Investing and risk

Investing is one of the best and most accessible ways to grow your money. In fact, you can build wealth no matter how much money you make. And it’s fun once you get the hang of it.

Becoming a successful investor

Investing is ultimately about making money. And in today's world, that means venturing off the relatively safe path of bank deposits and bonds, as the returns become less attractive. To earn significant returns, investors have to become comfortable with taking some risk. That does not mean to throw caution into the wind: Successful investors use a few basic strategies that everyone can follow.

They spread the risk among investments and asset classes. Successful investors are quite risk conscious. They don’t swing for the fences by putting all their eggs in one basket. The keys are to take advantage of time and compounding, and avoid major losses.

Don’t look for the needle in the haystack. Just buy the haystack!

Jack Bogle · Vanguard founder

They focus on what they control. Successful investors know they can’t second-guess geopolitical events, and they don’t panic over short-term fluctuations in the market.

Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.

Warren Buffett · Third wealthiest person in the world

They pick investments they understand. Successful investors carefully evaluate the potential of their investments to make sure they fit their strategy and risk tolerance.

Know what you own, and know why you own it.

Peter Lynch · Mutual fund manager

They stick to a long term plan. Research shows buying high and selling low is one of the most common mistakes investors make. Successful investors know investing is not a get-rich-quick scheme. They follow a plain vanilla strategy to achieve more predictable success, and they don’t give in to greed and fear. The quickest way to lose money is by listening to a “hot-tip”. Long-term value investing is how people retire rich.

He who lives by the crystal ball will eat shattered glass.

Ray Dalio · Hedge fund manager

Risks of investing

It’s important to understand investing does not offer “free lunch”. Some risk is normal and should be accepted with all kinds of investing – not just p2p investing. Understanding different types of risk and following a few simple tips can already take you a long way towards becoming a successful investor. Investing smartly can be learned. Remember risk tolerance is individual – only you can decide what you’re comfortable with.

Risk management

At XPS LTD, we take investor protection very seriously. When you invest with us, we offer several tools to help you. Let’s take a look at the risks you face on XPS LTD, and how you can manage them.

Credit default risk

The risk that a borrower will not make scheduled payments.

Invest in loans with a buyback obligation. If the loan is more than 60 days late, the lending company buys back the loan and pays you the outstanding principal and accrued interest.

Invest in secured loans with collateral, such as mortgages or car loans.

Diversify your investment to limit your exposure.

Invest in loans with good performance (vintage analysis, expected default rates).

Cash flow timing risk

The risk that a borrower pays after the scheduled payment date.

Invest in loans that continue to pay interest when late or pay late payment fees (depending on the clauses of the loan agreement).

Reinvestment risk

The risk of loss from reinvesting at a lower interest rate, or from having uninvested money in your account. This can occur when a borrower or lending company repays the loan early.

Use automated portfolios to make sure your money is not idle.

Configure Auto Invest to only invest in loans that match your investment goals.

Invest in loans with extendable schedule.

Alignment risk

The risk that the best interests of the lending company and the investors are not aligned.

On XPS LTD, lending companies are incentivized to only take risks they are comfortable with having in their own books.

Lending companies have a “skin in the game”, meaning they keep a part of each loan in their books.

Lending companies initially fund loans out of their own budget, and they don’t know for sure if they can sell them to investors.

Lending company risk

The risk that a lending company goes out of business or experiences problems. In this case, the buyback obligation is also at risk.

Before we onboard a lending company, we put it through a series of rigorous checks, and we continue to track their performance on an ongoing basis.

Based on our initial and ongoing analysis, we assign each lending company a XPS LTD rating. These ratings can help you gauge the financial stability of a lending company and make informed investment decisions.

It’s also generally a good idea to diversify your investment to limit your exposure. We make it easy for you to diversify across lending companies

And finally, even if the lending company goes out of business, you still own claim rights and may be able to get your money back (depending on loan structure).

Platform risk

The risk that XPS LTD goes out of business.

Steps will be taken to transfer servicing of all loans and investments to an appropriate manager. As XPS LTD does not issue loans, you still own the claim rights against the borrower or lending company, and the appointed manager will help transfer all outstanding payments

Diversify your investment across asset classes.

Regulatory and compliance risk

The ris

k of a change in legislation affecting the business model of a lending company or XPS LTD We look at the regulatory environment a lending company operates under as part of the due diligence check, and adjust the company’s risk rating accordingly.

Market risk

The risk of a decline in the value of an investment. This includes events such as an economic downturn, a financial crisis, exchange rate fluctuation, or geopolitical events.

These events tend to influence the entire market at the same time.

Diversify your investment across asset classes and geographies.

Invest in your home currency to avoid exchange rate risk. XPS LTD currently supports 10+ currencies.

XPS LTD strategies or our liquid secondary market can help you cash out your investment if you need the money sooner.