Bogleheads

[spinecho]

I was wondering what people's thoughts are on being an investor on peer-to-peer websites like Prosper or Lending Club? Is this a good way to diversifying your portfolio? Like investing in a balanced portfolio with about 6% yield. Or is the risk too great?

Thanks.

[SecretAsianMan]

There have been multiple threads on this topic on the board. Do a search and you'll find plenty of information. From what I've read, it is not a good investment. ROI is very low and often negative. Apparently, one or two delinquent accounts can wreak havoc on your returns. (Note: None of this information is from any personal experience. Just repeating what I've read repeatedly here and other places.)

SAM

[HardKnocker]

No way.

Consider it charity.
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"If you owe someone a million dollars, they own you. If you owe someone a billion dollars, you own them."--Bobbo

[Valuethinker]

[DTSC]

I've actually done it. Wouldn't do it again. There are only 2 good things about it. One, it gives you an appreciation for how little margin of error you have; 1 or 2 bad loans and you're in the red. In fact, real bankers tell me that they can make only 1 bad loan out of 200. Second, it's good for tax loss harvesting...

[leonard]

Not enough diversification to mitigate bad debt risk.

In addition, there is the risk of the website/company facilitating the loans going out of business. I have no idea what your recourse on the debt would be if one day you went to Prosper one morning and it was no longer there.
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Leonard

Market Timing: Do you seriously think you can predict the future? What else do the voices tell you?

If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

[manuvns]

p2p lending is very risky . i have originated 201 loans on prosper over last 3 years and 25% of them defaulted ( around 18% of total $ value ) . most of my loans were in AA or A credit grade borrowers . You are better of investing in junk bonds .

[Chicago Lion]

I had been looking at these sites as well. I think after reading this, I will stay away. Those rates are enticing, but given the experience of the board, I will place my money elsewhere.

[UrbanMedic]

[MnD]

[spinecho]

Thank you for your input on this topic. Really appreciate it.

[dwbogle]

[manuvns]

[ryuns]

Interesting how much contradictory information there is about p2p lending. Contrast most of the above comments with:

[Valuethinker]

[Valuethinker]

[SpencerB]

P2P lending will help diversify your investing portfolio. However, while you are lending to peers, diversify. Never take a loan alone. Always go in parts with other people. That way, if the person who got the loan defaults, you are not hurt so badly. I personally would not use P2P lending as my main online investing strategy. Only use it as a supplement.

[UrbanMedic]

[Opponent Process]

[scubadiver]

Look at this from the vantage point of a borrower.

I'm seeking out other sources of capital for the opportunity to borrow at a lower rate than that which is presently offered by my banker / credit card / pay day lender. Each of those creditors probably has a pretty good idea of how to price risk I present and for me, that price is too high. This is why I seek a P2P lender - the hope of getting a lower borrowing cost. The P2P lender offers the money at a lower rate not b/c they have a competitive advantage over the pros, but b/c they are simply less informed an consequently don't know how to price the risk they are assuming.

In short, unless you have a better risk model than most bankers, just get a weekend job working at WalMart. You'll almost certainly do better.
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If at first you don't succeed, don't try skydiving.

[avalpert]

[simplesimon]

I'm so glad I read this thread along with VT's comments. Keep 'em coming!

[Auream]

http://fred93blog.blogspot.com....stats.html

[pkcrafter]

I'm surprised this thread has gone on this long. Seems pretty simple--

1. bonds are an asset class that serves to reduce risk.

2, Lending to people who can't get lower rates means higher risk.

3. Higher yields mean higher risk.

4. On the risk scale P2P would rate lower than junk bonds.

It's an idea no serious investor needs. You want to take on higher risk, increase AA to equities.


Paul
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[Cherokee8215]

I've posted on this subject before, but my basic opinion is that if the borrowers on those P2P sites were good credit risks, they would be borrowing money from traditional sources.

I personally don't ever want to put myself in a position where a person with shaky credit or income, especially one potentially far away that I've never met, owes me unsecured money.

[UrbanMedic]

[HardKnocker]

If you have an altruistic goal of helping the unfortunate (a noble thing) then go for it.

Expect to lose your money.
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"If you owe someone a million dollars, they own you. If you owe someone a billion dollars, you own them."--Bobbo

[TheEternalVortex]

If you invest only in the highest rated borrowers (A and AA) then you probably won't lose much, but the interest rates will be lower.

It also can be hard to find enough loans.

Overall it's not really a good idea, except for fun. In that sense it's better than gambling, since your expected return might be positive (who knows?)

[Chuck]