<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener"></a><p class="source"><span>Acorns</span></p></div><p></p></div></div></p><ul class="summary-list"><li>You could use your spare change to grab a pack of gum or you could use it to start <a href="https://www.businessinsider.com/how-to-use-acorns-investing-app-2016-3">micro-investing</a>.</li><li>The <a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns app</a> makes it easy to <a href="https://www.businessinsider.com/easiest-way-to-start-investing-financial-planner-2019-5">start investing</a>, even if all you have to start is $5.</li><li>Based on your income bracket, <a href="https://acorns.sjv.io/xjxj1">Acorns</a> will recommend investment options that fit your budget and lifestyle to help you <a href="https://www.businessinsider.com/how-to-invest-money">build your portfolio</a>. From there, you can invest a monthly sum, round up your daily purchases, or both.</li><li><a href="https://acorns.sjv.io/xjxj1">Get started with Acorns today »</a></li></ul><p><span style="font-weight: 400;">When it comes to investing extra cash, many people are unsure where to begin. You may be overwhelmed by the sheer number of investment opportunities available, or perhaps you don't have a large sum of money to start a portfolio in the first place. Are there any investment opportunities for you?</span></p><p><span style="font-weight: 400;">The answer is yes, and you have a good option in <a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns</a>, a <a href="https://www.businessinsider.com/micro-investing-app-acorns-appoints-behavioral-economist-benartzi-2018-9">millennial-minded investment app</a>. If you aren't ready to start dumping large sums of cash into an investment portfolio, the Acorns Core product offers a way try your hand at micro-investing using daily spare change (there's also <a href="https://www.businessinsider.com/automate-retirement-savings-2019-5">Acorns Later</a>, a retirement product, and Acorns Spend, a checking account). Acorns allows you to invest small sums (as little as $5) and you can also round up your purchases and invest that extra change; the app was designed with diversification in mind and provides insight into the best portfolio for your financial goals. </span></p><h2><strong>Signing up for Acorns</strong></h2><p><strong><a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener"><span style="font-weight: 400;"><em><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Acorns</span></p></div><p></p></div></div></em></span></a></strong></p><p><span style="font-weight: 400;">The sign-up process is easy and takes only minutes to complete for verification. First, provide a valid email address, verify that you are a US resident, and link your bank account to your <a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns</a> account. Note that if your bank account isn't on the list of supported banks, you can still link your checking account to Acorns. However, the list of banks and credit unions linked with Acorns is extensive; customers who bank with local or obscure banks might be surprised to find their institution on the list. </span></p><p><span style="font-weight: 400;">You may go through a multi-step verification process - it depends on the securities you have already set up through your bank. You will answer security questions through your bank and then enter your routing and account numbers to successfully link your <a href="https://acorns.sjv.io/xjxj1">Acorns</a> account. </span></p><p><span style="font-weight: 400;">After the sign-up process is complete, you can start building your own personal <a href="https://www.businessinsider.com/top-fund-managers-investing-strategies-stock-picks-2019-5">investment portfolio</a>. Acorns requires users to start by investing $5, and you'll have a few investment options, including several different asset classes. Asset classes are groups of similar investment opportunities that behave the same way in the market, such as real estate, government bonds, corporate bonds, and stocks in both large and small corporations. <a href="https://acorns.sjv.io/xjxj1">Acorns</a> portfolios range from conservative to aggressive, emphasizing different types of asset classes according to your individual goals. </span></p><p><span style="font-weight: 400;">If you don't know what kind of portfolio is appropriate for you, never fear. <a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns</a> was designed to ask a few leading questions to help determine the kind of investing strategy that best fits your financial profile. Based on your net income, the net worth of your assets, and your preferred investment timeline, Acorns will build a personalized portfolio recommendation for you.</span></p><p><em><strong>Read more: <a href="https://www.businessinsider.com/how-automated-savings-investing-works-2018-12" target="_blank" rel="noopener">How automated saving and investing really works - and why more of us should be doing it</a></strong></em></p><h2><strong>When your income is limited</strong></h2><p><span style="font-weight: 400;">What if you are a student or recent graduate who is earning just enough to get by? Let's look at an <a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns</a> case study to see what kind of profile would be recommended for you. If you are in a low income bracket, it might be prudent to try for a long-term investment strategy instead of shooting for short-term return. That way, investing doesn't become a major financial strain, but you can still build your portfolio in the background of your everyday life.</span></p><p><span style="font-weight: 400;">For a consumer in a low income bracket with assets worth less than $10,000, the suggested portfolio is moderately conservative, meaning it leans heavier on corporate and government bonds rather than emerging markets and real estate. By starting small and investing long-term, you might be surprised at the size of your returns. Note that you may update your info as it changes; your changing financial health will affect your optimal portfolio and investment habits.</span></p><h2><strong>Investing with Acorns</strong></h2><p><a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener"><strong><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Acorns</span></p></div><p></p></div></div></strong></a></p><p><span style="font-weight: 400;">After that, it's up to you what kind of monthly investment you'd like to make, or whether or not you would like to turn on round-up investments. Your monthly investment will be a recurring deposit into your investment portfolio from your linked account, and it starts at $5. You may change this amount at any time, and there's no minimum balance required. </span></p><p><span style="font-weight: 400;">Round-ups find money from everyday purchases coming from your linked accounts and smooth out your purchases to even dollar amounts (or $0.25 increments) to invest that spare change into your Acorns account. If you have multiple accounts connected to your bank, you may turn them on or off depending on whether or not you would like those individual accounts to use the round-up feature. </span></p><p><span style="font-weight: 400;">If you have multiple credit cards or bank accounts, you can also link them to your portfolio. This is especially convenient for consumers who use points and miles credit cards, because <a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns</a> is yet another way to capitalize on rewards. Double-dipping in your credit card game is always a good thing.</span></p><p><span style="font-weight: 400;">To use the app, Acorns will charge you a minimum of $1 per month for balances under $5,000, and <span>.25% of your balance each year when your account reaches more than $5,000.</span></span></p><h2><strong>The bottom line</strong></h2><p><span style="font-weight: 400;">With no minimum balance requirements, <a href="https://acorns.sjv.io/xjxj1">Acorns</a> is accessible to most people with a checking account or credit card. Automatic recurring daily, weekly, or monthly investments allow you to earn in the background, and round-ups take your everyday spending and turn it into a return later. </span></p><p><span style="font-weight: 400;"><a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Acorns</a> will also keep track of your current financial profile and remind you of your past investments and trends. Using that past data and present settings, Acorns will project your earning potential into the future. Going back to our previous example of a low-income, moderate profile - with a $10 monthly investment plus round-ups - the initial estimate on a projected return after 40 years of consistent investing breaks $80,000. </span></p><p><span style="font-weight: 400;">Keep in mind that <a href="https://acorns.sjv.io/xjxj1">Acorns</a> works just as well for folks with major capital to invest, but it is important to emphasize its usability for those who do not. Whether you are building a small play portfolio with spare change or have the ability to go big, Acorns can help you get comfortable with the idea of investing and build your portfolio.</span></p><h3><a href="https://acorns.sjv.io/xjxj1" target="_blank" rel="noopener">Sign up for the Acorns app for as little as $1/month and start investing today »</a></h3><p class="tagline"><p style="font-size:14px;"><em>Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.<em></em></em></p></p>

