Introducing me

[jonc]

Hi,

I'm Jon. I'm coming up on the big 50 and am not nearly as ready to FIRE as I want, but I'm aggressively trying to achieve FI.

The good: wholly owned home in excellent condition (built 1929), no debt, no kids, a max'd out 401k and about a 45% annual savings rate and I'm actually generating enough income from peer to peer investment platforms to pay for property taxes and the income tax on the interest I'm earning.

The bad: I have about 1/10th of what I dream to have in order to retire comfortably before I can tap my retirement accounts. I have had an expensive kidney condition for 42 years and it's not going away.

I may ratchet down my aspirations, but I believe my damaged organs always will require more than average health care costs, so unless something changes, I work for a good wage (too much to contribute to an IRA) and better than average medical, dental, vision benefits at a growing 4000 person tech company.

I was the 302nd hire back in 1999 and there are about 30 people there who've been on the payroll longer than I. Yeah, I survived all the lay offs.

My after-tax savings is going towards income an generating investment diversified portfolio.

I have enjoyed reading your stories and advice and look forward to continuing. If I have something useful to say, I'll speak up, but right now, I'm just consuming information and trying to use it towards my own personally wise choices.

-Jon

[Bryan Barnfellow]

Welcome, Jon. This is a great community. I'm curious about which p-to-p investment platforms you are in. Also, congrats on your longevity in the job. Are you an equity participant in the company?
-BB

[jonc]

Quote:

Originally Posted by Bryan Barnfellow Welcome, Jon. This is a great community. I'm curious about which p-to-p investment platforms you are in. Also, congrats on your longevity in the job. Are you an equity participant in the company? -BB

Hi Bryan,

Thank you

Yes, I am an equity participant in the company. I enjoy both restricted stock unit grants and participating in an employee stock purchase plan program.

Regarding p2p investing: I add funds to my Prosper.com and LendingClub.com accounts twice a month.

I use each platforms native automated investing to assure interest and principal payments are re-invested faster than I would execute manually. Both platforms offer an application programmers interface (API) that really hard-core participants may use to mimic "high speed trading," and extremely granular filtration, but I don't leverage the API.

LendingClub.com and Prosper.com are the only businesses that I'm aware of that accept non-accredited investor funds.

Generally, I fund notes with a 36 month term and risk $25.00 per note.

I currently have a $25.00 stake in roughly 1500 notes. Both platforms originate notes on any given day of the week. The origination date governs the payment-due date, so I get paid a few dimes each day. Getting paid - and investing - daily really promotes the miracle of compounding.

It takes a considerable amount of personal discipline to resist the temptation to put all the eggs in the two baskets.

I am using my savings to build an income-generating portfolio. I will stop working when I feel that my passive income is sufficient to support my needs. I'm not sure when that will happen, but every paycheck brings me closer to that day.

-Jon

[Bryan Barnfellow]

Jon,
Fascinating! I've wondered about Prosper and others. Your risk allocation model is interesting. Thanks for the info.

-BB

[cooch96]

OP, thanks for the tip on P2P sites. I didn't know anything about them and immediately got into research mode. I think you are wise not to go all in with this platform, especially since it is so new. I would fear that a new bear market for jobs would result in a much higher default rate. Also, I'm guessing that it's not a good tax shelter unless you invest in it as a Roth, but I'm not clear on that yet. I also wonder how diversified this is related to stocks (I.e. Will these loan returns mirror the stock market like they appear to have been doing or will they stay consistent during a bear market).

That being said, I think P2P lending looks like a great way to get high returns for your micro-loans. I will keep an eye in this and probably invest once my finances dictate an AA with a higher amount of bonds.

Thank you again for posting.

[jonc]

Quote:

Originally Posted by cooch96 OP, thanks for the tip on P2P sites. I didn't know anything about them and immediately got into research mode. I think you are wise not to go all in with this platform, especially since it is so new. I would fear that a new bear market for jobs would result in a much higher default rate. Also, I'm guessing that it's not a good tax shelter unless you invest in it as a Roth, but I'm not clear on that yet. I also wonder how diversified this is related to stocks (I.e. Will these loan returns mirror the stock market like they appear to have been doing or will they stay consistent during a bear market). That being said, I think P2P lending looks like a great way to get high returns for your micro-loans. I will keep an eye in this and probably invest once my finances dictate an AA with a higher amount of bonds. Thank you again for posting.

Cooch96, you're very welcome

Tax shelter: Correct. Interest returned in a standard account is taxable. Since I started this experiment in late May/early June, I won't know what my tax liability will be at the federal level. Washington State has no income tax, which is really helpful. Both platforms do offer IRA options, but my income disqualifies me from IRA investing.

As for diversification, I'm looking at this as yet another income generating investment vehicle to work in concert with bonds, income producing ETFs, dividend paying stocks etc.

I believe that p2p investors may start funding other, safer interest yielding vehicles when the federal reserve begins to taper their quantitative easing and raising the interest rates. Remember 1990 when 30 year treasury notes paid better than 8%?

Bear market: I've only been reading this forum for a few weeks - and just made an account a few days ago - but it seems like a lot of members, as I, have no debt. As such, I don't think I can do anything but guess about the borrow's side of p2p lending.

I suspect most of the p2p loans on either platform are debtors' move to paying less every month on consumer debt. I look at my portfolio of notes and most of them are applying for a loan so they can pay off high interest credit card debt at - what? - something like >= 19% for something like 4% to 12% p2p loan rate.

