Sunday, April 6, 2014 so far so good!

Good Morning,

I am writing this  post as I a sip coffee on a Saturday morning and choose a few loans to invest in.  I realize there are quite a few in depth reviews of peer-to-peer lending online so I am not going to get into the details on the investments but rather give my first hand experience.

About 5 years ago I was refinancing my car with a credit union for a lower interest rate / shorter term and my car was upside down (cars will be another interesting future topic.. I have made some interesting choices!) any how I needed about $3,000 to pay down my loan to the right LTV (loan to value) to get the awesome credit union rate (like 2% for for 3 years).  To get the $3,000 I discovered (as a borrower).  Prosper offers unsecured loans to borrowers that are funded by individual investors like you and me.  I took out my loan and the process was super easy; as an interesting side note.. back then you could write personal notes to your investors.  My note basically said that I had never been late on any bill in my entire life so you can be confident investing in m loan.  I am pretty sure my investors loved me because I paid back my 36 month loan in like 8 months so they got their money + interest back pretty quick!  In retrospect I probably could have just used a credit card 0% check but I didn't know I would pay it back that quick.

Fast forward a few years and now my wife and I have managed to max out BOTH of our 401ks each year to the IRS limit (currently $17,500 each) and BOTH of our ROTH IRAs each year (currently $5,500 each) and now we need another place to invest so we can keep up the positive momentum.  As an avid reader of I was familiar with MMM's investments in lendingclub.   In addition to my personal experience with prosper as a borrower I did some additional research and determined that it was right for me.. the main aspect of prosper that I liked better than lendingclub was the auto invest feature.. I hate having money sit idle and I wanted to make sure my returns regularly reinvested and prosper offers a feature that accomplishes this perfectly. 

Now with regard to prosper.. I have had so much fun choosing loans to invest in and watching the payments roll in (take this with a grain of salt because I just started prosper 3 months ago!).  In total I have been investing approx. $400 per month into prosper and so far have 45 loans as of this morning (you can invest as little as $25 into each loan).  Right now the average loan pays me 10.48% interest and lasts for 36 months.. most are debt consolidation loans and I try to pick those that have a revolving credit balance for which the prosper loan can eliminate all of the balance due.. plus I try to find folks that have had credit for at least 10 years and have a solid income.  So far by choosing $400 of loans each month at $25 a pop it has not been that difficult to sift through them and find the ones that I like. 

Before this blog post gets too long I am going to make three more quick points about
1) I like this investment because it has zero correlation to any of our index fund investments.  I learned in some of my MBA classes that having a small part of your portfolio invested in a asset with no correlation is as close to a "free lunch" as you can ever find in investing.  I.e. your overall risk is the same or less (as a portfolio) with a slight increase in return.  It would take a much longer post to explain this but I will leave it at that for now.
2) Emergency fund.. I like finally having a taxable account that I would not feel bad if I ever had to pull some money out (conversely  I would not enjoy having to raid our IRAs or 401ks..) once this balance grows if I needed money.. I could turn off auto invest and viola prosper would be providing my new pay check .
3) is not some tiny start-up.. they just passed $1 billion in loan originations last week.

Thank you for reading!


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