What it's like to use Acorns, the app that lets you turn your spare change into an investment portfolio

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span><a href="https://upload.wikimedia.org/wikipedia/commons/6/60/Explosion-proof-light-SEGS23C2K-warning-light-02-big.jpg">Wikimedia Commons</a></span></p><p class="caption">Flashing red lights.</p></div><p></p></div></div></p><ul><li><strong>As concerns of a slowdown in global growth swirl, some experts on Wall Street are suggesting investors bulk up on defensive holdings.</strong></li><li><strong>Goldman Sachs just told clients to "increase portfolio defensiveness," and Bank of America said investors' exposure to "low quality" stocks is a key risk this year.</strong></li><li><strong>The calls come amid continued <a href="https://www.businessinsider.com/stock-markets-news-china-markets-rally-on-trump-trade-talk-optimism-2019-1?r=UK&amp;IR=T">US-China trade negotiations</a>, central banks around the world unwinding fiscal stimulus, and <a href="https://www.businessinsider.com/bank-of-england-interest-rate-decision-2018-12">continued Brexit uncertainty</a>.</strong></li></ul><p>Economists and strategists on Wall Street are increasingly asking not if, but when, a slowing global economy will accelerate into a <a href="https://markets.businessinsider.com/news/stocks/global-economy-heading-toward-downturn-nomura-2018-12-1027836714?utm_campaign=browser_notification&amp;utm_source=desktop">more severe downturn</a>.</p><p>Amid calls for <a href="https://markets.businessinsider.com/news/stocks/apple-sounds-the-alarm-of-a-slowdown-in-china-2019-1-1027841223?">slowdowns in major economies</a>, along with lingering political uncertainty, and central banks unwinding accommodative monetary policy, some macroeconomic experts are recommending that investors bulk up on defensive assets.</p><p>Investors are gearing up to deal with volatility-inducing events like ongoing <a href="https://www.businessinsider.com/stock-markets-news-china-markets-rally-on-trump-trade-talk-optimism-2019-1">trade negotiations</a> between the US and China, the Federal Reserve potentially <a href="https://www.businessinsider.com/r-traders-see-fed-cutting-rates-not-raising-them-in-2020-2018-12">scaling back</a> its tightening, and <a href="https://www.businessinsider.com/r-assets-worth-1-trillion-to-shift-from-uk-to-eu-due-to-brexit-ey-2019-1">looming Brexit uncertainty</a>. </p><p>"Strategically, we recommend investors increase portfolio defensiveness," a team of Goldman Sachs strategists led by David Kostin told clients in a note on Monday. "Cash allocations are at or near the bottom of their 30-year historical distribution for many investors."</p><p>Investors might wonder what <em>defensive </em>means, especially in a challenging market like last year's when few trades worked out. Investors across markets and asset classes <a href="https://www.businessinsider.com/investing-market-strategy-the-argument-for-traders-to-go-into-cash-2019-1">mostly counted 2018 as a loss</a>, and cash became <a href="https://www.businessinsider.com/treasury-yields-versus-dividends-cash-appealing-bad-sign-for-markets-2018-5">more attractive</a> as equities around the world languished.</p><p>Kostin and his team said investors should consider stocks well-positioned to outperform in an "uncertain economic environment" and came up with a list of 30 names that would still boast an above-average valuation even if earnings were to sharply decline. They included stocks across traditionally defensive sectors like industrials and consumer staples, including the likes of <a href="https://markets.businessinsider.com/stocks/fdx-stock">FedEx</a>, <a href="https://markets.businessinsider.com/stocks/rtn-stock">Raytheon</a>, <a href="https://markets.businessinsider.com/stocks/kr-stock">Kroger</a> and <a href="https://markets.businessinsider.com/stocks/pm-stock">Philip Morris</a>.</p><p><em><strong>Read more: </strong></em><em><a href="https://www.businessinsider.com/bridgewater-2018-returns-2019-1">Bridgewater, the biggest hedge fund in the world, crushed it in 2018 as most funds struggled</a></em></p><p>Others say even as positive growth is still expected for this year, a more conservative approach is prudent.</p><p>A team of strategists at AllianceBernstein told clients Monday that while several indicators - including the flattening <a href="https://markets.businessinsider.com/news/stocks/yield-curve-inversion-why-you-shouldnt-w">yield curve</a>, <a href="https://markets.businessinsider.com/news/interestrates/u-s-service-sector-growth-slows-more-than-expected-in-december-1027848367">a downturn in key US service sector data</a> and Economic Surprise Index data - support the view that economic growth is indeed slowing, analysts are expecting positive earnings growth for this year.</p><p>"We face a slowing cycle with growth slowing in most regions, though the timing and pace of the slow-down differs by region," the team led by Inigo Fraser-Jenkins wrote.</p><p>"Monetary policy is also becoming less accommodative in most regions. Against this backdrop we have a somewhat defensive factor allocation, but we retain some cyclical exposure as despite the headwinds we think that growth will still be positive in 2019."</p><p>Specifically, AllianceBernstein is recommending investors buy companies with qualities like low debt-to-equity ratios, and those with high levels of free cash flow yield. Such a measurement of companies' "quality" tends to be less correlated with political risk, the strategists said.</p><p>Meanwhile, Bank of America told clients in a note that investors' exposure to "low quality" is a key risk this year.</p><p>"Managers have historically been overweight Low Quality (B or worse S&amp;P quality rank) stocks," strategists led by Savita Subramanian wrote in a report out Monday.</p><p>"Their bias towards lower quality is a key risk in our view, particularly heading into the new year where we expect volatility to remain elevated."</p><p><em><strong>Read more: </strong><a href="https://markets.businessinsider.com/news/stocks/stock-picks-bank-of-americas-favorite-picks-2019-2018-12-1027809730">BANK OF AMERICA: Here's a list of our 11 favorite stocks for next year</a></em></p><p>Among traditionally defensive sectors, the bank said active managers last year pared their holdings in consumer staples, a traditionally defensive group, and <a href="https://markets.businessinsider.com/news/stocks/stock-market-news-healthcare-big-chunk-sp-500-good-news-2018-12-1027809670">rotated into healthcare</a>.</p><p>But that development in and of itself could be reason enough to lighten up on defensive names. Historically, when the healthcare sector reaches 15.6% of the S&amp;P 500, which happened in mid-December, it begins underperforming and the broader market starts bottoming out, according to an analysis from DataTrek Research.</p><p><strong>Now read:</strong></p><ul><li><strong><a href="https://www.businessinsider.com/investing-market-strategy-the-argument-for-traders-to-go-into-cash-2019-1">The best-performing investment of 2018 came as a shock to everyone - and the stars are now aligned for its continued dominance</a></strong></li><li><strong><a href="https://www.businessinsider.com/next-financial-crisis-how-corporate-debt-burdens-leveraged-loans-could-hurt-markets-2019-1">Here's how the risky behavior of debt-heavy corporate giants like GE and AT&amp;T could spark the next financial crisis</a></strong></li></ul>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/disney-world-expensive-middle-class-2018-12">Disney World is getting so expensive that it's pricing out the middle class</a></h3>        <div>                    </div>    </div>

