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How to diversify a portfolio of peer-to-peer loans?

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One of the fundamental principles in investing in peer-to-peer loans is to build a diversified portfolio

At Nexoos, investors have the opportunity to create their own portfolio with the characteristics they want, tailoring their interests and risk appetite.

But what is a “diversified portfolio”? Diversification in investment is nothing more than the application of the old concept “You should not put all the eggs in the same basket” that can be used in many aspects of our day-to-day life.

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More objectively, at Nexoos, this means investing in a large volume of companies. We recommend at least 20 companies and ideally more than 40 companies to reduce risk exposure. And this works! 93% of our investors investing in 20 or more companies have an income above 160% of CDI.

It is important, however, to always balance risk and expected returns in every investment decision

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Thus, to mitigate risks, the investor needs to assess:

  1. The risk of the asset itself (probability of default in case of debt, probability of the price of a share or the value of a property decrease, among others);
  2. Influence of a new asset on the overall risk of its investment portfolio.

To reduce risk within a portfolio, it is important to seek assets whose performances are independent, that is, if an investment gives a problem does not mean that the rest of the portfolio will be impacted.

In addition, the investor can seek diversification by analyzing some aspects:

  • Type of investment (stocks, fixed income, peer-to-peer loan, real estate, among others);
  • In the specific case of Nexoos, it is also worth analyzing:
    • sector of activity of the company (s)
    • region of the company (s)
    • size of the company (s)

To help investors assess risk, Nexoos offers some indicators for investors:

  • Credit rating (AA to D3): to assist the investor in assessing the risk of the asset itself
  • Diversification index: Nexoos recommendation is to seek at least 95% in this indicator.
  • Maximum exposure percentage: indicates the loan / company that the investor is most concentrated in. The investor should seek the lowest concentration possible in the same loan / company.

 

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