borrowers have racked up larger credit card bills and are stuck paying it back at a higher interest rate.
Private lending secures them a loan from a private investor to pay off their debt, and then that person must pay it back at a reduced interest rate.
Private Lending is a Lucrative Sector
There are no banks involved in private lending.
Comprised of investor groups who independently choose whether to fund a party or not, a potential borrower is required to post details on the loan amount, as well as give reasons for borrowing the money.
When the borrower presents their personal information, the investor pulls up their credit report to determine the credit risk. What my research partner Tom Beck has been doing is significantly lowering risk by funding sizeable portions of several loan amounts, rather than funding one big loan.
Learn to pay attention to just one thing: diversification.
Never invest it all in one note – spreading your investments out via different notes will help ensure you won’t lose everything in the case of a single default.
The zero interest-rate policy of the Federal Reserve means FDIC-insured certificates of savings accounts and deposits offered by banks on inflation-adjusted yields have remained almost negative in the past few years.
However, private lending is changing all of that by replacing banks with individuals that are capable of making corporate and personal loans. The best part is that there is a lot of certainty on risks versus returns.
Banks are ultimately the most corrupt financial institutions out there.
In private lending, investors must first decide which personal lending platform they want to work with.
The basic service remains the same, but the business models vary considerably. During the account opening process, they will have to fund their account with a sizeable amount. This will come in handy when diversifying their lending across different loans. The maximum loan amount must be determined by the investor, and they must also decide who they wish to lend to.
The blending of portfolios enables investors to gain stable — and mostly predictable – returns, much more than they would have earned from other financial investments.
Low Impact of the Stock Market
Private lending benefits us by having minimal correlations with traditional bond and stock markets.
This helps set up a fail-safe against potential market volatility in the future.
Despite the rise or fall of broad markets, you will still be able to collect interest due to a highly diversified portfolio that is comprised of small loans.
The days of bank certificates of deposit to get a solid return on your money are gone.
We are adapting to new realities, rather than clinging to old paradigms.
Private lending makes it possible for us to act as the bank. We’ll have a detailed 2-part series of a step-by-step process for you in March.