Right now my P2P lending is only about 2% of my entire portfolio. But I am thinking of building it up because P2P lending appears to offer consistent returns that are less volatile than markets.
My alternative is to put my leftover in personal investment accounts and just buy index funds.
As other posters have hinted, you're asking your questions backwards.
The first thing to work on is your asset allocation. Decide what goals you're saving for, then what assets you want to invest in for those goals, and finally what percentage of your portfolio you want in those assets. The Bogleheads Wiki has it down to a process:
http://www.bogleheads.org/wiki/Main_PageThen you can follow the advice of other posters to keep P2P at 10% or less of your asset allocation... assuming you're willing to give your money away to non-collateralized loans for three years (or longer).
Again, one of the reasons I like P2P is that the returns seem so consistent with risk spread out among the notes, unless the platform itself fails.
P2P lending is too new to have a performance record. Even the returns are unrealistically high because they don't reflect enough repayment and reinvestment. Attempting to draw conclusions about the risk of a P2P portfolio, let alone individual borrowers, is just deluding yourself.
The biggest issue is that nobody knows what's going to happen to the loans during the next recession. If borrowers have a choice among paying their mortgage, their utility bills, and their P2P loans... default rates are going to skyrocket. Even credit-card issuers have a higher collection rate on delinquent balances than P2P companies.
Both Prosper and LC have third-party companies standing by in case they end up filing for bankruptcy, although nobody knows how well the turnover is going to go. (Personally I think Prosper is in better financial/management shape now than LC, but that's like deciding which surfboard is better for 50-foot waves. Why are you paddling out in the first place?!?) Both companies actually have a financial motive to allow the loans to go delinquent, because they get to keep more in fees & penalties for bringing delinquent loans current. Both companies also have an incentive to "approve" as many borrowers as quickly as they can and let the
suckers lenders worry about whether the loans will repay. I've heard that LC has finally expanded their payroll to process loan applications more quickly, but I'm skeptical that corners will remain uncut.
You want consistent returns with diversified risk? We call that a "bond index fund" or, for even lower risk, a "CD". They even have real performance histories...
You can read plenty of cheery consensus on P2P lending. Here are some contrarian perspectives:
http://www.hullfinancialplanning.com/should-i-invest-in-lendingclub-or-prosper/http://financialmentor.com/investment-advice/investment-due-diligence/peer-to-peer-lending-review/9777http://the-military-guide.com/2013/06/06/more-problems-with-peer-to-peer-lending/Oh, about your financial advisors?
http://www.hullfinancialplanning.com/just-what-does-that-money-management-fee-cost-you/