P2P Investments like Lending Club or Prosper..have you tried them?
- Thread starter Frozen
- Start date
kingabraham3
Level 2 Member
I've been using LC for a couple years. Supposedly I'm projected to have an annualized return of about 6%. That's enough to keep me somewhat happy, but its definitely a few points less than what their historical data projected for my portfolio. Not sure why, but my guess is their data is somewhat undercounting the likelihood of default.
[edit: if you do plan to invent 5K+ let me know and I'll give you a referral link for $100 bonus. Not sure if this violates any forum rules, but I won't get any bonus on my end anyways]
[edit: if you do plan to invent 5K+ let me know and I'll give you a referral link for $100 bonus. Not sure if this violates any forum rules, but I won't get any bonus on my end anyways]
Hard to say without knowing the full picture, but its the sort of investment I would put into the speculative/play category that should occur way after the basics like savings/retirement/paying down debt etc.
Thank you for the feedback. Do you use one of the automated systems to get your 6% return?
I actually just set up a transfer from my bank for $500 to start as a test. I'm not sure I want to start with $5K but thank you for the offer.
If you have any other tips or advice on LC I'd be interested in hearing them.
kingabraham3
Level 2 Member
I picked out my own using some strict filtering. still managed to get me on the lower end of returns. once they added the option to use a pre-saved filter together with the auto system, I switched to that so I don't have to bother with anything. Consistent with what Matt said, I def view this as both risky and as a long-term investment.
Ok thanks.
I have nearly a year of living expenses in savings, which I add to monthly.
I contribute the max to my 401K.
Other than my mortgage I have no debt.
So as you suggested I will consider this play.
You sound in good shape. To be clear though, I'd consider play coming in later than that
But at these levels it's all good.
Ashish Bhatia
Level 2 Member
I have used both LendingClub and Prosper. I would recommend against them. Your money is stuck till the buyer pays back, they can pay back early, it is almost impossible to sell these notes without taking the hit, payment is considered ordinary income. I have written about it in detail in the past: http://ashishb.net/all/personal-finance-thoughts-on-peer-to-peer-lending/
kissmyjazz
Level 2 Member
Consider investing in (Eastern) European p2p exchanges. Yearly return is 10% + with a modest risk. Some places offer buy back guarantee for defaulted loans at par or at discount. Secondary markets are highly liquid so exit is not hard unless everyone would want to exit at the same time. Best places are Twino, Mintos, Bondora. Services like Transferwise make money transfers between US and Europe quite fast and cheap. Of course most of these places will not accept private US investors because of FATCA and other US legislation, but it can be solved by using trusty European friends or management companies. With the taxation, currency risk and management fee you will have to pay for such an investment, the final return will probably be 5-8%. I have attached market report for perusal.
Ashish Bhatia
Level 2 Member
That means FBar filings and exchange rate risk.
kissmyjazz
Level 2 Member
It does not have to be so FBar. You can always extend the loan to a trustworthy friend, he/she will make investments in his/her name as a private individual and repay you the loan later at an agreed interest rate. If the sums are below $10000, no complicated paperwork will come into play.
I have attached screenshots of my portfolios for two of the mentioned platforms:
I have attached screenshots of my portfolios for two of the mentioned platforms:
Attachments
twentyseventy
Level 2 Member
I got some decent (5.x% returns) from using LC in 2009-2013 with some basic filtering. Took a small hit from Prosper in 2008-2011 but I wasn't doing too much filtering (and Prosper was really the wild west back then - practically zero underwriting). I would recommend against using the default auto-investing tools.
NSR (https://www.nsrplatform.com/#!/stats/lendingclub) has some great backtesting tools. I'm getting back into it after doing some very in-depth analysis. I'm only purchasing notes on the secondary market with at least 1 year of clean payment history. I've got an aggressive portfolio and a recession-resistant portfolio. Notes are weighted bout 60/40 Aggressive/Recession.
Average nominal rates and default-adjusted rates are:
19.52% / 10.97% (Aggressive)
18.29% / 9.04% (Recession)
It will take at least a year to see how the defaults go, but I'm optimistic.
NSR (https://www.nsrplatform.com/#!/stats/lendingclub) has some great backtesting tools. I'm getting back into it after doing some very in-depth analysis. I'm only purchasing notes on the secondary market with at least 1 year of clean payment history. I've got an aggressive portfolio and a recession-resistant portfolio. Notes are weighted bout 60/40 Aggressive/Recession.
Average nominal rates and default-adjusted rates are:
19.52% / 10.97% (Aggressive)
18.29% / 9.04% (Recession)
It will take at least a year to see how the defaults go, but I'm optimistic.
Gregovich1
New Member
Another frustration is always-changing regulation on P2P lending. At one time, Prosper was allowed to accept new lenders in my home state (OH). No longer.
I did it a while back and I agree that the advertised returns are probably inflated. However, don't underestimate the "fun" factor. I think investors like being able to hand pick the borrowers and feel a connection to them. Much less impersonal than buying a bond. I stopped investing with them a couple of years ago, but wait and wait for the last dollars to trickle in (or not if they default).
