Lending Club: My 2009 Money Challenge
Each year, I like to try something new in personal finance. I don't want to waste money, but I don't mind testing the waters a bit with a small percentage of my income. Last year, my big test was on Sharebuilder... and my stocks obviously have not performed well (except Mickey D's (MCD) that's at least not losing money).
This year, I've decided it's Lending Club's turn for a little game time. I finally figured out how to use the site (phew) as last I was on I thought I had bid on two loans and apparently never made a final order. Oops. So I've now made a final bid/order on two loans for $25 each and I transferred in $200 from my paypal account.
While I don't think Lending Club will make me rich (and I have little faith I'll do better than break even given my luck on Prosper), I do like that you can lend just $25 per person. So you have a little more room for less costly defaults. Of course, then you also have more loans to default. I'm not mathematician, so I'm not sure which is better.
Regardless, I'll start out with this $250 and see where it gets me. I'm also going to up my investing on Sharebuilder this year. I can't resist a good sale. Thinking about purchasing some Proctor & Gamble stock, but not sure. Any stock I buy now will lose money over the coming year or two, it's just a matter of how it looks in 3, 4, 5 years down the line.
At least with Lending Club I'll either get my money back in 3 years or lose it in 3 years. With the stock market... I could make money and it could be gone in 10 years... as we've seen in the last 10 years. And I don't really have much faith in banks or the ability of anyone - even Obama - to stimulate the economy. Of course, without such stimulation, even P2P lending is at risk - big risk. If jobs get cut people can't pay their bills, even if they really want to. That's just how it goes. So I don't want to put too much money into P2P... just enough to see if Lending Club is better/worse than Prosper.
4 comments:
I recently opened a Lending Club account for the free $50 that you get (if you open it with an invitation from someone). I invested in 2 loans- it was sort of confusing because there was an additional 'checkout' step involved in actually purchasing the loans that I wasn't aware of at first.
I know $50 isn't much of a starting point, but I'm hoping to grow that money slowly and if this 'free' money seems to be doing well I may try to invest a bit of my own.
Good luck with your loans!
I wanted to try Lending Club, but apparently they have a minimum net worth and income that you must have to be allowed to invest. From what I can tell the restrictions have been imposed by the SEC.
@Coupon Artist Good Luck to you too! I opened mine with the free $50 as well, and have since added $200. I figure that will give me a good sense of how many loans default without too much downside.
@Slinky Yes, I actually just found out about the min requirements. They didn't do a background check or anything on sign up, so I wonder at what point they check to see if you meet them. I think the min requirements are absolutely ridiculous -- a net-worth for a single person renting versus a head of household with kids means two very different things. I can understand the SEC not wanting people to take risks that are not yet evaluated properly if those people need the money to feed their children. It's a whole other story when you've got extra money to invest and want to try out different avenues.
Good luck with this trial. I was (am) a believer in this concept from the beginning. So far both Prosper and Lending Club are performing well (5.6% and 9.3% returns respectively). I did get a few defaults, but I had enough loans to absorb it. Just make sure you know who you want to lend to and why.
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