It's true that Americans paid down credit card debt in this recession, but I still see a lot of credit card utilization on the part of p2p borrows. One of the attributes provided by both platforms is a borrower's revolving credit utilization. I've seen figures north of 85%.

You and I know that's no path to ER, but there are literally tens - maybe hundreds - of thousands of p2p borrows that live making monthly payments on credit card balances with no plans to start living below their means.

This has been true since Alex Singer invented the sewing machine and sold those machines on credit with the promise of monthly payments. You and I think of FI daily, maybe hourly. P2p borrows got into debt because FI was either not on their mind, or something catastrophic happened, like a five figure hospital bill.

I have no problem taking interest payments from banks and predatory lenders (pay day loans etc); and I believe that as long as America has goods for sale, people will be willing to sell their financial souls in return for the latest, greatest phone, tablet, computer, camera, motorcycle, car, home decorations, bicycle..... the list goes on for miles. I also have no problem helping someone pay off medical debt at a lower interest rate than they can get at a bank.

I see the most risk in the business practices of Prosper and Lending Club. Investors would only be an unsecured creditor at best in the event of bankruptcy.

At worst, the Bankruptcy Court might rule that borrows' payments are Prosper or Lending Club's income. At that point, the US Trustee might confiscate our payments to satisfy Prosper or Lending Club's debt. All this is too new to predict what'll happen if Prosper or Lending Club fail in some way that leads to Chapter 11 or Chapter 7 filings. Secured creditors are always the first to get paid in a bankruptcy case, followed by unsecured creditors and finally shareholders (who rarely get anything). Actually, taxes and fines due to the US government are first paid, then Secured creditors.

P2p lending is not for the cautious or the timid. Like any investment, there's a risk of losing it all. It's an acceptable risk for me.

I have 20k in an emergency money market fund. I've earned $1.84 in interest last month on that. That's safe.

I've earned over $1000 in interest on a $55k p2p lending gamble since May 2014. If I count principle + interest, it's over $4,000. That's my annual property tax, at a substantial risk.


-Jon

[heeyy_joe]

Welcome to the forum. Hope it's not just the cash that flows well for you.

[jonc]

Quote:

Originally Posted by heeyy_joe Welcome to the forum. Hope it's not just the cash that flows well for you.

Thanks, heeyy_joe!

-Jon

[pb4uski]

Jon, have you considered online savings accounts for your emergency fund? They typically pay 0.8 to 1%.

Not much but better than most.

[jonc]

Quote:

Originally Posted by pb4uski Jon, have you considered online savings accounts for your emergency fund? They typically pay 0.8 to 1%. Not much but better than most.

Hi pb4uski,

I haven't considered an online savings account, but I will, thanks to you

-Jon

[jonc]

Since there seems to be some interest in p2p lending, I thought I'd share some borrow information that LendingClub.com presents to investors.

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Investors can set criteria for the borrowers they will fund for safety (high credit score, home ownership, zero delinquent payments in the last X number of months, length of employment etc, etc); or investors can choose riskier borrows to get a higher return.

-Jon

[Milton]

Quote:

Originally Posted by jonc I'm coming up on the big 50 and am not nearly as ready to FIRE as I want, but I'm aggressively trying to achieve FI…. about a 45% annual savings rate … I have about 1/10th of what I dream to have in order to retire comfortably

Did you only recently start saving? Seems a bit strange that with such a high rate you have accumulated so little, especially after 15+years of steady employment.

[2B]

Welcome to the forum.

I hate to interrupt your p2p commercial but this sort of thing makes no sense for a substantial part of anyone's investment portfolio. If you want to play with pocket change go for it. Sending a substantial amount of anyone's net worth to this sort of thing is asking for a disaster.

What are your real investments?

[jonc]

Sorry it seems like a commercial. That wasn't my intent. Earlier in this thread I did say it's a substantial risk, that it's not for the timid. I won't even approach 5% of my net worth on that platform.

To answer your question: My 401k with fidelity has a mixture of large, medium and small cap growth stocks, a few ETFs. I tend to look for a low P/E ratio first, then earnings forecasts, how accurate management has been about predicting next quarter's revenue, that revenue's trending upwards. I don't sell shares very often. I tend to buy and hold.

My 401k comprises roughly 55% of my net worth. The large cap stocks pay dividends which I reinvest. The value of my 401k is 40% cash I've contributed over the last 15 years. 60% comes from an increase in share price and reinvested dividends.

I have a rollover IRA with Schwab, worth a little over 25% of my net worth.

The balance is in a taxable brokerage account, 50/50 dividend paying and growth stocks.


-Jon

[2B]

I can't put my arms around your portfolio. Please break it out by account type (IRA/401k or Roth or After Tax) and put the asset class amount or percentage (Large Cap, Sm Cap, Individual Stocks, International Developed, Emerging Mkts, REIT, etc).

Also, what are your questions or is this just telling us who you are?

[jonc]

Quote:

Originally Posted by 2B I can't put my arms around your portfolio. Please break it out by account type (IRA/401k or Roth or After Tax) and put the asset class amount or percentage (Large Cap, Sm Cap, Individual Stocks, International Developed, Emerging Mkts, REIT, etc). Also, what are your questions or is this just telling us who you are?

This is just introductory. I don't have any questions for you.

-Jon