I call liquid 5 seconds.... That's a nightmare!I can speak to the secondary market for notes. I needed some liquidity and was able to very quickly move my notes, without even pricing them very aggressively. I think I ended up netting 4-5%, much lower than the ostensible rate on the notes, but fine given that I was able to liquidate my position so easily (it took me 2-3 months to sell all the notes).
LOL it's designed to be a high-return, illiquid investment, I thought a few months to get out of a 5-year note, while still earning a few months interest, was pretty liquid all things considered.I call liquid 5 seconds.... That's a nightmare!
See I don't know about that... its the less volatile bit that I disagree with, because I think the loans are less than ideal, and when doomsday comes they will default as fast as the market drops IMO. Further - if you look at VTSAX for 2013 it has a 33.52% return...(which is pretty wild in and of itself!)Wow, 13-14% return is excellent in my opinion.
I tried Prosper for 2 years and lost money.
I have done Lending Club for 3 years now and my average return is 6% with $5,000 invested and making pretty conservative picks. You're not going to get rich with these but I am happy with it, less volatility then the stock market and much better then money markets or CD's.
Ok- what is a fair benchmark for the risk profile of subprime loans?I think they can have a (small) place in any diversified portfolio. Comparing them to VTSAX this year probably isn't fair. I started with 5k invested in Lending Club not too long ago. I think I'm averaging something like 12% returns. And with their automatic reinvestment bot, its fire and forget. I don't really need that money liquid anyway...
It's an asset class though- if you give $50 each to a crack head to only buy food how many will buy crack? Diversification within a flawed asset class is my worry- and doing so with less of a return than the market is my issue with it.Yeah, I've no idea. But in theory if you diversify your (small) holdings over a multitude of loans, it might not be THAT risky.
edit: Surely there is some propellerhead here that knows how to calculation standards, means, deviations, hookers, blow, etc, right?
It's been awhile since I researched this, but if I remember correctly they have some pretty solid data back to something like 2005 or 2006. I know that isn't A LOT of data, but what they have shows consistent returns over that time period which includes a giant recession. Obviously its more of a gamble than buying a blue chip, but you're rewarded for that risk...
Kinda wrong re consistent returns during the recession; although 4 percent actual return for AA-B rated Prosper loans originating '05-'09 isn't the worst. According to the chart, though, nearly 18 percent of Prosper loans that originated during that time period and that were assigned retroactively a Prosper rating* defaulted. If you lump in all loan originated during that time period--whether they were retroactively assigned a Prosper rating or not--you're looking now at around a 19.3 percent default rate and a -5.66 percent actual return. That being said, a ton of investments were not doing great then.I've had a couple of beers. Does this mean I was right or wrong?
Liquidity is not tested in a bull market. "A few months" to get out of an investment in this market is absolutely horrible. I deal in far more complex and esoteric assets at work and in this market I can still shift most all paper in a month from waking up deciding I want out to being done. Shit I could put my house up for sale today and be done and closed in a month.LOL it's designed to be a high-return, illiquid investment, I thought a few months to get out of a 5-year note, while still earning a few months interest, was pretty liquid all things considered.
After reading this statement a couple days ago I decided that it's really not the place I want my money to have. Especially the liquidity part gave me headache since I started putting money into LC. I'll just divert the incoming payments every month to other investments.I equate P2P to junk bonds with higher fees, more credit risk, and less liquidity on steroids.