Why Investors Don’t Put Everything Into ETFs

Key Takeaways

• Diversification doesn’t stop at stocks and ETFs, alternative credit has long been part of how institutional investors spread risk.
• P2P lending offers a return profile that behaves differently from public markets, since it isn’t driven by daily price sentiment.
• Lendermarket is one example of a regulated European P2P platform built around this idea, showing what accessible diversification can look like in practice.
• This isn’t a case for replacing ETFs, it’s a case for not relying on just one asset class.

The Asset Class Shift Professional Capital Prepares For

“Don’t put all your eggs in one basket” is one of the first things every investor learns.

In practice, though, most retail portfolios still concentrate around the same handful of asset types: some individual stocks, a core of ETFs, maybe a bond fund for balance. It’s a sensible starting point, but it raises a question worth asking: what does diversification actually look like once you step outside public markets?

Alternative Credit: Not New, Just Newly Accessible

Institutional investors have used private credit and alternative lending as a diversification tool for decades, largely because these assets don’t move in lockstep with stock market cycles. Pension funds and asset managers allocate to private debt precisely because its performance is tied to loan repayment behavior rather than daily market sentiment, interest rate speculation, or equity valuations.

What’s changed in the past several years is access and regulation. Alternative credit used to require institutional-scale capital and relationships. Today, regulated online platforms have opened a version of that same asset class to individual investors, often with entry points as low as ten euros rather than a few million.

What an ETF Actually Is

An ETF, or Exchange-Traded Fund, is essentially a basket of assets, often stocks, that trades on an exchange just like a single share. Instead of buying individual companies one by one, an investor buys one unit of the ETF and gets proportional exposure to everything inside it. A popular example is an S&P 500 ETF, which holds (or tracks) all 500 companies in that index, so a single purchase spreads an investor’s money across the entire index rather than betting on one company’s performance.

Most ETFs are passively managed, meaning they aim to mirror the performance of a specific index rather than trying to beat it through active stock-picking.

The tradeoff is that an ETF’s value is tied directly to the market it tracks. When the underlying index rises, the ETF rises with it, and when the index falls, so does the ETF, sometimes sharply and quickly, driven by anything from company earnings to interest rate decisions to broader investor sentiment.

What P2P Lending Actually Is

Stripped of jargon, Peer-to-Peer (P2P) lending works like this: a lending company originates loans (consumer loans, SME loans, and similar), and individual investors fund portions of those loans through an online platform. As borrowers repay, investors earn interest.

The return profile is fundamentally different from an ETF. An ETF’s value moves with the underlying market, day to day, sometimes hour to hour. 

A P2P loan’s performance is tied to whether the borrower repays, not to whether the stock market had a good or bad week. 

That means the two carry genuinely different types of risk: ETFs carry market risk, P2P lending carries credit risk (the borrower not repaying) and platform risk (the platform’s own operational and financial reliability). Neither is inherently safer than the other, they’re just different, which is exactly what makes combining them a diversification strategy rather than a substitution.

ETFs vs P2P Lending: The Numbers, Side by Side

To put things in perspective, it helps to look at what some of the most widely tracked equity indices have historically delivered. These are long-term, third-party-reported averages, not projections, and like any historical data, actual results vary significantly by time period, and past performance never guarantees future results:

• S&P 500: roughly 10.1% CAGR since 1928, around 10.3% over the last 30 years and 10.9% over the last 20 (source: NYU Stern, Damodaran Historical Returns dataset)
• DAX 40: roughly 8% annualized since its 1988 inception (dividends reinvested), with wide year-to-year swings, from +23% in 2025 to -40% in the 2008 crash (source: STOXX, Deutsche Börse)
• MSCI World (a broad global equity benchmark): roughly 9.1% annualized since 1987 (source: MSCI official index factsheet)
• Nasdaq 100 (via Invesco QQQ, the ETF tracking it): roughly 10.75% annualized since its 1999 inception, though more recent 10-15 year windows have run significantly hotter due to the tech rally, and it remains the most volatile of the four (source: QQQ total return history)

Taken together, most established, broad equity indices have historically landed in the high single digits to low double digits annually over the long run, with higher-growth indices like the Nasdaq 100 occasionally running into the mid-teens over shorter windows.

For comparison, Lendermarket’s weighted average investor return currently sits at up to 13.46% APY. That places it within a similar range to what long-term equity investors have historically seen, achieved through a structurally different source of return, loan repayments rather than market pricing.

It’s a useful data point, not a promise: this figure is a current weighted average, it will move over time, and, as with any investment, it is not guaranteed.

A Regulated Example: Lendermarket

Lendermarket is one example of how this looks in practice. Lendermarket is a Crowdfunding Service Provider under Regulation (EU) 2020/1503, regulated by the Central Bank of Ireland, and has been operating in this space for more than seven years.

A few things worth noting about how the platform is structured:

• Buyback guarantee* on eligible loans, covering principal (and in many cases accrued interest) if a borrower defaults
• Auto Invest FLEX for building a diversified loan portfolio automatically, based on an investor’s own criteria
• Entry from €10, considerably lower than most institutional-grade alternative platforms
• A 0.00% default rate as of September 2026, alongside weighted average returns of up to 13.46% APY

That return figure is worth putting in context rather than taking at face value. It’s a weighted average, not a guaranteed outcome, and like any investment, capital is at risk and past or current performance is not a guarantee of future results. What makes it a useful comparison point, though, is that it sits in a similar range to what many long-term ETF investors have come to expect from equity markets, achieved through a structurally different, less market-correlated source.

Diversification, Not Replacement

None of this is an argument for abandoning ETFs. ETFs remain one of the most efficient, low-cost ways to gain broad market exposure, and for most investors they should stay a core part of the portfolio.

Furthermore, ETFs and P2P investments are not strictly like-for-like, as they are different investment instruments that may serve different investor objectives.  The point isn’t finding a “better” asset than ETFs, it’s recognizing that true diversification means holding assets that don’t all react to the same triggers at the same time.

For investors who’ve built a solid ETF base and are looking at what else might sit alongside it, regulated P2P lending is one place worth understanding, not as a replacement, but as a complement.

*The buy-back guarantee does not eliminate investment risk entirely and is dependent on the guarantor’s ability to meet its obligations. Coverage may vary between project owners/loan originators. 

Historical index returns cited above (S&P 500, DAX 40, MSCI World, Nasdaq 100) are third-party-reported long-term averages and vary depending on the time period measured; they are provided for general context only and are not Lendermarket’s own data.