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Old 01-21-2014, 04:09 AM   #1
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Does anyone have experience with this and would it be an alternative for a portion of ones bond allocation in the current environment? What amount have you placed and with which company?

There was an article in the financial times that indicates that Wells Fargo is concerned enough about the competition from P2P that they are forbidding WF employees from participating.

Thanks
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Old 01-21-2014, 06:24 AM   #2
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There are a number of prior threads you might look at regarding Lending Club and Prosper.

I opened a LC account in late September and have added money a couple more times for a total of $7k. Experiences so far -

- It's kind of fun to play around with investing this way
- I've been sticking with the recommended $25/loan so it takes quite a while to find loans. They release new loans 4 times a day at set times and to get the best options you need to be ready when they come out. This is probably the biggest impediment to having a large portion of funds in LC unless you do larger amounts per loan or are less picky about the loans you are choosing. On every new loan release I probably can only find 2-8 loans that I want to put money into (but I try to have a strict process on the ones I choose)
- My current adjusted return is 15.37% but I'm still in the honeymoon period. From my reading the majority of loans that go bad happen between 4-12 months of age so while I haven't been hit by any late/defaulting payers I'm sure it will happen soon. I'm hoping that by diversifying into so many small loans and being somewhat selective that I can keep it in the 8-9% range but I'll know much more in 6-9 months.

Hope that helps.
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Old 01-21-2014, 06:35 AM   #3
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I only know about P2P leaning from what I've read, but my initial thought is that "there's no free lunch", with greater return comes greater risk.
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Old 01-21-2014, 06:56 AM   #4
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"There are a number of prior threads you might look at regarding Lending Club and Prosper."

Thanks for the direction, I searched peer to peer and came up with nothing.

I wonder how they 1099 you when you potentially have a hundred $25 loans out here at any one time, and then account for the losses on the ones that fail. Hopefully LC or Prosper takes care of all the paperwork involved for their cut? Much to learn.

I am thinking of allocating a small portion, say 10% of what I might otherwise be placing in bond funds, seems like a good compliment to the 5 year CD ladder I just set up with PenFed, thanks to info on this board, which I believe I calculated averages out to 1.58% with equal weighting across the 5 years. .
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Old 01-21-2014, 07:04 AM   #5
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They provide all the paperwork you need at LC.

I would recommend doing what I am doing and transferring it a little at a time so it's not just sitting there while you seek out loans. It does take 4 full business days for the transfer to happen so plan ahead for that.
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Old 01-21-2014, 11:41 AM   #6
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There's a previous thread as shown below, and as most threads about investment methods, it created some heated debate.

Peer to peer lending

Doing many of these $25 notes looks like it would take a lot of time. Or does one in practice does 10 of these notes to each borrower?
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Old 01-21-2014, 03:06 PM   #7
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The 1099 from Prosper (and this was a several years ago so things probably changed) just was the interest they paid me. All of the bad debt, I ended up listing as a separate Schedule D capital loss. (Although technically it probably should have listed as bad debts, but it seem to me it was more like a bond that I took a loss with). Anyway the IRS didn't challenge it.
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Old 01-21-2014, 03:41 PM   #8
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Personally I'd rather invest in floating rate bank loans to marginal companies than a bunch of strangers that can't get financed. Either way if/when the economy takes a dip there will be some pain. Just like equities when things are good we tend to overlook the risks.
In the interest of full disclosure I do hold a small stake in a low duration bank loan mutual fund
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Old 01-21-2014, 04:01 PM   #9
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I've been with LC about a year 1/2 now. My average returns were in the 12%-15% until several $25 loans went into default. The average return is now in the 5%-6% range. Hopefully, this will increase a little more over time. I now only do grade A and B loans. Some of the ones that defaulted were grade D and E loans. I only have a few thousand dollars and am transferring some money on a monthly basis. Will continue to monitor and evaluate. I also invest in the Fidelity Floating Rate High Income Fund (FFRHX) which is primarily bank loans and have an average return of 11.5% this past year without any of the defaults.
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Old 01-21-2014, 04:48 PM   #10
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Thanks NW-B. I can now see that this has had quite a bit of excellent discussion...and like usual the results are inconsistent and inconclusive. It does appear to be quite a time burn.
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Old 01-21-2014, 04:58 PM   #11
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As one can see, any discussion of investments tends to become contentious. I have tried to stay away from these as much as possible, but it can be tough.
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Old 01-21-2014, 05:49 PM   #12
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Thread is somewhat old and I should add that I was a pioneer on Prosper and have the arrows in my back to prove it. I think P2P in general, and Lending Club in particular is much less risk than it was in 2006 when I got involved.