WALL STREET WARNS: Get defensive, growth is slowing in nearly every corner of the world

No foundation for oppn criticism of Budget:BJP in RS<p>New Delhi, Feb 11 () Hitting back at the Congress forits "incompetent doctors" remark on handling of the economy,the BJP on Tuesday said there was no foundation for theopposition criticism and termed as "wrong" the diagnosis andtreatment of the economy done during the UPA regime.</p><p>Participating in the discussion on the Finance Bill, BJPmember Ashwini Vaishnaw said the Union Budget for 2020-21 hastaken care of all sections of society and all sectors toensure all-round development of the country.</p><p>He said the demand will rise due to increased spendingpower and the government has infused money to increase publicsector spending.</p><p>"Our doctor is right and our diagnosis is alsoright....You did vote bank politics, while we are doing'sabka saath, sabka vikas,' he said.</p><p>"Your diagnosis was wrong and your treatment was wrongtoo. There is no foundation for your criticism. But you areindulging in misleading the country," he said.</p><p>Initiating the debate on the Union Budget for 2020-21,Congress leader P Chidambaram had said on Monday that theeconomy was close to collapse and was being attended by "veryincompetent doctors."</p><p>The BJP MP said investment and demand will rise throughthis budget and every section of society will be benefited.</p><p>Justifying the RBI paying the government out of itsreserves, he said it is the duty of every central bank toreturn extra income to the government and central banksacross the world do this.</p><p>Opposition members said the Budget has not lived up toexpectations and fails to address challenge faced by theIndian economy.</p><p>They also attacked the Union government for the "step-motherly" treatment to states and privatisation of publicsector units including Life Insurance Corporation of India(LIC).</p><p>PL Punia (Congress) said the government is not ready toaccept the crisis in the economy and urged the financeminister to consult experts to address the problem.</p><p>He also accused the government of doing nothing for thewelfare of scheduled castes and tribals, saying sub-plansbe restored for SCs and Tribals.</p><p>Continuing the debate on the Budget, TRS member K KeshavaRao said the Budget has set up an ambitious disinvestmenttarget and would be difficult to achieve. He said the dual taxsystem proposed in the Budget would benefit charteredaccountants.</p><p>The TRS member also raised the issue of "step motherly"treatment being given to States in devolution of taxes.</p><p>Binoy Vishwam (CPI) said the economy is already on"ventilator" and the Budget does not provide any solution toit.</p><p>He accused the government of selling off national wealthto select private companies.</p><p>Vishwam said even the BJP-RSS affiliated trade union BMSis opposing the stake sales in the LIC. He also rued thatallocation for MNREGA has been lowered by around Rs 10,000crore.</p><p>BSP member Veer Singh said the Centre has "ruined" theIndian economy and unemployment is at a 45 year-high. Hecharged the BJP-ruled central government has failed to fulfilits promises.</p><p>He alleged the Centre is ending reservations for SC/STsand OBCs.</p><p>Singh asked the government to provide reservation toSC/STs and OBCs in private sector if it is serious andcommitted to welfare of backward classes.</p><p>Kumari Selja of the Congress focused on Haryana in herspeech and said the State has not got its due in terms ofallocation of funds.</p><p>"There was lot of expectation from the Budget that itwill address problems of the country as well that of women,"she said, adding the Budget turned out to be a damp squib.</p><p>The Congress leader raised the reservation issue andaccused the Central government of misleading the House.</p><p>Participating in the debate, BJP leader RajeevChandrashekar said the Budget continues to address the "mess"in the economy left by the previous government.    The UPA regime had left the economy in a crisis andfinancial market in a devastating state as scams explodedowing to loans given to 10 groups, he charged.    "This nightmare was turned around by our government...Oureconomic management is in sharp contrast to theirs. We havedelivered unprecedented macro economic strength to theeconomy. This is the fact," he said, listing out achievementsof the Modi government in the last six years.    However, there were cyclical and structural issues owingto disruptions in global trade, he said and added, "theseare growing pains in any economy and the government willaddress them all."</p><p>Hitting out at Chidambaram for the doctor remarks, theBJP leader said, "Atal Bihari Vajpayee's government had lefthealth and robust patient (economy) and handed it over to adream team of doctors (Congress) which after ten years left itterminally ill...    "But the Modi government revived it although some painremains and that will be addressed. The government will notleave the patient to relapse," he said, adding the Budget 2020is a "careful and prudent" budget. </p><p>He said the government is off to a good budget start andhopes to achieve the target of USD 5 trillion economy.    Criticising the budget, Congress leader Ripun Bora said itwas the "longest budget with shortest expectations" and listedout failures of the present government.    He said the government has not set up a mechanism fordoubling of farmers' income. The budget allocation has beenmade only for 100 water stressed villages even though thegovernment's survey had identified 255 villages in 2019.    Even on ease of living, the government has not made anyprogress as purchasing power of people has been decliningbesides there is rise in prices of essential items and growingunemployment, he said.    Although one cooking gas cylinder is given free under theUjwala Scheme, people are not able to afford subsequentcylinders at such high rates, he said.</p><p>Bora said a person gets rice at a subsidised rate of Rs3/kg from ration shops but to cook it he needs Rs 45 per litrefor kerosene and over Rs 1,000 per cooking gas cylinder. </p><p>On Swachh Bharat Mission, he requested the House to senda parliamentary panel to Assam to check the quality of toiletsbeen build under this programme. Most toilets are notfunctional as they are not clean in the absence of water andeven quality of construction is poor.</p><p> On unemployment, the Congress leader said lowerallocation of Rs 3,000 crore for skill development shows thelevel of government's commitment towards resolving the problemof unemployment in the country.</p>Similarly on developing smart cities, the budgetallocation has been made for only five cities, although 100cities were identified, he said, adding Assam was ignored inthe budget.   "Overall, this budget is not 'Sabka Sath, Sabka Vikas', itis Ambani and few companies' vikas," he charged.  NKD MJHSKC LUXDV   DV

