How much money should I set aside for crowd-lending?
I would suggest starting with $5,000. This amount should get you started on all three platforms. Having access to all three platforms gives you more loan choices and helps you understand the strengths and weaknesses of each platform.
But the exact amount depends on each individual’s circumstances. Don’t invest an amount that you cannot afford to lose. And don’t invest all your money on crowdfunding loans – the industry is still not mature yet. Majority of your wealth should still be in the traditional asset classes – stocks, bonds, funds and/or cash.
How should I manage my cash?
If you haven’t sign up with MoolahSense, Capital Match or Funding Societies yet, do so now. It should take about 2-3 days to complete. Once you are done, transfer $1,000 to each platform, so that you are ready to lend.
After the cash transfers, you will have a platform credit risk of $1,000 on each platform. In other words, if a lending platform fails, your maximum loss is the $1,000 of undeployed cash. The cash-flow between an investor/lender, the lending platform and borrowers is shown in the below diagram. It is slightly different for Funding Societies – investor’s monies are held by an escrow agent instead of the lending platform.
To reduce your platform credit risk, try not to have too much undeployed cash held at the lending platform (or escrow agent) if possible. You can always transfer any excess undeployed cash back to your bank account. Conversely, if you have already lent out all your cash held on the platform and want to participate in more loans, you may want to transfer another $1,000 over.