Author Topic: Just use A/B/C LC notes for Asset Alloc (Stocks and P2P vs Stocks and bonds)  (Read 24666 times)

lascott

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With interest rates the way the are and likely direction why wouldn't you just use conservative LC notes as the "bonds"/safe side of your asset allocation?

I recently moved some money out of a Fidelity ROTH IRA to a "LC" ROTH IRA and am buying mainly A and B and selective C notes.  Heck even 5% or 6% is better than bonds (term used loosely as there many kinds).

What if when you get to 59.5 you then take out 4%-5% ... doesn't that just keep in principle intact.  Or just pull out the max per month once you hit 59.5 (ie. extract all payments received).

With LC going public it gave me more confident to do this. I take advantage of professional independent credit models to aid in being more selective of the LC notes as well (P2P-Picks and LendingRobot).

How much should you invest in Marketplace Lending?
http://www.LendingRobot.com/HowMuchToInvest

P2P Lending: Why You Need a New Uncorrelated Asset Class
http://www.lendingmemo.com/p2p-lending-uncorrelated-asset-class/

Just one very generalized visual example...


Steady income...
http://www.lendingrobot.com/#/resources/charts
« Last Edit: May 20, 2015, 03:45:20 PM by lascott »
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Lovinglifestyle

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Considering that if 85% continue to pay and 15% don't (C line), I wanted to look at what % of principal is recovered/lost by grade at time of default again, but I can't find the bar graph now.  Think it was from PeerCube.  Anyway, does the ~5% gain projection account for the loans that fail to continue to pay?  It takes a few A notes to pay for one that doesn't.  Would you stick to 36 month loans for this plan?  I'm getting a lot more risk-averse lately.  I'd like a return OF my money.

lascott

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Considering that if 85% continue to pay and 15% don't (C line), I wanted to look at what % of principal is recovered/lost by grade at time of default again, but I can't find the bar graph now.  Think it was from PeerCube.  Anyway, does the ~5% gain projection account for the loans that fail to continue to pay?  It takes a few A notes to pay for one that doesn't.  Would you stick to 36 month loans for this plan?  I'm getting a lot more risk-averse lately.  I'd like a return OF my money.

Yes, I plan on 95%+ of my notes being 36 month because I thought long term that interest rates would rise and LC would increase rates as well. So my new 36's would get those new rates.  Also I have 8% payoff. I don't know if it is related to me getting "good" notes and these people in general don't want debt so are able to pay them off. Or people just looking for short term loans.

I'm getting a bit more conservative as well -- see: http://www.lendacademy.com/forum/index.php?topic=2235.msg28938#msg28938

The problem with investing a lot as a retail investor seems to be finding "good" notes to keep your cash account down. I'm doing $50 in my taxable account currently and $100 per in my ROTH account until I get it fully invest then will try to go to $50.  When LC IPO my thought was even more states would be allowed to borrow and more importantly more borrowers would hear about LC so there would be more of them.  I know I'm "over diversifying" (i.e. too many notes) but I like that level of Confidence Interval.

Overall adjusted returns in A, B, and C seem way better than 4% withdrawal

LendingClub - from company
http://i.imgur.com/v3zQ6Od.png

Via: https://www.lendingclub.com/info/demand-and-credit-profile.action

LendingRobot - independent
http://i.imgur.com/W3TwsmX.png

Via: https://www.lendingrobot.com/#/resources/charts
« Last Edit: May 20, 2015, 07:02:04 PM by lascott »
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Rob L

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You won't find this on any of the charts.
Maybe it's just me, but I would invest substantially more in LC were it not for the small but real possibility that LC might go bankrupt.
Recessions come and go. Maybe I'll lose a double digit percentage of my account. Okay, I'll deal with it.
But potentially losing 100% in an LC bankruptcy, as unlikely as that may seem, very substantially limits my investment.
Very frustrating, but until LC somehow fixes this (BRV or whatever) I've got to play small ball.
Why should it be so difficult for the unquestioned leader in P2P (LC) to lack the investor protection (BRV) that Prosper provides to its investors?


lascott

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You won't find this on any of the charts.
Maybe it's just me, but I would invest substantially more in LC were it not for the small but real possibility that LC might go bankrupt.
Recessions come and go. Maybe I'll lose a double digit percentage of my account. Okay, I'll deal with it.
But potentially losing 100% in an LC bankruptcy, as unlikely as that may seem, very substantially limits my investment.
Very frustrating, but until LC somehow fixes this (BRV or whatever) I've got to play small ball.
Why should it be so difficult for the unquestioned leader in P2P (LC) to lack the investor protection (BRV) that Prosper provides to its investors?
I understand your point. I'm OK to take the risk as I am prudently diversified in other asset classes. I think LC is continuing to expand and make sure they have enough borrowers. (i.e. Google and Alibaba to extend credit to technology vendors and small importers)

We have another pretty good discussed thread on BRV. http://www.lendacademy.com/forum/index.php?topic=2701.0
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Fee

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You won't find this on any of the charts.
Maybe it's just me, but I would invest substantially more in LC were it not for the small but real possibility that LC might go bankrupt.
Recessions come and go. Maybe I'll lose a double digit percentage of my account. Okay, I'll deal with it.
But potentially losing 100% in an LC bankruptcy, as unlikely as that may seem, very substantially limits my investment.
Very frustrating, but until LC somehow fixes this (BRV or whatever) I've got to play small ball.
Why should it be so difficult for the unquestioned leader in P2P (LC) to lack the investor protection (BRV) that Prosper provides to its investors?


