Risk vs Return on Investment on Mintos


When you are trying to optimize your portfolio, there are three basic components: time, risk, and return on investment. In this regard, investing on P2P platform is no different in comparison to stock market. You can apply really simple logic when you allocate your investments on Mintos (but do not forget diversification rules discussed in previous article). In this article I will show my up-to-date results and discuss if there are opportunities for improvement.

Metric used for Return on Investment

First, I need to explain the metric I am using for return. I call it wXIRR, short for weighted extended internal rate of return. However fancy that sounds, in reality it is the interest rate achieved on the investment, adjusted for non-regular cash flow and weighted by investment amount and real duration of the investment. You can compare wXIRR to interest rate stated by Mintos and see whether you did better or worse. If you thought that that the interest rate stated by Mintos is what you always get at the end, than you are really mistaken and I will list some of the scenarios where this is not true in next post.

Metrics used for Risk

Since I am investing in EUR loans with buyback guarantee only, the risk metric might not be so obvious. By far the biggest risk in this game on Mintos is the risk of loan originator not meeting the buyback guarantee. I have two different metrics – one from Mintos itself (rating of the loan originator) and another from exploreP2P site, where there maintain great table with their own assessment of risk for each lender.

Metric used for Time

Time is easy, currently I am using the original term. While I could use the real duration of the investment I don’t think it is a valid approach. You generally not know what the duration will be at the time of investment. E.g. if you invest in 36 months you should expect that it will take that long to repay. It is true that some of the loans will finish much earlier, however you should not assume that unless you have significant volume of data to back up such approach.

Rules on Risk Minimization

While you can model risk using cool statistical/simulation techniques there are few very simple rules to follow:

  • For the same Risk, you prefer higher Return and/or shorter Time
  • Given the same Return, you prefer lower Risk and/or shorter Time
  • For the same Time, you prefer lower Risk and/or higher Return

That does not seem that difficult, does it? Now let’s see how my finished investments are doing.

Status of My Finished Investments

Unfortunately, I am only three months on Mintos, so the data collected are not so massive and not so stable. However there are already some interesting data below. This is for or loan originators where I invested at least 1,000 EUR im finished loans.

Risk vs Interest for my portfolio.
Time, Return, Risk

What are some of the findings here? Let’s see:

  • There is one loan originator with rating B/70 where I have 12.8% wXIRR. This seems like a great originator where I might want to put more money, especially when the average term is one month (it is shor-term loans lender)
  • I have historically invested a lot of money in lender with rating B/10, generating wXIRR of 12.5%. The rating coming from eP2P is scary and I will need to think whether the gain of 1.3% I am getting over lenders in A-/70 is really worth it
  • wXIRR is the same for A-/70 and A/B/70, namely 11.1%. If you look at the average initial term, A/B/70 has 32 months while A-/70 has 17 months. This is definitely bad thing as I could have put money in less riskier lenders, shorter loans, generating the same return.

As you can see I probably made some mistakes along the way in allocating the investments. I will try to learn from this in order to improve quality of my portfolio.

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