Author Topic: How much is too much to invest in LC? and is it worth the effort?  (Read 25928 times)

LendingClubStatistics

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #15 on: September 12, 2013, 03:21:51 PM »
I'm holding steady at 10% of my portfolio not including a rental property.  Given the returns so far, I always want to invest more, but I just need to take a step back and stick to the 10%.  The more I save, the more I get to invest :)

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #16 on: September 12, 2013, 03:33:07 PM »
I could see putting about a third or half of my investments here eventually. The time/benefit ratio seems to look decent to me. I can do it from home, sitting at a computer and there is a degree of automation that can be used.

I worked construction since high school  through some of college and know if I was a landlord I would be doing all the work myself because 1) I hate paying others for a skill (probably a lesser skill) than I have and 2) I'm want to know the work is reliable and I'm not getting duped and and I know how often shitty work happens having been on hundreds of work sites. It would literally suck all my time up - kiss grad school and alternative investments goodbye.

That's just me. Some people will find real estate still a decent investment, albeit real estate has a higher cost of entry for most people. but if we're commenting here that probably isn't a HUGE deal... Still most of the construction guys I worked with had property - the only ones that made anything were the guys who obviously had a better quality of life financially were the ones who could afford to put a sizeable amount down (30k+ on a 75k 2 flat or so) so they were banking $500-$1000 a month per property after taxes instead of $200-$300 (but paying down a mortgage). Most of those guys also went for section 8. I'm not looking to own a crap hole that hurts me everytime I have to look at it - even if the government does pay the bills.
« Last Edit: September 12, 2013, 03:34:55 PM by DutchNurse »

Fred

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #17 on: September 12, 2013, 03:48:18 PM »
I could see putting about a third or half of my investments here eventually.

This does not sound like a good idea. ;)

However enticing the risk-reward-effort profile LC provides us, I don't think it's worth a third of our total investment.  But that's just me. :)

LendingClubStatistics

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #18 on: September 12, 2013, 04:07:04 PM »
I worked construction since high school  through some of college and know if I was a landlord I would be doing all the work myself because 1) I hate paying others for a skill (probably a lesser skill) than I have and 2) I'm want to know the work is reliable and I'm not getting duped and and I know how often shitty work happens having been on hundreds of work sites. It would literally suck all my time up - kiss grad school and alternative investments goodbye.

That's just me. Some people will find real estate still a decent investment, albeit real estate has a higher cost of entry for most people. but if we're commenting here that probably isn't a HUGE deal... Still most of the construction guys I worked with had property - the only ones that made anything were the guys who obviously had a better quality of life financially were the ones who could afford to put a sizeable amount down (30k+ on a 75k 2 flat or so) so they were banking $500-$1000 a month per property after taxes instead of $200-$300 (but paying down a mortgage). Most of those guys also went for section 8. I'm not looking to own a crap hole that hurts me everytime I have to look at it - even if the government does pay the bills.

You're right, doing the work yourself is absolutely necessary to maximize your profits. Plus, no one will do the work how I will.  It is one of the reasons I will likely not buy another rental property unless I want to leave the corporate world and semi-retire.  It all depends on the area you live in.  I still manage to pull a good profit with 20% down ($762/month before income taxes, but after property taxes, principal & insurance, etc). Plus, when I bought interest rates were near their bottom so I opted to go with a 30 year. 

Anyways, I got off topic, but I'll add that a third or a half is putting way too many eggs in one basket IMO.

investforfreedom

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #19 on: September 12, 2013, 05:39:30 PM »
Since we have been talking about rental properties, I thought this would be relevant. The August job report just came out today.  Labor participation is at its lowest since 1978 with only 63.2%: http://money.cnn.com/2013/09/06/news/economy/labor-force-participation/index.html?iid=EL  This would mean more people will be renting instead of buying a house.  (The middle-class is dying in the U.S......)

rlv99

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #20 on: September 12, 2013, 06:44:40 PM »
According to IR, over 80% of the borrower base earns between 2k-9k/mo.  This data point tells me that the typical borrower is vulnerable to a downward swing in employment.  An upward swing would create new borrowers, but not necessarily impact the default rate.  However, a downward swing would impact our current borrowers and, therefore, increase the default rate most likely.