Thanks for the feedback everyone. I decided to give it a try with just $500 (20 notes) and I'm slowly adding to the account every couple of weeks.
I started out with their automatic investing, but now I decided on using my own filters:
36 month loans
Verified income
Zero delinquencies in the past two years
Own or Mortgage on home
Right now it's showing 6.94% return.
I started out with their automatic investing, but now I decided on using my own filters:
36 month loans
Verified income
Zero delinquencies in the past two years
Own or Mortgage on home
Right now it's showing 6.94% return.
There are a few blog posts out where people tried them to show the "real" return. Mr. Money Mustache is one of the better well known one (http://www.mrmoneymustache.com/the-lending-club-experiment/). One problem here is, the success is getting better with the amount of loans. Actually LendingClub has a nice return statistic on https://www.lendingclub.com/info/statistics-performance.action If you look closely at this statistic you can see that you can even loose money if you have 500 notes ($12500) invested. Not with the highest likelihood but its possible.
I myself started to invest only $500 of "gamble" money to see how it really is. After two years I added more. But I will never go in it full. One change that made LendingClub more beneficial to me is the auto-reinvesting (you find blog posts that says you need to have $X for this, but they changed it). I see Lending Club like a 3yr/5yr CD: I won't get the money until the end of it (or with a much more horrible penalty as a CD).
I think one question you need to ask yourself is: How long do you want to invest (only 3yrs or 20yrs?) and what do you want to beat? Do you want to beat average long term 7% in the stock market vs a riskier 10% at LC? What all the P2P services I know didn't have to face so far is a economical recession. How will the total numbers look if the unemployment rate goes significantly up like it did in the past?
I myself started to invest only $500 of "gamble" money to see how it really is. After two years I added more. But I will never go in it full. One change that made LendingClub more beneficial to me is the auto-reinvesting (you find blog posts that says you need to have $X for this, but they changed it). I see Lending Club like a 3yr/5yr CD: I won't get the money until the end of it (or with a much more horrible penalty as a CD).
I think one question you need to ask yourself is: How long do you want to invest (only 3yrs or 20yrs?) and what do you want to beat? Do you want to beat average long term 7% in the stock market vs a riskier 10% at LC? What all the P2P services I know didn't have to face so far is a economical recession. How will the total numbers look if the unemployment rate goes significantly up like it did in the past?
Could it be possible that the Mr Money Moustache lending club experiment is one giant charade motivated by the Lending Club affiliate money?
I doubt this. If that would be his goal I think he wouldn't update the page that frequent and write much more blog posts to get cash out of much more affiliate programs.
That was also the reason why I also referenced https://www.lendingclub.com/info/statistics-performance.action which should provide a more broad view and statistic.
That's true. But how many CC reviews or even suggestions are out there that do not compensate the author? You basically only find them in forums. So do you find the unpaid, honest LC reviews. Yet I still find such blog posts with real numbers helpful and in 99% of the cases trustworthy. But you always need to read between the lines and question it.
So, assuming that the numbers are real, what is compelling about LendingClub? The link you show highlights two charts, the Adjusted NAR and then some stuff about diversification. If we leave the diversification aside for now, what is the performance of Lending club against something with equal risk?
Does the S&P 500 have more or less risk than Lending Club? How does it compare of the past 3,5,10 years? Should it be used as a benchmark?
There is none to compare with. Time has to show. Comparing long term investments with the S&P500 (or similar index) isn't a bad idea. But did you ever compare the risk of the S&P500 with the Nikkei (Japan stock market, http://www.tradingeconomics.com/japan/stock-market). It had it's peak in the 90's and never recovered from it. Will you take now all the money out of it because there is some kind of risk of big loss that won't be recover for decades? Do you remember all these extremely secure AAA home mortgage packages?
There is risk with everything. What's compelling in putting your money into a savings account, bond or CD? For some time they all loose money after inflation (http://www.usinflationcalculator.com/inflation/historical-inflation-rates/). And if they don't like I-Bonds, they are limited in maximum allowed annual contribution. So why not seeing P2P as a new potential investment product? They all come with their own risk.
Not everyone believes in picking single stocks, so they invest in mutual funds. Others don't believe in mutual funds and invest in index funds. The next person doesn't trust in this and saves all his money in cash. The next one puts the cash in real estate. Another on in gold and the last one into weapons.
If you are not comfortable with P2P you shouldn't invest it. But looking at the current available numbers (own account, co-workers result, various bloggers account, some that also compared the different P2P sites, LC's own return data) I can fully understand how some people see a huge benefit in it. In the end it's always my personal comfort level how much I will invest in it or not.
EBP
New Member
I invested about 2 years ago, and I'm only a few months away from receiving the last of my payments, at which point I'll cash out. Fun to play with, but not a significant enough return to outweigh the risks, in my opinion. Also, if I recall correctly, the profit is treated as income and not a capitol gain.