RS-BUD-DEBATE

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Reuters / Arnd Wiegmann</span></p></div><p></p></div></div></p><ul class="summary-list"><li>One specific industry stood out as a beacon of strength during the massive economic recession that crushed worldwide growth a decade ago.</li><li>A new study from Bernstein explains why the sector will fail to see a repeat performance when the next economic meltdown strikes.</li><li>Banks across Wall Street have offered a wide range of recommendations for how to play a recession. They're laid out below.</li></ul><p>When the <a href="https://www.businessinsider.com/category/economy" target="_blank" rel="noopener">economy</a> is in utter disarray, consumer spending is drying up, and lending conditions are tightening, people still have to eat.</p><p>It's for that simple reason that the catering industry is viewed as particularly defensive and capable of hanging in there during tough times.</p><p>If you're not sold, consider a situation where a big corporation would normally foot the bill for a big restaurant outing. Once purse strings get tighter, those companies are far more likely to get catering delivered to the office. That line of thinking ultimately gives the industry a big boost.</p><p>And the numbers bear this out, at least when it comes to the <a href="https://www.businessinsider.com/next-recession-why-it-will-be-unlike-any-in-history-goldman-sachs-2019-2" target="_blank" rel="noopener">recession</a> that rocked the global economy roughly a decade ago.</p><p>UK-based Compass Group reported 36% earnings-per-share growth in 2009, while French catering giant Sodexo saw expansion of 6%. Both outpaced the average consumer stock by a large margin, according to data compiled by Bernstein.</p><p>That translated to outsized stock-market performance, as both stocks surged 50% relative to the broader market during the period from August 2009 to June 2010.</p><p><em><strong>Read more</strong>: <a href="https://www.businessinsider.com/next-recession-why-it-will-be-unlike-any-in-history-goldman-sachs-2019-2" target="_blank" rel="noopener">Here's why the next recession could be unlike any the US has ever seen</a></em></p><p>With all of that established, you might be thinking that the most prudent option for defending against the next recession would be to rotate into the same catering names that smashed the market during the last downturn.</p><p>But Bernstein says not so fast.</p><p>"We have reason to doubt this performance is repeatable in another recession," senior analyst Richard J. Clarke wrote in a recent client note. "We would therefore expect the sector to disappoint to the downside if a recession hit."</p><p><em><strong>Read more</strong>: <a href="https://www.businessinsider.com/next-recession-bearish-signals-show-crisis-is-nearing-2019-2" target="_blank" rel="noopener">2 notorious recession signals are descending into the danger zone, and they have some Wall Street strategists convinced that a meltdown is fast approaching</a></em></p><p>The firm finds that the following four developments will stop a repeat performance in its tracks. All bullets are direct quotes from Bernstein.</p><ol><li>There has been a shift in where revenue growth has come from: now more focused on cyclical B&amp;I (business &amp; industry) growth</li><li>The industry is more consolidated, competitive and open to disruption</li><li>The companies are more lean, meaning less ability to take cost out in the next downturn</li><li>Expectations are much higher, with the stocks are the highest relative multiples for over 5 years. Into 2009, the stocks had heavily derated into the 2009 reporting and then impressed to the positive.</li></ol><p>The first point laid out by Bernstein is perhaps the most damning, because it challenges catering's very nature as a defensive entity.</p><p>With sales expansion spreading into more cyclical areas, the industry is no longer the safe haven it once was. When you combine that with the fourth point laid out above - that stocks are already being overly pumped up by strong profit-growth forecasts - you have a situation ready-made for sharp, sudden losses.</p><p><em><strong>Read more</strong>: <a href="https://www.businessinsider.com/stocks-to-buy-in-2019-17-set-to-see-explosive-margin-growth-goldman-sachs-2019-1" target="_blank" rel="noopener">GOLDMAN SACHS: Earnings are drying up as a recession looms - but you should still buy these 17 stocks to profit from their exploding margins</a></em></p><p>So what's an investor to do? Banks across Wall Street have some ideas.</p><p>In January, <a href="https://markets.businessinsider.com/stocks/gs-stock" target="_blank" rel="noopener">Goldman Sachs</a> put together a <a href="https://www.businessinsider.com/stocks-to-buy-in-2019-17-set-to-see-explosive-margin-growth-goldman-sachs-2019-1" target="_blank" rel="noopener">list of 17 stocks</a> set to continue growing their margins in 2019, regardless of what the economy does. The idea there is that they'll be well-equipped to outperform in the event of a full-fledged recession.</p><p>Morgan Stanley has weighed in as well, albeit with a contrarian view. The firm said in recent research that investors would be best served to <a href="https://www.businessinsider.com/next-recession-stock-market-investing-strategy-as-fears-mount-morgan-stanley-2019-1" target="_blank" rel="noopener">rotate into cyclical areas</a>. While Morgan Stanley isn't totally sold on the fundamental picture for these companies, it notes that defensive positions have gotten overextended to the upside, and are therefore likely to reverse.</p><p>Ultimately, everyone is just scrambling to make sure they're covered in the event of an economic downturn.</p><p>Whether that means looking beyond catering stocks or seeking out high-margin-growth companies, one thing is certain: the market is on notice, and the next big development is anyone's guess.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/bud-light-dilly-dilly-viral-commercial-super-bowl-campaign-2017-12">Bud Light's 'Dilly Dilly' just made a comeback at the Super Bowl with a weird crossover ad with Game of Thrones - here's what the phrase means</a></h3>        <div>                    </div>    </div>

One corner of the market stayed red-hot during the last recession. Here's why investors will have to find a new place to hide during the next collapse.

<br />
World’s renowned financial research centre Moody's has assigned lowest investment grade rating, Baa3, to India’s automaker Mahindra &amp; Mahindra. The reason behind declining profitability of its automotive business is weak performance of Mahindra’s  Korea-based subsidiary Ssangyong Motor and the limited geographic diversification of the group's non-IT businesses constrain the ratings. <br />
<br />
Elaborating on the rating to M&amp;M, Moody's Vice-President and Senior Analyst Kaustubh Chaubal said, "The rating reflects M&amp;M's long track record of operations and, at the same time, its adoption of strong corporate governance practices and a prudent approach to management, as well as its close operational oversight of its group companies". <br />
<br />
Mahindra &amp; Mahindra has been assigned the lowest investment grade  rating<br />
The rating takes into account the group's diversified business profile across many areas, including farm equipment, automotive, IT, financial services, hospitality and real estate, Moody's said in a statement. <br />
<br />
"Furthermore, M&amp;M's credit profile is supported by its strong financial flexibility across listed but group- controlled companies -- based on the markvalue of its investments and which show substantial unrealised value," said Chaubal, who is also Moody's lead analyst for M&amp;M. <br />
<br />
Moody's said the rating also factored M&amp;M's leading market position in India in farm equipment and light commercial vehicle (LCV) goods carriers. <br />
<br />
"At the same time, although the group's leading, albeit declining, market position in utility vehicles (UVs) is a strength, increasing competition in the UV segment is a concern," it added.<br />
<br />
The ratings agency further said, "The stable outlook reflects our expectation that M&amp;M will retain its diversified business profile, while maintaining its leading market position in its core farm equipment and automotive businesses in India." <br />
<br />
The outlook also anticipates that the company will preserve its very solid balance sheet and modest financial leverage. <br />
<br />
An upgrade of M&amp;M's rating will require continued strong operational and financial performance and a further diversification in its businesses, Moody's said. <br />
<br />
The Baa3 rating could come under pressure if M&amp;M's business profile weakens because of a sustained loss of market share in its key operating segments of tractors, utility vehicles and light commercial vehicles in India, or if Ssangyong Motors continues to report losses. <br />
<br />
It could also be under pressure if the company undertakes large debt-funded acquisitions that materially weaken its financial profile, Moody's said.<br />
 <br />

