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Crowd-funding — a good idea?

By Terry Savage on December 27, 2016 | Investments

What is your opinion about the wisdom for the small investor of investing in crowdfunding or peer to peer lending? Thank you

Terry Says

It all depends on how much risk you're willing to take!  Do you think you can evaluate risk better than the banker who likely turned down this borrower.  (Of course, a borrower can be turned down for many reasons.  Perhaps the loan was too small.)  Then again, many great ideas with potential to help the world have trouble getting funding from established sources like banks. Technology set the state for crowd-funding, which aims to spread the risk over a group of unsophisticated people who are trying to earn a better return than safe CDs offer.  Or who are willing to take risk either in hope of great returns, or in order to support a cause like curing a disease.   And it's become a popular fad.  The companies that arrange crowd-funding are making a lot of money in the process.  It remains to see what will happen to these loans when the economy turns sour. So let me say that making a loan to an unknown stranger, in combination with other unknown strangers, seems only slightly less risky than lending money to your  ne'er-do-well nephew who has approached you with a great deal!  But at least you are buying a piece of a dream.  At best, your deal could be a huge winner.  And in the meantime, you get the excitement of risking your money to find out the end result! Do a Google search of the term "crowd-funding" to get an idea of what you're getting into.



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