Can someone offer some Investor 101 for a newbie?

[dglasgow]

First let me tell who I am. Until a few months ago, I had never heard of P2P loans. I've been keeping an eye on my credit report through Credit Karma and I am working hard to improve my FICO score by reducing credit card debt, so when recommendations for a debt consolidation loan from LC popped up, I began my research on P2P lending. On 3/30 I applied for a $14k loan through LC, still waiting on funding (apparently my loan has been listed for whole funding). I have a A5 rating, with an interest rate of 7.89%, so I've learned funding may be slower. Anyway, during the process I became interested in learning more about investing in loans, so I also registered for an investment account with LC. I've not yet funded my account and started investing, but I plan to begin with $2500, so I can fund 100 loans with $25. Currently, I know next to nothing about investing. I have my retirement but I chose a moderate risk plan based on my age and Guidestone does the investing.

My husband and I moved to Central America in January 2005 and served as missionaries for over 8 years. We returned to the States in 2013 and basically started all over. We no longer really had any credit history other than my husband's student loans which we had continued to pay on while gone. We had no retirement, we didn't have any income. We've been back in the work force for a little over 2 years now, we purchased a home and like I said I now pay into a retirement account. I work as an executive for a Christian nonprofit; my husband is a bi-vocational pastor and a department manager at Lowe's. We only recently reached the point where we could start building a savings account. We lived off what savings we had for the first 9 months after returning to the U.S. Right now, I put 10% of our income into our bank savings account each pay period, but of course it's not really earning me any money, so since I've been told the average return through LC is 5%-9%, I thought it would be wiser to invest in LC than just let the money sit in a savings account. My questions for you seasoned investors is:

1. Is LC a good investment?
2. Can I get 5-9% returns?
3. Should I choose the Automated Investing option? If so, what criteria do you suggest I choose.... I was considering choosing, "Platform Mix" with the 7.13% projected return.
4. What if I decide to invest less than $2500.... maybe only $500? I haven't sold my husband on the idea of investing any of our savings yet... that's why I'm asking. 

Any other advice you may have is appreciated. 

[AnilG]

Your details gives me the impression that you are new to investing. You might benefit from learning, in general, about investing and starting with traditional investment vehicles (CD, mutual funds, ETFs) instead of jumping directly into p2p lending. Bogleheads Wiki might be a good starting point for you. https://www.bogleheads.org/wiki/Getting_started

[jennrod12]

I highly recommend a radio show called "MoneyTalk" that essentially teaches Investor 101, and has been on the air over 30 years.  It is not selling anything, just a guy who has had a very successful career as an institutional investor and wants the little guy to understand more about how to manage their own investments.  You can call in with questions and he will answer them.  Listening will give you a great basic foundation.

The show runs on Sundays from 4pm - 7pm ET.  In Alabama, it's on WDNG 1450 AM, WQSI 95.9 FM, WAPI 1070 AM, WEBJ 1240 AM, WWNT 1450 AM, WBCF 1240 AM, WGSV 1270 AM (depending on your location).  It is also available as a podcast for a small fee - the website is www.bobbrinker.com.

I have no affiliation with the show, just a very happy listener.

Jenn

[fliphusker]

Below are links that I found extremely useful.  I started out with 3k, and plan on investing up to 5k/year into LC putting in $400/month.  As I invest such a small amount, I can be really picky on what notes I go after and use extensive filters that I have backtested.  I do not use automated, as I had my filters incorrect on a 3rd party site, and am sitting on a number of notes that do not meet my filtering.  (yup, was very dumb of me). 