Mahindra
& Mahindra has
been assigned the  lowest investment
grade rating

<p class="source"><span>10'000 Hours/Getty Images</span></p><p class="caption">California's AB5 is meant to protect workers - but it will significantly affect small businesses who partner with independent contractors.</p><ul class="summary-list"><li>California Assembly Bill 5 (AB5) went into effect on January 1, 2020, and it requires employers to adhere to a stricter definition of 'independent contractor.'</li><li>If a worker is incorrectly classified, there can be significant fines as penalties - which can range from $5,000 to $25,000.</li><li>All California-based businesses or companies that do business in California should evaluate their contractors against the ABC test. </li><li>If the contractor does not meet all three parts of the ABC test, they can either try to change the current work arrangement so they can be classified as an independent contractor or become an employee. </li><li><a href="https://www.businessinsider.com/prime?module=article&amp;area=summary">Click here for more BI Prime stories.</a></li></ul><p>California Assembly Bill 5  - most commonly referred to as AB5 - went into effect on January 1, 2020. </p><p>At its core, the main purpose of AB5 is to ensure employers correctly classify their workers and remain accountable to a stricter definition of 'independent contractor.'</p><p>To comply with AB5, every worker - excluding those in exempt occupations like healthcare professionals, investment advisors, and direct salespersons - is now subject to the ABC test. If they meet all three qualifications, they're considered an <a href="https://www.businessinsider.com/uber-lyft-doordash-california-bill-ab5-classify-independent-contractor-2019-10">independent contractor</a>. If they don't, they must either be transitioned to employee status or the work arrangement has to change.</p><p>The intention of the bill is to prevent employers from taking shortcuts to save money - nationwide, <a href="https://www.vox.com/policy-and-politics/2019/5/30/18642535/california-ab5-misclassify-employees-contractors">incorrectly classifying independent contractors resulted in over $44 billion in unpaid taxes from 2008 to 2010</a> - and to provide workers who <em>should</em> be classified as employees with the rights they deserve, such as healthcare, workers' compensation, paid time off, disability leave, and more.</p><p>While some workers will benefit greatly from the passing of AB5, <a href="https://www.businessinsider.com/how-freelancers-contractors-remain-independent-navigate-california-ab5">others hope to remain independent </a>for a number of reasons. And, many companies aren't too happy with the bill, either.</p><p>Rideshare behemoths <a href="https://www.businessinsider.com/uber-lyft-fight-california-dynamex-bill-drivers-employees-2019-6">Uber and Lyft claim that AB5 could send them into bankruptcy</a>. Their two million drivers are all independent contractors - making them full-time employees would be financially devastating.</p><p>Uber, Lyft, Postmates (an on-demand delivery company), and a few more similar companies <a href="https://www.businessinsider.com/uber-lyft-california-ab5-long-term-challenges-2019-12">proposed a measure for California's 2020 ballot</a>. They hope voters will choose to protect companies like them from the law. </p><p>If you're a California business - or do business in California - you should do everything you can to make sure you're compliant with AB5. If you don't, there could be significant penalties.</p><p class="source"><span>Emily D. Baker</span></p><p class="caption">Emily D. Baker.</p><p>"Business owners need to be mindful that the Franchise Tax Board will be auditing businesses going forward, and they can collect the back payroll taxes owed, plus interest, fines, and penalties," explained Emily D. Baker, a California-based lawyer and host of the "<a href="https://open.spotify.com/show/7rEbYHcwlxtBO2jEF8HHu3?si=DfjgDfHcSFCYRud3KaOSYg">Get Legit Law and Sh!t" podcast</a>.</p><p>And according to Baker, these aren't meager fines by any means. For each worker who is misclassified, the employer can be fined anywhere from $5,000 to $15,000. And, if they find that you have a habit of doing this, that range is bumped up to $10,000 to $25,000. </p><p>Here are the steps you should take as a small or large business that employs contractors and freelancers in California.</p><h1>Step 1: Evaluate the true status of your current independent contractors</h1><p>First and foremost, you - and all members of your leadership team - need to <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB5">familiarize yourself with the law</a>. Don't hesitate to consult with an employment lawyer to help you understand the ins and outs of it. And if counsel isn't in the budget, there are other options, too.</p><p>"Small business owners with particularly limited in-house resources don't have to tackle complex compliance issues all on their own," explained Michael Cole, employment counsel at <a href="https://gusto.com/?kclickid=_k_CjwKCAiA35rxBRAWEiwADqB371875rhz4Shs2meI1FofsgWv7_AOuxxiXGufbzudS9Eo6KBR-KVWiRoC4O8QAvD_BwE_k_&amp;vt_source=adwords&amp;vt_content=payroll&amp;vt_medium=search&amp;vt_campaign=980012364&amp;keyword=kwd-296677419819&amp;creative=231887297456&amp;device=c&amp;matchtype=e&amp;adgroup=54241851811&amp;adposition=1t1&amp;location=9002574&amp;gclid=CjwKCAiA35rxBRAWEiwADqB371875rhz4Shs2meI1FofsgWv7_AOuxxiXGufbzudS9Eo6KBR-KVWiRoC4O8QAvD_BwE">Gusto</a>, a California-based payroll, HR, and benefits platform. He added that there are many affordable online resources that can help.</p><p class="source"><span>Michael Cole.</span></p><p class="caption">Michael Cole.</p><p>"As business owners consider HR technology,  it's important to look for solutions that offer tools, features, checklists, and templates designed to keep them on track when it comes to compliance," Cole shared. "Additionally, some may want to consider a platform that includes support from certified HR professionals." Some HR tools you could consider are: <a href="https://www.zenefits.com/">Zenefits</a>, <a href="https://www.adp.com/">ADP</a>, <a href="https://www.rippling.com/">Rippling</a>, and <a href="https://www.workday.com/en-us/applications/human-capital-management.html">Workday HCM</a>, among others.</p><p>Whether you're doing it on your own or having someone help you, you need to analyze the role of every single independent contractor you employ. </p><p>First, check to see if they're exempt. (<a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB5">A list of exempt occupations is included in the text of the bill</a>.) Even if they are exempt, <a href="https://www.businessinsider.com/how-freelancers-contractors-remain-independent-navigate-california-ab5">they're still subject to the Borello test</a>, which has 11 parts. Unlike with the ABC test, in which all three parts must be met, no single item of the Borello test is determinative. The main goal is to ensure that workers control when and how they do their work. If they don't pass the Borello test, then you can consider the same options you have for non-exempt workers who don't pass the ABC test.</p><h1>Step 2: Apply the ABC test to those who aren't exempt</h1><p>The ABC test includes the following three criteria:</p><ol><li>The worker must be free from the hiring company's control in how and when they do their job.</li><li>The worker must perform work outside of the hiring company's core business.</li><li>The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.</li></ol><p>In regards to what a company's core business is, Elliot Dinkin, president and CEO of <a href="https://cowdenassociates.com/">Cowden Associates</a>, a compensation, health and benefits, and retirement consulting firm, said, "Core business is one that's central to generating the larger share of revenues and is instrumental to the primary function of business."</p><p class="source"><span>Elliot Dinkin</span></p><p class="caption">Elliot Dinkin.</p><p>Uber, for example, currently doesn't pass AB5 because transportation is considered part of their core business. Without drivers, transportation by car is hard. (<a href="https://www.businessinsider.com/uber-new-self-driving-car-test-site-pittsburgh-2019-12">Though they are still working hard on self-driving cars</a>). The rideshare giant, however, argues that their core business is providing the software that drivers and riders leverage. </p><h1>What to do if you believe an independent contractor meets all three requirements of the ABC test</h1><p>Be very well prepared to prove and back your reasoning in case you get audited.</p><p>"Strengthen your position to ensure solid footing exists and enforce your position through communications, operations, and related activities," Dinkin said.</p><p>One way to do this is by requiring all of your contractors to present solid evidence that they're an independently established corporation. Encourage them to create an easy-to-search website for their business, clearly stating how they can be contacted and providing a list of clients they've worked for or are currently working for (with each client's permission, of course).</p><p>For freelancers - writers, designers, editors, and so forth - keep close track of how many pieces each one has submitted throughout the year. With the passing of AB5, <a href="https://www.businessinsider.com/california-labor-jobs-law-bad-confusing-freelance-workers-2019-11">freelancers can no longer submit more than 35 pieces to a single publication within one year</a>. If they do, they are technically considered an employee. Establish an internal tracking system, and encourage your freelancers to keep track, too. On each submission and/or invoice, for example, they could note what number submission it is ("4/35 for 2020," for example).</p><p>In addition, "communicate clearly with [your freelancers] to make sure they're clear on what counts as a submission," explained Baker. You need to be clear, for instance, if a multi-piece story is one submission or more, in addition to specifying how many rounds of edits a single submission includes.</p><p>"Clear internal policies will put publications in the best position to defend themselves if they're audited over AB5," Baker said. "You can't go wrong with documentation and clear communication."</p><h1>What you should do if someone doesn't pass the ABC test (and isn't exempt from it)</h1><p>If one of your independent contractors doesn't meet all three parts of the ABC test, something needs to change. Here are two paths you can choose from:</p><h2>1. Make changes to your work agreement</h2><p>Look at the parts of the ABC test that the contractor didn't meet. Are there any changes you can make to your current work arrangement that will allow them to be classified as an independent contractor?</p><p>For instance, if they didn't meet part A because you tell them certain hours and days they have to work, can you relinquish some control? Perhaps they still do the same work, but they choose when they complete it - you just tell them the deadline.</p><p>Or, say they didn't meet part B because part of their work is considered core to your business. Can those tasks be redistributed to a current employee, leaving the contractor with responsibilities that aren't critical to the business?</p><p>If a freelancer you employ currently doesn't classify as an independent contractor because they submit more than 35 projects a year, you'll need to decrease their number of assignments (and make sure to track them!).</p><p>Again, it's wise to consult with an expert (or leverage some HR technology) for this. You want to make sure that any changes you make to properly classify someone as an independent contractor are actually compliant.</p><h2>2. Reclassify them as an employee</h2><p>If the above isn't possible, or if the independent contractor isn't open to having their type or amount of work changed, consider making them an employee.</p><p>However, "[you'll] need to factor in the costs and logistics of doing so, particularly when it comes to increased wages and benefits," explained Cole. And, prepare yourself for any questions and pushback your independent contractors may have.</p><p>"Some contractors who are reclassified may not welcome the change, while others may ask about whether they'll be paid some form of back pay or other compensation for previously being treated as a contractor [when they shouldn't have been]," Cole added.</p><p>Of course, reclassifying someone as an employee isn't as simple as just checking a box. You'll need to go through the official hiring process and figure out how much money you can dedicate to their role for salary, benefits, taxes, and other associated costs.</p><p class="source"><span>Jennifer Hwang</span></p><p class="caption">Jennifer Hwang.</p><p>This is a tricky spot for many businesses to be in, but to avoid possible disastrous audit outcomes, take action as soon as possible and ensure every independent contractor you have is correctly classified. If they're not, either readjust their role, bring them on as an employee, or part ways with them entirely.</p><p>"Organizations should strategize and build out an action plan best suited to their particular circumstances," said Jennifer Hwang, the chief strategy officer at gig platform <a href="https://tilr.com/">Tilr</a>. "Being educated and executing on a plan to ensure compliance with the law is prudent not only for California-based businesses, but also any non-California businesses that have work being conducted or done in California."</p>            <h3>NOW WATCH: <a href="https://www.businessinsider.com/maye-musk-on-raising-successful-children-leveling-up-her-career-2020-1">Elon Musk's mother, supermodel Maye Musk, talks about raising successful children and leveling up her career at every age</a></h3>

