Auto-Invest: Benefits & Historical Performance

liwwa's Auto-Invest tool allows investors to automate their investment strategy by specifying their risk tolerance, investment horizon, and level of diversification. Currently, over half of liwwa's active investors are taking advantage of this feature to increase diversification, reduce volatility, and earn higher returns.

For a simple guide on how the tool works, refer to this blog post.

Benefits of Auto-Invest

After spending a few minutes to set up Auto-Invest, the tool will automatically invest in hundreds of loans per year, creating and maintaining a diversified, balanced loan portfolio on your behalf. In addition to saving valuable time, investors using Auto-Invest witnessed a higher level of diversification, more stability in their returns, and higher returns overall than investors manually choosing individual loans.

1. More diversification

Diversification is one of the most important concepts in investing, and has been the subject of our blog posts for quite some time (if you’re interested to learn more about it, click here and here to delve deeper). One good measure of diversification is the number of effective investments in an investor's portfolio (the number of loans adjusted for relative size).

Investors using Auto-Invest have an average of 41 effective investments, compared to an average of only 11 effective investments for investors choosing individual loans. By this measure, investors using Auto-Invest are almost 4 times more diversified on average, reducing idiosyncratic risk, with important implications for the stability of returns.

2. Less volatility

The graph above shows that the returns (Mean Weighted IRR) for investors with less than 10 effective investments are widely scattered, with some of these poorly diversified accounts witnessing negative returns, while others are earning more than 20% IRR. Meanwhile, portfolios with more than 10 effective investments have achieved returns that are clustered more tightly around the long-run average of 13% IRR.

Investors using Auto-Invest benefit from the tool's emphasis on diversification and witness more stability, with a low standard deviation in returns of 2.68 percentage points. This compares to the substantially more volatile 6.23 percentage points for those investors manually choosing individual loans.

It is also important to note that no investors using Auto-Invest have witnessed negative returns (loss on investment).

3. Higher returns

The higher level of diversification and stability has paid off for investors using Auto-Invest, as they have earned average returns of 13.06% compared to 11.97% for investors manually choosing individual loans.

Conclusion

All investors should have an investment strategy that prioritizes diversification, otherwise they are at a greater risk of losing all or part of their investment. Investors that prefer to manually choose individual loans will need to log in multiple times per month to re-invest loan repayments and newly added funds in order to ensure a high level of diversification. Meanwhile, investors that take advantage of Auto-Invest can log in as little as once a year to check on their portfolio performance, while Auto-Invest does the rest.

Important Note: Past performance is not a reliable indicator of future results. You should not rely on any past performance as a guarantee of future investment performance.