Backtesting Personally I do not look at date before 2010, due to issues from the recession.  Just a personal preference is all.
https://www.nsrplatform.com/#!/stats/lendingclub
Great starter reading.  #4 there is the backbone to my filters and do not waiver from it. 
http://www.lendingmemo.com/lending-club-strategy/
Basic simple strategy.  Their 5 filters there is what I started my initial backtesting.
http://www.lendacademy.com/updated-super-simple-filter-strategies-for-lending-club-and-prosper/
This video series nicely breaks down many aspects, one of items I got into when trying to learn P2P investing.
http://www.lendingmemo.com/video/beginners-guide/lending-club/investing/
Good article and shows some filters at NSR
http://www.lendacademy.com/investing-lending-club-prosper-2014/
Good article on filtering with an income based ROI table.
http://peersociallending.com/investing/lending-club-filter-strategies/
Good article about some pitfalls
http://www.magnifymoney.com/blog/personal-loans/p2p-lending-7-tips-to-follow-or-lose-it-all1347107825

Was curious about your loan and the lack of credit history, now it makes sense. 

[storm]

I would recommend paying off your debt first (excluding mortgage) and building up a emergency savings (3+ months living expenses) before investing.  What money you'll earn while investing is going to be offset by the interest you are paying on your loan.  You might be able to make a little more interest on your savings by depositing it into an online savings account which pay around 1% or more right now.  Bankrate.com and Fatwallet track the better paying banks. 

Previous posters have linked to lots of good resources on investing.  Do your research and understand the risks.  I wholeheartedly recommend P2P lending, but it is relatively new, and not everyone may be comfortable with it.

[Rob L]

All of us must acknowledge the fact that there is a small (but not zero!) possibility that we could lose our entire investment. I can think of any number of scenarios where UFO's are not involved. Call it "platform risk" or "risk of ruin" it is real. Whatever the size of your investment you must be comfortable with the fact that you could lose it all. LC is not an FDIC insured savings account paying higher interest. If losing it all would change your life then you shouldn't consider this investment. Personally I have much more in Ally Bank at 1% than I invest here. I would love to invest more with LC but I respect the risk.

That said, if you have less than $5k to invest in LC I would take a serious look at Lending Robot. I really don't know much about the 3rd party managers but portfolios $5k or less are free at Lending Robot (I think). There are other VERY good 3rd party portfolio managers and maybe they have free <$5k accounts; I dunno. If they do I'd take a VERY close look at them as well. Who ever you chose will help you get started. When your portfolio gets > $5k you can decide whether to stay with them or strike out on you own.

FWIW I have no connection to Lending Robot and get nothing for suggesting you take a look at them. There's also BlueVestment, PeerCube and NSR Invest that might be a much better choice. I'd hate to leave anyone out so my apologies in advance if I did.
 

[nonattender]

First let me tell who I am.

...

Any other advice you may have is appreciated. 

At the risk of offending you, I will tell you the truth:

As is apparent from your other posts, you're currently seeking a loan.  That means you have debt.  This precludes you from making
investments, as you do not have the free (enencumbered) capital to do so.  That you are saving in order to have cash to cover any
potentially immediate cash shortfall is admirable - and that discipline will only improve your financial condition and may well one day
allow you to invest (in any vehicle, whether LendingClub or otherwise), but it's important that you realize and accept that, for now,
you're in debt and do not have any "investable" cash.  Were I you, I would continue your current course of consolidating old debts,
paying them down in full over time, and, thereafter, learning to live entirely without debt.  The savings which you propose to invest
simply ought not be pretended to be "investable" funds - they are your emergency cash savings and should be mentally accounted
accordingly.  Once you are out of debt and have a sufficient cash cushion, that is the time to consider investing your excess funds...

Until then, there's absolutely nothing wrong with learning about investing or being inquisitive.  But keep your savings in liquid form,
which, while you've realized is not optimal from a return standpoint, is, indeed, optimal in a scenario where you need to access it...

Ideally, from a behavioural finance perspective, you should think of every dollar of debt that you pay off as an immediate 'investing'
return of not only that one dollar, but that dollar plus the interest which you will now not have to pay to maintain that $1 of debt...

The returns available to you from paying off your debts are higher than the returns you would make "investing" in... anything else.

Good luck to you.

