P2P plays an important role in maintaining a balanced portfolio in turbulent economic times, according to Invest & Fund.
In a company blog it highlighted the recent collapse of both Silicon Valley Bank and Silvergate Bank as ‘black swan events’ that “rocked the financial press and the financial markets, and the compounding effect of both of these could have repercussions yet to come”.
“Firstly, we saw Silvergate, a pioneering modern bank and recipient of funding from the now-defunct investment arm of the FTX exchange, collapse in an $8bn (£6.6bn) bank run that couldn’t be curtailed due to the nature of the digital assets it was holding free-flowing onto exchanges,” the peer-to-peer lender said.
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“Then, before people could catch their breath, the broader legacy markets were sent into meltdown as the Silicon Valley Bank (SVB) share price plunged 60 per cent as they traded out of a $21bn loss-making bond portfolio to free up $1.8bn needed to plug a hole in their balance sheet.”
It said the contagion effect had depleted prices across the financial markets, with Lloyds and Barclays shares falling circa 3.5 per cent as the news spread.
“There is panic in the air as speculation begins to mount that it’s not SVB, it’s the system, and many other banks may need to ‘fire sale’ their bond portfolios in the weeks to come to prevent the dreaded ‘liquidity event’ that has lead so many times in the past to bailouts and central bank involvement,” Invest & Fund added.
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The property development lender said that these tumultuous events demonstrate the need for balanced portfolios.
“While that narrative unfolds, you can lessen its rigours by treating your portfolio the way you treat your life, employing balance,” it said.
“Most successful investors employ the same strategy, decide on their own risk tolerances, and then structure their investments to cover a wide variety of asset classes and levels of risk exposure.
“P2P plays a role in that; it’s one option amongst many, and in deploying balance in a structured portfolio, you have a decent umbrella to weather volatility.”
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