That said I'd highly recommend Nord's well research and comprehensive blog posts on the subject. Pay particular attention to his comments about bankruptcy. One of the things I've learned about investing in startups (and make no mistake Lending Club and Prosper are both startups) is most go broke.

If the concept interest you by all means invests a few thousand dollars, but I certainly would be very hesitant to put in more than percent or so of your net worth.
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Old 01-21-2014, 06:09 PM   #13
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Originally Posted by NW-Bound View Post
As one can see, any discussion of investments tends to become contentious. I have tried to stay away from these as much as possible, but it can be tough.
P to P lending, or contentious investing discussions?

Ha
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Old 01-21-2014, 06:14 PM   #14
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Both, except that I do not know much about P-2-P, hence did not participate.

About other contentious investment discussions, well, being pragmatic and an agnostic, I am often irked when I see some hard-core statements being made. Good ideas when taken to extreme can become ridiculous. Same with politics or religions.
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Old 01-21-2014, 06:30 PM   #15
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Both, except that I do not know much about P-2-P, hence did not participate.

About other contentious investment discussions, well, being an agnostic and pragmatic, it often irks me when I see some hard-core statements being made. Good ideas when taken to extreme can become ridiculous. Same with politics or religions.
One good thing about extreme investment ideas- they tend to be self correcting. Get too out to lunch, and you will soon crash. Of course you may continue to post extreme investing ideas here, just from work instead of from home or the beach.

Ha
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Old 01-21-2014, 08:45 PM   #16
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I would not <expletive deleted> her with your <appendage>.
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Old 01-21-2014, 09:32 PM   #17
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Took me a while to get that one...you are referring to lending (or not) to a peer, eh?
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Old 01-21-2014, 09:42 PM   #18
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I would not touch P2P with your ten foot pole.
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Old 01-25-2014, 10:58 AM   #19
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There was an article in the financial times that indicates that Wells Fargo is concerned enough about the competition from P2P that they are forbidding WF employees from participating.
Thanks
I wouldn't read that much into it. WF handles the escrow accounts for Lending Club so maybe the WF employee prohibition is only to avoid a conflict of interest.

P2P lending seems to be a great deal... until it isn't. As ClifP says, there are so many unknowns in the risk model that you can't tell which one will kill you first. I'm pretty certain that the next recession will reveal most of them.

I've heard that LC has hired more employees to handle the backlog in loan applications, and that their "Prime" feature is finally automating the lender's selection process. (Their delay in automation is grossly inexcusable behavior for a startup.) However they've continued to struggle with growth, and I'm sure that there's overwhelming management pressure to "be more nimble". I hope that doesn't lead to cutting corners on approvals or other procedures. If I was an investigative journalist then I'd be watching these guys like a hawk... or a vulture.

Prosper had a near-death experience a year ago, brought in new money at a huge discount, and cleaned house. As far as management goes they may actually be in better shape than LC.

You can read my posts on P2P on my blog as well as a shorter version here:
Peer To Peer Lending Review - Dangers Revealed
and a statistical analysis here:
Should I Invest in LendingClub or Prosper? | Hull Financial | Hull Financial Planning

I'd pay attention to Brewer's advice.
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Old 01-25-2014, 08:29 PM   #20
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6 mos in....11% return and I kinda like doing the process of selecting loans...only do $25 per loan and 88% A and B loans.

Good luck
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