[jz451]

To be honest this is not the type of investment to get into if you don't know anything as your first investment. More important than investing is to save cash so you have enough saved to pay 6 months of more of payments you normally make each month. As a first investment would be to invest in mutual funds or ETFs, not stocks since you don't know how to value them. The best options are through Fidelity or Vanguard that track the S&P 500 like the SPDR ETF which has a ridiculously low fee of 0.05%. Other options after putting some money into that would be mutual funds with a long history like over 10+ years, return at least 10%, and have low fees no greater than 0.75%-1%, lower the better. If you want to get into something like this with a steady cash flow then invest into high yield bond funds, which don't have the likelyhood to one day vanish.

[Rob L]

First let me tell who I am.
...
Any other advice you may have is appreciated. 

At the risk of offending you, I will tell you the truth:
As is apparent from your other posts, you're currently seeking a loan.  That means you have debt.

I must agree completely. It is the truth and the advice is solid.
My post about 3rd party management, etc. was my missing the forest for the trees so to speak.
Possibly a good approach but for a time in the future when it would be more appropriate.

[Fred]

My advice would be to take a "Finance 101" class from a local college.

It is more objective, more comprehensive and less-biased than those offered by advisors, agents, friends, families, etc.

I was with Wall Street companies for many years, and I can tell you that a lot of financial innovations are easy to understand once you get the basic formal concepts.

[dglasgow]

First let me tell who I am.

...

Any other advice you may have is appreciated. 

At the risk of offending you, I will tell you the truth:

As is apparent from your other posts, you're currently seeking a loan.  That means you have debt.  This precludes you from making
investments, as you do not have the free (enencumbered) capital to do so.  That you are saving in order to have cash to cover any
potentially immediate cash shortfall is admirable - and that discipline will only improve your financial condition and may well one day
allow you to invest (in any vehicle, whether LendingClub or otherwise), but it's important that you realize and accept that, for now,
you're in debt and do not have any "investable" cash.  Were I you, I would continue your current course of consolidating old debts,
paying them down in full over time, and, thereafter, learning to live entirely without debt.  The savings which you propose to invest
simply ought not be pretended to be "investable" funds - they are your emergency cash savings and should be mentally accounted
accordingly.  Once you are out of debt and have a sufficient cash cushion, that is the time to consider investing your excess funds...

Until then, there's absolutely nothing wrong with learning about investing or being inquisitive.  But keep your savings in liquid form,
which, while you've realized is not optimal from a return standpoint, is, indeed, optimal in a scenario where you need to access it...

Thanks.... Good advice! We do have enough in savings to cover expenses for about 3 months and I have no plans to allow our savings to go below that amount. With the LC loan (which funded today), we will pay off all credit card debt, so the only debt we will have is the LC loan, our mortgage, and an auto loan.... So I'll keep saving and keep working on paying off debt. Thanks again for taking the time to offer advice.

[Perdun]

Another newbie here. New to LC, but not new to investing. No debt either. Starting with 5K invested in LC, then will see how it goes and probably invest a lot more.

I'm trying to choose between setting a filter and using it to invest automatically and using the same filter to pick $25 notes manually. My understanding is that for manual investments, I have to log on when new loans are posted and try to pick the good ones before other people do. The alternative is to set the same filter and let LC pick them automatically. Is the automatic option better in terms of timing to get the best notes? With automatic investment, will LC pick the notes right after release and before the manual investors can pick them? How does the platform decide which investors pick the automatic loans first? For example, if there is a 2.5K loan and it meets the criteria of 1000 automatic investors' filters, how does LC pick the ones who will invest in this loan?

[dompazz]

Another newbie here. New to LC, but not new to investing. No debt either. Starting with 5K invested in LC, then will see how it goes and probably invest a lot more.