We are in a rising interest rate environment. We also have a real threat to the net income of our borrowers. This threat is known by the popular name "obamacare".

To have more than 10% of one's net liquid assets invested in LC in the current environmenrt is, in my opinion, taking an unecessary risk.

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #21 on: September 12, 2013, 07:55:19 PM »
Ok....HALF I agree with. Way to much and in retrospect, I was typing faster than I was thinking...

But 10%? just seems a bit low to me. Of course that's dependent on if you really can earn 5-6% with even an automated investing protocol.

I'm 27, I don't see need for a 'money market' type holding beyond the 12,000 maximum on the checking that makes 2.25% for me.

I spend 350 a month on whole life insurance between me and the wife, and have a 10% of pay to IRA plan through the workplace (same with wife), but of what I save for 'investment purposes' I can see 20/80 - 20 LC/80 stocks.

I guess now that I think about it I'm alot lower than 30% of my total investments though if I take IRA and life insurance into account... I just think of those as standard monthly costs and not investments though.

The only time I held bonds in any meaningful quantity was through 08-11 and that was mostly JNK, PFF, HYG etc. Junk or preferred bank stock or muni that payed decently.

Still...If real estate isn't your thing (and I'd hate it)...You guys really think more than 10% is a terrible idea? Just for the sake of diversification? Or is there a real reason?

It is an interesting topic. Of course I'm new here and I need a year to see how the rates really work...but if I can yield something like 6-10% I'm really pretty pleased.

If most here shun the idea of 10+% here, where are your alternatives? I seriously think the rising rate environment is alot less severe than everyone thinks. I agree its coming, but it's going to happen much slower than at least the stock market seems to think. Jeez bernanke even mentions the idea of SLOWING stimulus and the markets are so twitchy its a week of straight down.
« Last Edit: September 12, 2013, 08:05:52 PM by DutchNurse »

core

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #22 on: September 13, 2013, 01:55:42 AM »
I spend 350 a month on whole life insurance between me and the wife

You do know that cash value life insurance is a complete ripoff, right?  Originally conceived as a gimmick to prevent folks from canceling the policy when the budget got tight.  I was just surprised to see this coming from such an active investor type.  A certain someone (I won't mention his name) calls whole life "the payday lender of the middle class".  I thought it was a cute comparison.


Fred

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #23 on: September 13, 2013, 02:55:47 AM »
I spend 350 a month on whole life insurance between me and the wife

You do know that cash value life insurance is a complete ripoff, right?

+1

I am a firm believer of separation of insurance and investment.

investforfreedom

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #24 on: September 13, 2013, 08:20:44 AM »
I spend 350 a month on whole life insurance between me and the wife

You do know that cash value life insurance is a complete ripoff, right?

+1

I am a firm believer of separation of insurance and investment.

I second that as well.  My wife and I had whole life insurance, but after about 2 years, we decided to quit--with a hefty penalty of course.  Among other things, the fund offerings of these companies are usually very limited.  Most are laggards with very few standout performers. 

Hate to sound like a dad. :-)  You probably need to review your overall financial goals and start building a long term investment strategy with a diversified portfolio of different asset classes.  Coming from someone who had seen the Asian financial crisis in the 90s, lost money during the tech boom and bust in the early 2000s, and had to endure more than 1/3 loss to our portfolio during the 2008-09 crisis.  Putting 1/3 of your money into social lending is not a good idea.  This is not the next gold rush. 
« Last Edit: September 13, 2013, 08:23:49 AM by investforfreedom »

core

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #25 on: September 13, 2013, 08:50:01 AM »
The problems with whole life insurance go far beyond the limited fund offerings.  It really is a rip off.  I'd almost go so far as to call it a SCAM.  You never find someone who wanted some and went looking for a company who offerered it or went to a web site and bought it.  No, they always got it from so-and-so, the SALESPERSON who SOLD it to them for $$$COMMISSIONS$$$.  Those salespeople (calling themselves "advisors") are the only people who believe in this crap, and most of them know it's a scam. 