You could always just purchase OTM put options as protection.

AnilG

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With losses in P2P lending, the challenge is you never recover "double digit percentage" losses incurred. There is finite life for a loan and once it is charged off, you not only have lost your principal but also any possibility of future returns from the sunk money in the loan. With stock, at least you don't realize losses until you are ready to realize them or company goes bankrupt or you can wait out for stock to recover or double-down. Troubled P2P notes are like stock options that expire worthless.

Have you seen the terms and conditions of Prosper BRV? I will be interested in finding out what happens in bankruptcy scenario with BRV. Do the lenders have first right to the originated loans or just an unsecured claim within BRV.

You won't find this on any of the charts.
Maybe it's just me, but I would invest substantially more in LC were it not for the small but real possibility that LC might go bankrupt.
Recessions come and go. Maybe I'll lose a double digit percentage of my account. Okay, I'll deal with it.
But potentially losing 100% in an LC bankruptcy, as unlikely as that may seem, very substantially limits my investment.
Very frustrating, but until LC somehow fixes this (BRV or whatever) I've got to play small ball.
Why should it be so difficult for the unquestioned leader in P2P (LC) to lack the investor protection (BRV) that Prosper provides to its investors?
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

lascott

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Again, we have another pretty good discussed thread on BRV. Please, can it continue there? http://www.lendacademy.com/forum/index.php?topic=2701.0

I meant this thread for Asset Alloc of (Stocks and P2P ) vs (Stocks and bonds).   The risk is understood in LC P2P. There is a 0.00xx% chance LC will go bankrupt.
« Last Edit: May 20, 2015, 10:50:53 PM by lascott »
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Fred

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I don't understand why any rational (profit-maximizing) investor would choose other grades besides E, when LC shows E as having the highest ANAR.


Fee

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I don't understand why any rational (profit-maximizing) investor would choose other grades besides E, when LC shows E as having the highest ANAR.



*Past performance does not guarantee future results.

lascott

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I don't understand why any rational (profit-maximizing) investor would choose other grades besides E, when LC shows E as having the highest ANAR.
A) Because my analogy for the thread was "conservative LC notes as the "bonds"/safe side of your asset allocation".  As you get older and further along in your retirement journey or as part of retirement you generally move some percentage out of higher risk (vs recovery time) "equities" and more into safer "bonds". 

I was trying to gather some thoughts on why for this "bond" part of your asset allocation one does not mainly use A/B/C LC notes.  These would be considered by most to be less risky than D/E/F/G especially in a downturn of the economy (job loss, small business company profits lower, etc) and some of the "lower FICO", higher DTI, higher loan to income, etc riskier characteristics in an unsecured loan (ie. you don't lose your car!).

B) Also I see the below as an indication of default risk and may grow "sharply" in economic downturns.
http://i.imgur.com/rr4ZJmb.png
« Last Edit: May 21, 2015, 12:50:21 AM by lascott »
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AnilG

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Should I assume from your question that you have already decided that instead of having different type of bonds in your portfolio, you want to replace bond or "safe" portion of your portfolio with LC A/B/C loans? Is that so? I will be interested in learning why do you think LC A/B/C loans are substitute for bond in your portfolio.
 
A) Because my analogy for the thread was "conservative LC notes as the "bonds"/safe side of your asset allocation".  As you get older and further along in your retirement journey or as part of retirement you generally move some percentage out of higher risk (vs recovery time) "equities" and more into safer "bonds". 

I was trying to gather some thoughts on why for this "bond" part of your asset allocation one does not mainly use A/B/C LC notes.
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

Fred

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About 10%-20% of loans of all grades were fully prepaid early. I am not sure how the chart below take this into consideration since those loans were no longer "making payments."

Steady income...
http://www.lendingrobot.com/#/resources/charts



kya

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for me lc notes will never replace a bond portfollio....for one simple reason stated above when someone defaults on a lc loan for the most part we the investor lose all our principal.... i have suffered one or two bond defaults in the past 15 years and because the were sr secured bonds went on to recover over 80% of my principal... i view my p2p accounts as just another asset class which will never be more than 5% of the total pie...i will say its kinda fun

AnilG

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Personally, my bond portfolio consist of 45% in Investment grade Government and Corporate bond, 20% in High Yield Corporate bond, 15% in Emerging Market bond, and 15% in Inflation protected I-series bond and about 5% in P2P. I just can't see any reasons to reduce allocation in one of the other bond categories to increase allocation to P2P.

It will interesting to hear from people like lascott about their reasons for preferring P2P over other bond categories.

for me lc notes will never replace a bond portfollio....for one simple reason stated above when someone defaults on a lc loan for the most part we the investor lose all our principal.... i have suffered one or two bond defaults in the past 15 years and because the were sr secured bonds went on to recover over 80% of my principal... i view my p2p accounts as just another asset class which will never be more than 5% of the total pie...i will say its kinda fun
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com