Here's what every small business needs to know about California's Assembly Bill 5 if they work with contractors or freelancers

<p><div class="image-container float_right" style="width:400px"><div class="image"></div><p class="source"><a href="http://www.flickr.com/photos/44218706@N00/454792996/">Flickr / alexpgp</a></p></div><em>Either governments are not serious about climate change or fossil-fuel firms are overvalued.</em></p>
<p>MARKETS can misprice risk, as investors in subprime mortgages discovered in 2008. Several recent reports suggest that markets are now overlooking the risk of "unburnable carbon". The share prices of <keyword id="6359072" type="CITY" weightage="60" keywordseo="oil">oil</keyword>, gas and coal companies depend in part on their reserves. The more fossil fuels a firm has underground, the more valuable its shares. But what if some of those reserves can never be dug up and burned?</p>
<p>If governments were determined to implement their climate policies, a lot of that carbon would have to be left in the ground, says Carbon Tracker, a non-profit organisation, and the Grantham Research Institute on Climate Change, part of the London School of Economics. Their analysis starts by estimating the amount of carbon dioxide that could be put into the atmosphere if global temperatures are not to rise by more than 2°C, the most that climate scientists deem prudent. The maximum, says the report, is about 1,000 gigatons (GTCO2) between now and 2050. The report calls this the world’s "carbon budget".</p>
<p>Existing fossil-fuel reserves already contain far more carbon than that. According to the International Energy Agency (IEA), in its "World Energy Outlook", total proven international reserves contain 2,860GTCO2--almost three times the carbon budget. The report refers to the excess as "unburnable carbon".</p>
<p><span style="font-size: 15px; line-height: 1.5em;"><div class="image-container float_left" style="width:350px"><div class="image"></div><p class="source"><keyword id="425741" type="UNKNOWN" weightage="60" keywordseo="The-Economist">The Economist</keyword></p></div>Most of the reserves are owned by governments or state energy firms; they could be left in the ground by public-policy choice (ie, if governments took the 2°C target seriously). But the reserves of listed oil companies are different. These are assets developed using money raised from investors who expect a return. Proven reserves of listed firms contain 762GTCO2--most of what can prudently be burned before 2050. Listed potential reserves have 1,541GTCO2 embedded in them.</span></p>
<p>So companies and governments already have far more oil, gas and coal than they need (again, assuming temperatures are not to rise by more than 2°C). Logically, the response to this would be for governments to leave their reserves untouched and for companies to run theirs slowly down, returning more of what they earn to shareholders. Neither of these things is happening. State-owned companies are taking an increasing share of total energy output. And in 2012, says Carbon Tracker, the 200 largest listed oil, gas and coal companies spent five times as much--$674 billion--on developing new reserves as they did returning money to shareholders ($126 billion). ExxonMobil alone plans to spend $37 billion a year on exploration in each of the next three years.</p>
<p>Such behaviour, on the face of it, makes no sense. One possible explanation is that companies are betting that government climate policies will fail; they will be able to burn all their reserves, including new ones, after all. This implies that global temperatures would either soar past the 2°C mark, or be restrained by a technological fix, such as carbon capture and storage, or geo-engineering.</p>
<p>Recent events make such a bet seem rational. On April 16th the European Parliament voted against attempts to shore up Europe’s emissions trading system against collapse. The system is the EU’s flagship environmental policy and the world’s largest carbon market.</p>
<p>Putting it at risk suggests that Europeans have lost their will to endure short-term pain for long-term environmental gain. Nor is this the only such sign. Several cash-strapped EU countries are cutting subsidies for renewable energy. And governments around the world have failed to make progress towards a new global climate-change treaty. Betting against tough climate policies seems almost prudent.</p>
<p>But that is not what companies say they are doing. All the big energy firms claim to be green. They say they use high implicit carbon prices to guide investment decisions. Nearly all claim to support climate policies. None predicts their failure.</p>
<p>Of course this could just be corporate hypocrisy. But might something else be going on? The answer, argues the report, is that markets are mispricing risk by valuing companies as if all their reserves will be burned. Investors treat reserves as an indicator of future revenues. They therefore require companies to replace reserves depleted by production, even though this runs foul of emission-reduction policies. Fossil-fuel firms live and die by a measure called the reserve replacement ratio, which must remain above 100%. Companies see their shares marked down if the ratio falls, even when they pull the plug on dodgy, expensive projects. This happened to Shell, for example, when it suspended drilling in the Arctic in February.</p>
<p>Worries about mispricing are cropping up in the markets themselves. In April Citi Research looked at Australian mining companies and concluded that "investors who strongly believe in 'unburnable carbon’ would find it more productive to actively tilt their portfolios" (ie, sell fossil-fuel firms). In January, HSBC Global Research argued that "if lower demand led to lower oil and gas prices…the potential value at risk could rise to 40-60% of market cap." The 200 largest listed companies had a market capitalisation of $4 trillion at the end of 2012, so this is a huge amount. HSBC added: "We doubt the market is pricing in the risk of a loss of value from this issue."</p>
<p>Carbon Tracker says regulators should require firms to disclose the amount of carbon in their fuel reserves. Credit-rating agencies should address climate change as part of their efforts to tackle systemic risk. And firms ought to explain how their activities are compatible with government emissions targets. But so long as governments are ambivalent about those targets, it seems fruitless to demand more of companies and markets. At the moment neither public policies nor markets reflect the risks of a warmer world.</p>
<p>Click <a href="http://www.store.eiu.com">here</a> to subscribe to The Economist</p>
<p></p>

