Anyone who has been burned in the housing market or the equities market is now looking more closely at diversification strategies. Spreading your risk out over several kinds of investments makes more sense than ever in today’s market. One way to meet the goals of good return together with a well managed risk strategy is to include some peer to peer loans in your investment strategy.

There are many advantages to peer to peer lending, but one of the most important advantages is the almost total control the investor has over his portfolio. Each investor looks over and chooses the exact loans, and therefore the risk and rates for those loans. Each investor has total control over where his money goes according to his investment strategy, as you will see in a moment. An investor may even include investor conscientiousness in his portfolio, much in the way an investor in stocks may choose to allocate a portion of his portfolio to “green” companies.

Some investors have given segments they would like to be involved in, for example education. The investor in a peer to peer loan program can review and single out those loans that are intended for educational purposes. If you want to add a “green” element to your investment strategy, you can choose loans that achieve that goal, such as loans for solar panels or other energy efficient measures for the home. Each investor can specifically choose an investment strategy that reflects his own personal concerns.

Perhaps you have a goal of investing in a certain area of the country. If you want to help a certain geographical area grow, you can pinpoint that area for your loans. In this case you may decide to lend to borrowers in the New Orleans area. Or perhaps your findings tells you that the southwest is an area that is going to prosper in the future. Since you can control the loans, you can place your money in the targeted area that offers potential.

One of the most critical aspects of peer to peer lending that investors gain is the transparency of their investment criteria. You, as the lender, can view the credit rating of your borrower, the purpose of his loan, and any other pertinent details that would determine your investment. In the aftermath of the debacle caused by financial institutions over investing in sub prime loans, many investors feel they may have been better judges of the risks taken, if they had only been allowed to see them. This is a logical outcome when investors forfeit control over their own investment strategy and rely on intermediaries.

But a major attraction to most investors of peer to peer lending is classic risk diversification. This type of lending allows the investor to divide his investment into many small loans. You mitigate your risk by spreading it out over many individual people. Any investor can put together an investment strategy that combines many risks and rates for the perfect plan.

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