Stock Market vs P2P Investing: A Comparison
Photo c/o Créaude
Today, stocks have become one of the most popular means of making an investment. Thanks to its long history and extreme prominence in the media, almost every person who has an idea about investing and finance also probably has an idea of what the stock market is.
At the same time, other modern forms of investing such as peer-to-peer, person-to-person, or P2P investing have also been gaining worldwide popularity since the turn of the millennium. The internet, coupled with the free-flowing information and the digitization it provides, has strongly influenced the growth in these new alternatives for monetary transactions.
P2P marketplaces have been undergoing strong and steady growth not just in other countries but also in the Philippines. Since majority of the population is either unserved or underserved by banks, the P2P model has provided an alternative for these people to either borrow or lend money while still keeping the fundamentals – the formality and security involved in such transactions – at bay.
While an investment portfolio should always include a diverse assortment of assets, we want help you out in deciding which one is better suited for your requirements. Besides, you shouldn’t be limited to either owning stocks or investing in P2P. We’ll try to give you a general idea of these two types of investment, including their advantages and disadvantages.
So in this article, we’ll compare stock market investment with the alternative solution – P2P investing or lending.
What are stocks and what is the stock market
Stocks represent shares in the ownership of a company. When someone owns stocks, he or she owns or claims part of the company’s assets and earnings. These stocks are easy to buy, and they’re fairly easy to sell, too. You can take back your investment on short notice and you can also reinvest it without much trouble.
How to invest in the stock market
In recent years, the stock market has opened up its doors to make investing more convenient for people to try. So in the context of individual investing and generally speaking, a person can invest a viable minimum of PHP 5,000 depending on transaction fees and other charges. Building a good diversified portfolio can easily require PHP 100,000 which can be a big amount for most people.
But one of the main characteristics of this orthodox type of investment is its volatility. Because of the ever-changing economic, political, and social landscape both locally and internationally, investors can lose a significant portion of their investment in the blink of an eye.
How the stock market works for investors
When buying a company’s stocks, you get to become a part-owner of a company to some extent, but you won’t be guaranteed that you’ll earn a share of its profits. In addition, you’re going to be paid last if the company you’ve invested in goes bankrupt. This is why there are professionals or consultants in charge of closely monitoring the stock market’s situation and its predictability. For individuals, especially those who don’t keep themselves updated about the numbers they need to know, stock market investing can be akin to gambling.
What is P2P investing
We’ve repeatedly covered P2P investing in previous posts. P2P investing simplified, is people lending other people money based on their own criteria and preferences, particularly a set rate for their desired ROI. The lenders get a return on their money when borrowers repay what they owe because they will get paid the principal plus the interest.
- Less affected by the economy. P2P isn’t dependent on sporadic fluctuations in the market.
- Offers better flexibility. P2P investing is not as old school as conventional stock market investing. There’s no painstaking paperwork involved aside from the basic requirements and identity checks. You don’t even have to show up in an office.
- Better return rates (ROI). Earnings can range from 6% to 30% per annum and you can also get it back depending on the period or terms of the loans you funded.
- An option to diversify your investments. You can fund loans anywhere from a seafarer starting his own business to paying for a working student’s tuition fee for the meantime. You’re not helping a big conglomerate get even bigger; you’ll be helping individuals turn their dreams into reality.
- Lower investment amount. For as little as PHP 5,000, you can be a lender on the platform and start funding loans. As your earnings grow, you can reinvest the money back and get bigger profit.