Governments And Oil Firms Aren't Acting Like Climate Change Is A Problem

After co-founding Harry's and Warby Parker, here's the best advice I can give you about raising money

Bullying allegations, $1,000 pens, and a celebrity chef: Inside the collapse of Faraday Grid, the billion-dollar energy startup backed by Adam Neumann

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span><a href="http://www.gettyimages.co.uk/license/488445885">Brian Ach/Getty Images for TechCrunch</a></span></p><p class="caption">Renaud Laplanche,the founder of LendingClub who was ousted as CEO last week.</p></div><p></p></div></div>The current crisis at LendingClub caused a seismic shock in the world of finance and fintech.</p><p>LendingClub last week <a href="http://uk.businessinsider.com/lending-club-ceo-stepping-down-2016-5">ejected founder and CEO Renaud Laplanche over doctored dates on a batch of loans sold to a bank and an undisclosed stake in a fund that bought up the marketplace lender's loans and that LendingClub invested in.</a></p><p>The fiasco caused LendingClub's share price to crash by almost 50% in a week and <a href="http://uk.businessinsider.com/lendingclub-faces-doj-and-sec-investigations-could-buy-more-of-its-loans-2016-5">attracted the attention of the US Department of Justice, the Securities and Exchange Commission</a>, and <a href="http://uk.businessinsider.com/lendingclub-faces-ny-probe-cancels-summer-intern-program-2016-5">New York regulators</a>. Two of the biggest buyers of LendingClub loans - Goldman Sachs and Jefferies - have also "paused" business with the platform.</p><p>What does it mean for other pioneers in the space? Why did it happen and what lessons can be learned? And do other companies have similar skeletons in the closet?</p><p>Business Insider spoke to several figures in the European online lending industry since the story broke to get a sense of what they think the fallout will be from the LendingClub crisis. All agreed that this is not the end for marketplace lending but there are big lessons to be learned.</p><h2>The poster child of online lending</h2><p>For those not up to speed, LendingClub is one of many so-called peer-to-peer lenders (known as marketplace lenders in the US.) Its platform connects people who want to borrow money with people who want to lend cash at an attractive rate. Normally a bank would sit in between these two parties, taking the risk but also the bulk of the return.</p><p>These types of platforms, or some variation of them, have become hugely popular in the US and Europe since the financial crisis with other big players including Prosper, Funding Circle, and Zopa. For investors, they offer great returns when interest rates are at rock bottom levels. For borrowers like small businesses and consumers, they offered credit when other lines were drying up.</p><p>LendingClub was a poster child for the sector - it financed over $18 billion (£12.3 billion) worth of loans on its platform since 2007 and enjoyed the world's first float of a peer-to-peer lender in New York back in 2014.</p><p>Its swift fall from grace has been totally unexpected and many people in the fintech industry are now wondering what its crisis means for online lending as a whole.</p><h2>'That's like saying because one car crashes, no one should take cars anymore'</h2><p><div class="KonaFilter image-container display-table float_left"><div><div class="image on-image"><p class="source"><span>MarketInvoice</span></p><p class="caption">MarketInvoice co-founders Anil Stocker, left and Ilya Kondrashov.</p></div><p></p></div></div>"I don't think it's the canary in the coal mine," says Andy Whelan, CEO of GLI Finance, a London-listed company that invests in online finance platforms for small businesses. "If this was about defaults, I may have had a different view of it."</p><p>Whelan says LendingClub's downfall was simply a governance failure, not a problem with the model.</p><p>Anil Stocker, cofounder and CEO of MarketInvoice, says: "My feeling is [that] there is a bit of an overreaction from the media and certain interest groups who might benefit from talking in hyperbole about what's going on. I don't think P2P is dead as a model. I still think there are still, massively, core advantages compared to the incumbents."</p><p>Stocker's platform <a href="http://uk.businessinsider.com/marketinvoice-raises-6-million-in-series-a-round-2015-8">lets institutional investors and high net worth individuals buy invoices from small businesses that have yet to be paid</a>, helping the business with its cashflow and giving the buyer a secured loan. It has funded over £750 million worth of deals to date.</p><p>Stocker says: "I don't think it follows that because it happened to LendingClub, it's going to happen somewhere else. That's like saying because one car crashes, no one should take cars anymore - we should all go back to the horse-drawn cart because that's tried and tested.</p><p>"This seems to be an internal issue for LendingClub, a company specific diversion from proper checks and balances. I don't see a systemic failure of loans across peer-to-peer platforms, I don't see a systemic conflict of interest. I think if you ask Zopa and Funding Circle and all these guys, they would say the same."</p><p>Yann Ranchere, a partner at fintech venture capital fund Anthemis, agrees, saying: "Ultimately, the risks of the loans or anything affecting the structure of the loans, it doesn't seem to have anything around it, which would have been the critical thing for a marketplace lender."</p><h2>'Whenever anything like this happens, the natural suspicion is who else is up to it'</h2><p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Liberum</span></p><p class="caption">Cormac Leech, Liberum.</p></div><p></p></div></div>But Cormac Leech, <a href="http://uk.businessinsider.com/liberums-cormac-leech-on-online-direct-lending-2015-10">an analyst at boutique London investment bank Liberum who specialises in the space</a>, says: "This shows that the whole industry is less sustainable. You're buying loans but you don't actually know what you're getting. You can look at the ingredients in the tin but you don't actually know if they are the ingredients."</p><p>He hopes that the crisis leads to a beefing up of checks and balances at platforms and wants independent audits. He also wants a "global data repository."</p><p>"Every time a loan is made between two parties that data is captured in a database that is monitored, and the regulator has access to that. That becomes an official record of what's taken place. Subsequently, if someone's buying a loan part or a whole loan they can refer back to that database and verify what they're buying. A little bit like in real estate with the Land Registry." (It should be said that most <keyword id="6354868" type="COUNTRY" weightage="60" keywordseo="UK">UK</keyword> platforms already publish their loan books online.)</p><p>While most agree that LendingClub's crisis isn't a sign of systematic risk, there is a fear that it could be the tip of the iceberg in terms of bad behaviour. GLI Finance's Whelan says: "Whenever anything like this happens, the natural suspicion is who else is up to it."</p><p>Leech says: "LendingClub is, in fact, one of the better run players in this industry. If they run into this kind of difficulty, you have to think that there are worse transgressions happening and we just don't know what they are."