Many investors on Bondora who use one of the Portfolio Managers are disappointed by their returns. Usually they use they wrong investment strategy and are too impatient. I made all of these mistakes myself in the beginning. The lessons were learnt and today I present my single most important analysis for turning a profit on Bondora.

Based on the entire loan data set from Bondora I made an analysis of the loan performance for Estonian, Spanish and Finnish loans. From that some simple and easy to follow rules are deduced in order to successfully invest on Bondora.

The result is pretty clear: at the moment I’d only invest into Estonian loans via regular monthly investments. Also, an investment horizon of at least 10 years is required for turning a real profit on Bondora.

Why that is I explain in detail in my YouTube videos which are linked at the end of this post. Therefore, I keep the description here rather short but post all the graphs that I show in the video.

Profitability of the entire Bondora loan portfolio

The following graph is the key information from Bondora’s statistics page in order to understand how long it takes to effectively turn a profit. All loans are grouped by their year and month of origination. The graph shows how long it takes for each of these monthly loan portfolios to reach the break even point (all repayments from the loan equal the original loan sum). The blue bars indicate the profit zone in which the repayments exceed the original loan sum.

Turning a profit on Bondora. Performance of the monthly loan portfolios.
Progression of the monthly loan portfolios towards the break even point and into the profit zone (blue). Averaged over all countries and risk categories this takes roughly 5 years.

Let’s plot this in a different way for the following analysis:

Same data as above, just plotted in a more obvious way. Here it is already clear that different months have a very different loan performance.

From this data we can deduce the first rule for investing on Bondora: do not invest a large sum at once! If you hit a “bad” month you will have low or zero profit. It is much better to invest regularly over a long period of time to even out the different monthly loan performance. Also, invest in as many small (1€) loan shares as possible to maximize your diversification.

Loan performance by country

Loan performance by country. Loans from Estonia perform much better than loans from Finland or Spain. Estonian loans turn a profit after about 4 years. Spanish loans never become profitable within at least 6 years!

Currently, I would only recommend to invest into loans from Estonia. It is evident that Finnish loans perform much worse. Spanish loans might actually never become profitable. This might of course change in the future but looking at the current data the picture is quite clear.

Loan performance by risk category and interest rate group

Turning a profit on Bondora - Loans from Estonia
Performance of Estonian loans grouped by risk categories (ABC: low-medium and CDE: medium-high).
Performance of Estonian loans grouped by interest rate range.

Let’s take a closer look at the loans from Estonia. Interestingly, the time it takes for the loans to return a profit does not really depend on the risk category or the interest rate (at least within the investigated range). It is around 4 years for both lower and higher risk or interest rate loans.

However, the loans with higher interest rates tend to give a higher return on investment down the line.

Average monthly profit margin for the Estonian loans with 12-21% interest and 21-33% interest, respectively.

What does this mean for the investor?

Now, from all the data shown above it is clear that turning a profit on Bondora will take some time. First, the loans have to reach the break even point which takes roughly 4 years. The length of this period depends on the interest rate and on the loan default rate.

Then, the loans start to generate real profit and continue to do so for quite some time since the recollection process for the default loans takes some years and keeps generating payments.

Once you completely stop to make new investments on Bondora you will have to wait about 4 years until the loans that you bought in the end reach the break even point and generate profit.

For that very reason, an investment on Bondora should be considered an undertaking of at least 10 years with regular (monthly) investments. This way to reach diversification over many loans shares but also over time. The longer your investment period lasts the less impact will the final waiting period have on your overall return on investment.

In the end, a very attractive return on investment is possible!

Turning a profit on Bondora - estimated return on investment
Example of an investment on Bondora with a 10 years investment period (during which regular investments are made) and a 4 years repayment+recovery period.

Turning a profit on Bondora: Summary

From the above consideration we can now distill some simple guidelines for investing in p2p loans on Bondora:

  • prepare for a medium to long term investment with an investment horizon of at least 10 years
  • invest smaller amounts regularly (weekly or monthly) instead of a large amount at once
  • buy as many small loan shares as possible (1€ per share) to maximize your diversification and to reach the average performance shown in the graphs above
  • invest into loans from Estonia (for now) with A-E rating

YouTube Videos (German and English)

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