Hey everyone, Josh here again. I recently went back to the Prosper review I did a while back and did what I could to beef it up a bit. I wanted to provide more, in depth information on the option, and I may do it again in the future. As a matter of fact, you may see me running around a few of the old reviews to beef things up a bit soon! Anyway, back on topic here…
As I was doing research and adding to the Prosper review, I got to thinking, “Well damn, either I’m a real good salesman, or there’s something to this!” Just like I did with the Betterment review, I think I’ve sold myself. Now I just need your help on making my final decision. So, lets chat.
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Here’s What I’ve Got Going On
Size of Investment – Now, I’m no millionaire. Truth be told, I’m not a hundred thousandaire. I’ll get there, but I’m not there yet. Therefore, I have to think about how much diversification I can really accomplish with the small amount of money that I’ve got to invest. Although, having a full 100% in a single investment is obviously a bad idea, should I really think about adding an entirely new investment concept to my portfolio? Truth be told, I think I can get away with it, but if you have any reason I shouldn’t I’d love to chat in the comments below!
Security – When it comes to the stock market, I’ve got all kinds of regulations that are “Watching over my investments”. Do I have the same security when investing in peer to peer lending? The answer is no! Although the peer to peer market is somewhat regulated as of recent times, it’s still not heavily regulated. But then I got thinking again. The reality is, there aren’t too many regulations in the stock market that really protect me. FINRA and the SEC are out for big dogs stealing big money. They wouldn’t be too concerned about protecting my chump change anyway. Anyway, a big question for me here is, “Should security be a concern?” If so, is it enough of a concern for me to not consider the option anymore?
Timing – It seems like almost everyday in the past month or so that the markets have been inching up on or closing at record highs. I know peer to peer lending has incredibly high returns, there’s no doubt in that, but in such a good market, is it a good idea to pull money out and put it into something else? The reality is, I’ve got pretty good returns going for me already, how advantageous could it really be?
Where The Money Goes – You know, when you really think about investing, you can start to think of it from a moral standpoint. No matter what you’re investing in, whatever it may be, you’re investing in that cause. You’re investing in the growth of a company. Well, what if we think of it from a different aspect and now say, I’m going to invest in my peers. I’m going to help my peers get what they need and want. Well, there’s a moral high ground to stand on in that. Please correct me if I’m wrong, but for me, it feels good when I help others.
My Final Decision
Well, honestly I haven’t made my final decision yet. I really like the way my portfolio is going. I’ve made quite a bit in the market percentage wise and I’m a bit scared to start messing with things. On the other hand, there may be better returns in the peer to peer market. Prosper seems to have a handle on the market. It all seems safe. I’m at a loss, and that’s where you come in! Have you ever used Prosper or do you currently use Prosper? If so, how’d you like it? Even if you haven’t, do you have some meaningful information that you could add to my thought process here? I’d love to hear it in the comments below!
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I haven’t. Part of it is because I like the simplicity of index fund investments and a known long-term track. Nice and easy to manage. Also, from what I understand the tax treatment is different, too. So I stick with what I know and am comfortable with.
Hey Nick, thanks for your comment. I don’t know much about how taxes are treated there. I’ll look into that. Thanks again!
I’ll take a stab at it.
Almost all interest earned from bonds, loans, etc. is treated as ordinary income in the US. This means it is taxed at your nominal tax rate (25% – 30% for most of us).
Long term capital gains from US corporation dividends or selling a stock that has been owned more than 1 year is 15% for most of us (assuming no one here is a mega-millionaire).
What does all of this mean? Well, take your P2P loan interest percentage (APR) and then multiply it by 85% – now you can compare it with returns that you’d earn from the stock market in an apples to apples comparison in terms of yield.
Hey Money Saving, thanks for the info! Very insightful!
I invested in a handful of Prosper loans back in the day before my state (Pennsylvania) stopped allowing for me to invest. I invested in different quality loans and never experienced a delinquency. I say go for it.
Thanks Jon, good to know!
I would be interested to compare Prosper to other P2P and P2B companies. For example, Lending Club has much stricter rules about lending and I know several people who have been rejected by LC but had no problem being approved by Prosper. Anyways, we are hosting an investment Forum in Aspen, CO in January and will have founders of four social lending platforms speaking there. I think, P2B is going to be more interesting trend than P2P.
It all depends upon how much complexity you want to add to your portfolio. Personally, I don’t – but I don’t think there is anything wrong about it.
Hey Josh,
I have invested in Prosper for a while now. Not a ton of money but kind of like an experiment. The returns were pretty good for a while I have had a pretty good record as far as defaults are concerned. One thing to think about is that recently big institutional investors have gotten into the game. That means less loans are available to guys like us. They will often get the first bids and leave us with the lower yields. Recently I have had more difficulty finding loans that match my criteria. It is a fairly strict criteria, but not that long ago there were plenty of notes that passed it. Just figured I would give a heads up.
I invested in Prosper in June of last year as an experiment. After a year and a half, I’ve decided I want to take out my funds and not reinvest. Like Ian, I have a strict set of criteria to provide a fair balance biased towards the more “safer” loans, but since I started, it has become increasingly difficult to find loans that matched my criteria.
Performance hasn’t been good either. I have 100 notes purchased over the time span of 10 months, of which 15 have been charged off (some never even paid a single time) and another 10 are on their way to being charged off. 21 were paid early, and the other 54 are current. My annualized return for notes aged 10 months or more is just 1.65%, barely better than my savings account.
I’ll be sticking to funds/stocks/bonds.
It is true that investing for a single idea may not bring much desired result, that is why under current scenario it is always better to keep all the options available & open, to earn good & extra through diversification.