Author Topic: Using Automated Investing - Advice, Please  (Read 3499 times)

intrepid

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Using Automated Investing - Advice, Please
« on: January 28, 2016, 07:19:16 PM »
After using the Portfolio Builder in a very haphazard way forever, I just discovered Automated Investing. (Doh!)

I have nearly 9,000 loans at the minimum $25 per loan, chosen originally as a hedge against bad loans. When I try to select D-G Weighted at $25, I am cautioned that $25 is perhaps too low. Only when I get to $75 per loan does the system seem to be satisfied. So the first question is, since I am well diversified over nearly 9K loans, does it make sense to go to $75 loans (or maybe even more)?

Also, I see a "Note term" section. It's currently set at "Both." What are the pluses and minuses of setting it at "36 month only" or "60 month only"?

Thanks.

mo

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Re: Using Automated Investing - Advice, Please
« Reply #1 on: January 28, 2016, 10:44:56 PM »
After using the Portfolio Builder in a very haphazard way forever, I just discovered Automated Investing. (Doh!)

I have nearly 9,000 loans at the minimum $25 per loan, chosen originally as a hedge against bad loans. When I try to select D-G Weighted at $25, I am cautioned that $25 is perhaps too low. Only when I get to $75 per loan does the system seem to be satisfied. So the first question is, since I am well diversified over nearly 9K loans, does it make sense to go to $75 loans (or maybe even more)?

There are substantially less of the D-G grade loans than A-C grade.  They are trying to tell you that at $25 per loan with the amount of money you need to invest there won't be enough supply of D-G loans to put all your money to work in a timely manner.  As to whether or not raising your investment to $75 per loan is a good idea it really depends on the total amount you have invested.  For the average person investing more than $25 per loan is a really bad idea and doubly so in the very risky D-G grades.  It sounds like you perhaps have a 6 figure sized portfolio so in your case it may be less of an issue. In general though I wouldn't recommend it.

Also, I see a "Note term" section. It's currently set at "Both." What are the pluses and minuses of setting it at "36 month only" or "60 month only"?

60 month loans are a bit more risky that 36 month loans, that's 2 extra years for the borrower to default on it and you are committing to the platform for a longer period of time from the day you make your last loan so it is a bit less flexible in that sense.
« Last Edit: January 29, 2016, 10:20:58 PM by mo »

Zach

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Re: Using Automated Investing - Advice, Please
« Reply #2 on: January 28, 2016, 11:31:23 PM »
Full disclosure: I work for NSR Invest - a subsidiary of Cardinal Rose Group, which also has an ownership interest in Lend Academy Media and the LendIt Conference.

At NSR Invest, we've done serious analysis on both of the questions you mentioned above.

Regarding an ideal number of notes to achieve significant diversification, we've identified a target of 1,000 individual notes as being ideal for our client portfolios based on repeated sampling simulations with C-E grade Lending Club loans. More notes would be of benefit in tightening the potential range of returns an account may experience, but it becomes difficult to access higher-quality notes which are typically purchased within minutes or even seconds of becoming available. If you seek loans that target a higher rate of return than purchasing all available loans, it is difficult to find enough volume of loans which meet selective criteria - without having significant cash drag.

While many credit variables impact loan performance, we typically find that 60-month loans have a strong risk-premium tied to their stated interest rate that more than compensates for the added risk of the longer duration.

You may wish to look at back-tested results of 36 versus 60-month term loans on https://www.nsrplatform.com/#!/stats/lendingclub

We also offer Fully Managed accounts where we handle all the loan selection for you. Check out NSRInvest.com if that sounds like your cup of tea.

The above information is not to be considered investment advice and is based on our observations of historical data.
« Last Edit: January 29, 2016, 09:05:39 PM by Zach »

Fred93

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Re: Using Automated Investing - Advice, Please
« Reply #3 on: January 29, 2016, 12:25:11 AM »
I have nearly 9,000 loans at the minimum $25 per loan, chosen originally as a hedge against bad loans. When I try to select D-G Weighted at $25, I am cautioned that $25 is perhaps too low. Only when I get to $75 per loan does the system seem to be satisfied. So the first question is, since I am well diversified over nearly 9K loans, does it make sense to go to $75 loans (or maybe even more)?

Absolutely.  I suggest that there is no value to having 9000 loans.  1000 is plenty.  I'd go for $250/loan.

Rob L

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Re: Using Automated Investing - Advice, Please
« Reply #4 on: January 30, 2016, 12:38:24 PM »
Regarding an ideal number of notes to achieve significant diversification, we've identified a target of 1,000 individual notes as being ideal for our client portfolios based on repeated sampling simulations with C-E grade Lending Club loans.

Read carefully. F and G grades were not even included. Personally I don't buy them.
As you go out on the risk spectrum you will need more notes to diversify. I prefer large numbers of small notes.
There is no reason to limit the number of notes unless you are unable to stay fully invested and must increase the note size.
If the system you are using tells you it can achieve that at $75 per note, why go larger?

Fred

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Re: Using Automated Investing - Advice, Please
« Reply #5 on: February 01, 2016, 03:02:43 AM »
Full disclosure: I work for NSR Invest - ....

Since when?  Congrats, btw.