Do this test:  Go to ZanderInsurance.com or any other insurance broker of your choosing.  The nice thing about Zander is you get an instant quote and they won't bother you later.  Get a quote for 20 year term at the same level of coverage you currently have.  It can be as cheap as 1/10th of the cost as what you're currently paying.  Then with the money you saved, run a simulation and invest that savings each month in a boring index fund or whatever for the next 20 years.  See where you come out.  I have a feeling you'd even come out ahead of you stuck it in bonds!  (<< haven't done the math on that one though)

Then ask your advisor/salesperson what happens to your investment when you die.  They keep it.  All that is paid out to your beneficiary is the face value and the insurance company keeps 100% of your investment.  Good plan, huh.  For the insurance company, that is.


PennySaved

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #26 on: September 13, 2013, 10:33:41 AM »

But 10%? just seems a bit low to me. Of course that's dependent on if you really can earn 5-6% with even an automated investing protocol.


Even Lending Club does not want you to invest more than 10% of your net worth.  They say:
"Regardless of your state of residence, you may not purchase notes in an amount in excess of 10% of your net worth (exclusive of the value of your home, home furnishings and automobile). "  https://kb.lendingclub.com/index.php?View=entry&EntryID=113

Lending Club is just one company.  Don't put too many eggs in one basket.  Also don't put too much of your money into one type of investment.  Stay diversified.  Have money in stocks, bonds, cash, and real estate etc.  What if we have a MAJOR recession or depression and half of your notes default?  Will you be able to stomach that?  Remember what happened to Wall St investment banks when they had too much money in those mortgage backed securities that were the hot product then?  Remember that LC notes are UNSECURED debt- there is no underlying collateral to fall back on, unlike mortgage securities.

Joleran

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #27 on: September 13, 2013, 10:47:36 AM »
Lending Club is just one company.  Don't put too many eggs in one basket.  Also don't put too much of your money into one type of investment.  Stay diversified.  Have money in stocks, bonds, cash, and real estate etc.  What if we have a MAJOR recession or depression and half of your notes default?  Will you be able to stomach that?  Remember what happened to Wall St investment banks when they had too much money in those mortgage backed securities that were the hot product then?  Remember that LC notes are UNSECURED debt- there is no underlying collateral to fall back on, unlike mortgage securities.

Yep, if stocks tank you can always (and probably should) just keep holding them and they'll come back up eventually.  Defaulted loans don't come back, you just lose.

DanB

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #28 on: September 13, 2013, 10:55:01 AM »

But 10%? just seems a bit low to me. Of course that's dependent on if you really can earn 5-6% with even an automated investing protocol.


Even Lending Club does not want you to invest more than 10% of your net worth. They say:
"Regardless of your state of residence, you may not purchase notes in an amount in excess of 10% of your net worth (exclusive of the value of your home, home furnishings and automobile). "  https://kb.lendingclub.com/index.php?View=entry&EntryID=113

Lending Club is just one company.  Don't put too many eggs in one basket.  Also don't put too much of your money into one type of investment.  Stay diversified.  Have money in stocks, bonds, cash, and real estate etc.  What if we have a MAJOR recession or depression and half of your notes default?  Will you be able to stomach that?  Remember what happened to Wall St investment banks when they had too much money in those mortgage backed securities that were the hot product then?  Remember that LC notes are UNSECURED debt- there is no underlying collateral to fall back on, unlike mortgage securities.

Actually this 10% number has nothing to do with whether LC wants someone to invest more or less than any percentage. They have no choice in the matter. This is a SEC regulation that applies not only to LC or p2p for that matter, but rather to alternative investments that are deemed high risk by the SEC & therefore only suitable for investors that meet the thresholds as delineated by the SEC. One can argue the wisdom of such a regulation, but let us not attribute it to LC when LC has nothing to do with it.

core

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #29 on: September 13, 2013, 11:43:18 AM »
Remember that LC notes are UNSECURED debt- there is no underlying collateral to fall back on, unlike mortgage securities.

They are even "doubly" unsecured, so to speak.  Not only does the borrower have to pay, but Lending Club also has to have the money and be willing to give it to you.  You don't have any claim to any payments that the borrower makes to Lending Club... these notes aren't even secured by the loans.

If the worst happens, the copier paper and Chinese take-out will be paid for before we will see a cent.  All of those important expenses you incur on the eve before announcing a bankruptcy.

If you're going to throw 1/3rd of your cash in p2p lending, at least do it in 10+ different companies.   But oops, I guess that's not possible as there's only 2 available to non accredited investors in the U.S. and one of them has a foot in the grave already.   :-\