In this week's blog, our second in a series of counterargument pieces, we compare our asset class to the wealth of other options in the market. We look at the short-term volatility in equities against the time horizons of our typical facilities. There is no counterargument against long-term investing in our collective global economies. Still, when making decisions personal to circumstances over much shorter horizons, these would be our 'pro et contra', the good and the bad so that investors can decide for themselves.
At the point of writing, with the S&P showing no signs of breaking its two-week losing streak and both UK and US Gilt and Treasury yields rising, levels of uncertainty going into the Presidential Inauguration are sending the news media speculation machine into overdrive. If you ask five analysts to unpack the situation, you will get five contrasting answers, ranging from the Fed's failure to pull the trigger on substantial rate cuts as a tactical manoeuvre, allowing the incoming Trump presidency to negotiate a better tariff and trade deal with China, where the bargaining chip of a weaker dollar could benefit the Chinese more in dealing with their ever-unmanageable debt burden, all the way through to the less complicated answer of simple reactive immobility. The VIX and associated numeric fear gauges rising to three-week highs may be fantastic news for traders thriving on the shockwaves, but high volatility and concerns over both looming job report data and CPI data, and all the other catalysts of the apocalypse, do not create the perfect conditions for a typical investor's peaceful night's sleep.
As we mentioned in the introduction to this piece, equity markets are prone to significant price fluctuations influenced by macroeconomic factors, geopolitical events, and market sentiment. This volatility can erode investor confidence and lead to short-term losses. With financial markets at near all-time highs, many stocks are trading at stretched valuations, with the S&P 500 overvalued by 111–187%, depending on the indicator. The margin of safety and the increasing risk of a correction is growing daily, which is no issue for long-term investors, but for people with their eye on a shorter or medium-term time horizon, it's food for thought. Equities are closely tied to global economic performance, and in what could also be a recessionary period over the next few years, corporate earnings may also decline, adversely impacting stock prices. Unlike products that partially mirror fixed-income investments, equities do not offer predictable cash flows. Investors are exposed to uncertainty, especially during economic downturns. Global interconnectedness means that regional crises or financial shocks can ripple through markets, affecting stock performance irrespective of individual company fundamentals. Therefore, all the above must be considered for medium-term multi-year investing.
Given the current macroeconomic environment—characterised by high financial market valuations, potential rate cuts, and recession concerns—P2P lending backed by real estate emerges as a compelling investment choice for several reasons. Equities are highly sensitive to economic downturns, and recession fears often trigger market sell-offs, wiping out significant value. In contrast, P2P lending's predictable income stream and collateral-backed security provide a cushion against such shocks.
When we hit the lower interest rate environment, this will benefit borrowers, increasing the ever-growing demand for loans on P2P platforms. For investors, this means a stable pipeline of lending opportunities at attractive rates compared to traditional fixed-income instruments. Entering the stock market at these elevated valuations on a short-term horizon, unless you are operating a long/short portfolio akin to a professional trader, you are theoretically reducing the likelihood of generating strong returns in the short and medium term. P2P lending, on the other hand, offers consistent returns that are less influenced by market exuberance and emotion. In a portfolio heavily skewed toward equities, adding P2P lending provides diversification and reduces overall volatility, which is the asset being used to its full potential; the uncorrelated nature of P2P returns makes it a valuable counterbalance to stock market risks. This counterbalance is also enhanced by the underpinning Real Estate, which historically exhibits stability during periods of economic uncertainty. While property values may fluctuate, the tangible nature of the asset provides a degree of intrinsic security for investors.
Both equities and P2P have their merits, but the current economic backdrop in the medium term, at least, tilts the scales in favour of P2P lending. The combination of predictable returns, asset-backed security, and reduced exposure to market volatility makes it a compelling choice for investors seeking stability amidst uncertainty. While equities remain a valuable component of a diversified portfolio, the risks associated with high valuations and potential recessions underscore the importance of exploring alternative investments, and by capitalising on the unique advantages of P2P real estate platforms, investors can better navigate today’s economic complexities and achieve balanced, resilient portfolios.
Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
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