I'm trying to choose between setting a filter and using it to invest automatically and using the same filter to pick $25 notes manually. My understanding is that for manual investments, I have to log on when new loans are posted and try to pick the good ones before other people do. The alternative is to set the same filter and let LC pick them automatically. Is the automatic option better in terms of timing to get the best notes? With automatic investment, will LC pick the notes right after release and before the manual investors can pick them? How does the platform decide which investors pick the automatic loans first? For example, if there is a 2.5K loan and it meets the criteria of 1000 automatic investors' filters, how does LC pick the ones who will invest in this loan?

All good questions to which I have no answers.  I can give you my experience starting from the same position as you.

I started 2 years ago with a few k in a LC account.  It wasn't worth a lot of my time to optimize the crap out of it.  So I went with Automated Investing with LC, a simple filter, and a conservative investment mix.  Sometimes I would have $$$ sitting idle in the account and LC would not have bought a note for me for a few days.  I would log in and manually pick up notes that fit my criteria.  That was maybe 2x a month.

The allocation was about 85-90% A/B/C, skewed B/C, with the rest sprinkled in D/E. 

The filters were as simple as FICO>=705, Status=Approved, Deliquencies = 0, Term=36 Months.

I used this for about 2 years when this Jan I started to use statistical models to pick my loans.  If you look at the "Returns" thread, you will see I met the goal of a decent return with low risk (about an 8% return on an average loan rate of about 10%).   

If you want to amp up the risk, I suggest one of the 3rd party tools like LendingRobot.  You do have to be careful picking the high risk notes.  They've all done the research for you.

Good luck to you.

[Perdun]

Another newbie here. New to LC, but not new to investing. No debt either. Starting with 5K invested in LC, then will see how it goes and probably invest a lot more.

I'm trying to choose between setting a filter and using it to invest automatically and using the same filter to pick $25 notes manually. My understanding is that for manual investments, I have to log on when new loans are posted and try to pick the good ones before other people do. The alternative is to set the same filter and let LC pick them automatically. Is the automatic option better in terms of timing to get the best notes? With automatic investment, will LC pick the notes right after release and before the manual investors can pick them? How does the platform decide which investors pick the automatic loans first? For example, if there is a 2.5K loan and it meets the criteria of 1000 automatic investors' filters, how does LC pick the ones who will invest in this loan?

All good questions to which I have no answers.  I can give you my experience starting from the same position as you.

I started 2 years ago with a few k in a LC account.  It wasn't worth a lot of my time to optimize the crap out of it.  So I went with Automated Investing with LC, a simple filter, and a conservative investment mix.  Sometimes I would have $$$ sitting idle in the account and LC would not have bought a note for me for a few days.  I would log in and manually pick up notes that fit my criteria.  That was maybe 2x a month.

The allocation was about 85-90% A/B/C, skewed B/C, with the rest sprinkled in D/E. 

The filters were as simple as FICO>=705, Status=Approved, Deliquencies = 0, Term=36 Months.

I used this for about 2 years when this Jan I started to use statistical models to pick my loans.  If you look at the "Returns" thread, you will see I met the goal of a decent return with low risk (about an 8% return on an average loan rate of about 10%).   

If you want to amp up the risk, I suggest one of the 3rd party tools like LendingRobot.  You do have to be careful picking the high risk notes.  They've all done the research for you.

Good luck to you.

Thanks... I'm considering using Lending Robot, saw your reply in the other thread as well.

One thing I'm not sure about, though... I'd like to learn how to use Lending Club by starting out with 5K and then, if all goes well, potentially rolling over a big part of my 401K to a Lending Club IRA (when i change jobs). I don't know if i'll be using Lending Robot to manage large amounts because of the fee. Given that, maybe it makes sense to try to self manage this 5k instead of using Lending Robot, just to learn the ropes?

[Fred93]

maybe it makes sense to try to self manage this 5k instead of using Lending Robot, just to learn the ropes?

I second the motion.  I started by doing it myself, and this allowed me to observe a lot more than I did later when I was automated.  You can switch whenever it becomes burdensome.