</p><p>MarketInvoice's Stocker has a more nuanced view: "A lot of these things might be happening when they were private and it might make sense, creating a fund that buys up some of the liquidity there. That could all make sense but when you then express it externally it could look like a horrible conflict of interest."</p><p>There may be skeletons in the closets of many platforms but if handled correctly they can be defused and not cause problems down the line.</p><h2>'This isn't like manna from heaven'</h2><p>While LendingClub's rivals and colleagues may have got to grips with its implosion, how will institutional investors react? Many platforms rely on big banks or hedge funds to either buy up packages of loans made over their platforms or fund the loans directly. If they withdraw their funding, it could be a disaster.</p><p>Whelan, who sits between institutional investors and platforms, says GLI has received "very few" calls from institutional investors "because it is seen as an internal process control failure rather than a failure of the industry or the sector."</p><p>Stocker says MarketInvoice, which relies heavily on institutional cash, has had no calls. And Leech says hardly any of his clients have called for reassurance: "Most institutions we talk to are sophisticated enough to think for themselves and I know that LendingClub has been talking to their institutional investors a lot.</p><p>"My impression is [that] the big guys are having daily calls with them and what I hear is that LendingClub is actually doing a pretty good job of getting everyone comfortable [with that] there's nothing to worry about."</p><p>He says institutional funding will almost certainly dip but adds: "The most likely way that this plays out is things go back to normal relatively quickly for the sector, possibly within as little as 12 months."</p><p>Still, Stocker thinks the LendingClub crisis could be a useful wake-up call to institutions looking to get involved with marketplace lenders: "A lot of institutional investors will pause to think, 'hey, not all peer-to-peer lending is the same.' This isn't like manna from heaven. It's not like LendingClub has suddenly managed to find a way to magic away defaults and loss rates. Peer-to-peer never said that. Investors need to understand what they're getting themselves into."</p><p>Leech says: "Everyone has been so focused on the credit risk versus the available yield and [has been] taking it for granted almost that they were all completely honest. It has just kind of dawned on people that fraud risk at individual platforms is a key risk. I always thought platform fraud risk was the biggest issue for the sector."</p><p>Leech highlighted this fear in his keynote address to the industry conference LendIt Europe last year - <a href="http://uk.businessinsider.com/liberums-cormac-leech-on-online-direct-lending-2015-10">you can read his whole presentation here.</a></p><h2>'There is the question of finding the right balance of funding'</h2><p>Aside from making sure checks and balances at other platforms are adequate, another lesson the industry is taking from LendingClub's implosion is not to get overly reliant on institutional funding, which can quickly dry up.</p><p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span><a href="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;VBID=2C0FCI6XXQ78W&amp;SMLS=1&amp;RW=1440&amp;RH=676#/SearchResult&amp;VBID=2C0FCI6XXQ78W&amp;SMLS=1&amp;RW=1440&amp;RH=676&amp;POPUPPN=7&amp;POPUPIID=2C0408WMQ2T3X">REUTERS/Brendan McDermid</a></span></p><p class="caption">LendingClub's 2014 IPO on the New York Stock Exchange.</p></div><p></p></div></div>Anthemis' Ranchere says: "There is the question of finding the right balance of funding sources to sustain the growth of those players and the change in terms of who is providing capital."</p><p>With Goldman and Jefferies <a href="http://www.wsj.com/articles/goldman-jefferies-pause-buying-lendingclub-loans-1462903699">pausing their buying on LendingClub for now</a>, the platform has been <a href="http://uk.businessinsider.com/lendingclub-faces-doj-and-sec-investigations-could-buy-more-of-its-loans-2016-5">forced to admit it may have to buy some of the loans made over its platform</a> - a huge shift from having no inventory to taking on the risk itself.</p><p>Stocker says: "Whenever I think about funding on MarketInvoice, I want diversity. It's painful, because it means potentially we don't scale as fast but in the long run it's more sustainable."</p><p>The UK's <span>Peer-to-Peer Finance Association (</span>P2PFA<span>)</span>, the industry body for the sector, <a href="http://p2pfa.info/p2pfa-statement-on-lending-club">noted in a statement on its website shortly after Laplanche was ejected that:</a> "Platforms are well aware of the importance of prudent growth and a good capital mix."</p><p>Leech says this is truer of European platforms in general: "Some of the platforms in the UK, for example RateSetter, are much more retail funded and I think in general the European platforms are less reliant on institutional capital. That should play to their advantage because I expect the institutions and hedge funds will pullback much more quickly."</p><h2>'Why on earth did these guys do this?'</h2><p>A big question remains for many - why did it happen? "The one thing that puzzled me was why on earth did these guys do this?," says Leech. "Look at the upside versus the downside."</p><p>One theory is that because LendingClub was valued like a tech company it was expected to grow like a tech company - superfast. That put pressure on executives and the company to move at break-neck speed, which is not always the best move in finance.</p><p>"I wouldn't be surprised if these guys were making these decisions on very little sleep at 2 in the morning," says Leech.</p><p>Prior to its recent stock price collapse, LendingClub was valued around 30x revenues. Goldman Sachs by contrast trades on just over 2x revenues. Investors clearly expect LendingClub to do a lot of growing.</p><p>"There is a trade-off between risk and growth," says Stocker. "We could grow MarketInvoice much faster if we relaxed our risk constraints, it is as simple as that. But that's not what we want to do because we're building for the long term."</p><p>"It's not old finance in disguise, as some people have been saying, but it's not Uber - it's somewhere in-between. Growing 60-70% a year is still pretty impressive. You don't need to grow 300% a year, especially when it means avoiding mistakes that could destroy your business."</p><p>Perhaps the biggest takeaway from LendingClub is not for investors on these platforms but for investors in the platforms themselves. More moderate valuation multiples should be encouraged because the old tech mantra of move fast and break things doesn't work so well in finance.</p><p class="tagline"><div id="categorypromo"><p></p></div></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/this-girl-quit-her-finance-job-to-travel-the-world-2016-5">This 27-year-old quit her corporate finance job to travel the world </a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="ozbHl1MDE6lqX_pLl9K9CRbd7MM2H1C9" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

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