Lending Club - Thoughts?

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Toby
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Lending Club - Thoughts?

Post by Toby » Sat Jan 23, 2016 6:39 pm

I was considering opening a Lending Club investor account as an alternative to an additional IRA or Mutual fund. Interested in hearing anyone's experiences or thoughts.

renue74
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Re: Lending Club - Thoughts?

Post by renue74 » Sat Jan 23, 2016 7:27 pm

I started loaning to Lending Club in November. It's more of "fun money" than a actual investment. I've dropped $1500 into 60 notes. (A, B, and C) level. Each note...$25 loan. My expected return is 7.5%...which is not the usual "big" % LC promotes, but I'm fine with A, B, C notes.

But, I used LendingRobot.com to fund my LC account. LendingRobot lets you set up custom searches for notes. It works great.

So far, all notes have been funded, but I already have 1 note in "grace" period. A managing nurse making $67K, year with 720 credit score. So, I'm hoping she's just late.

Check out Lending Robot.

YttriumNitrate
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Re: Lending Club - Thoughts?

Post by YttriumNitrate » Sat Jan 23, 2016 7:29 pm

Online peer-to-peer lending was still very much in its infancy during the last recession so I am looking forward to seeing how it fairs during the next one. To quote Warren Buffet, "you only find out who is swimming naked when the tide goes out." My sneaking suspicion is that these programs are going to be a lot less clothed than people think they are. :D
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Maynard F. Speer
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Re: Lending Club - Thoughts?

Post by Maynard F. Speer » Sat Jan 23, 2016 8:03 pm

I'm cautiously optimistic on P2P lending .. Zopa (our first P2P lending platform) made it through 2008 relatively unscathed, and today the whole industry's better regulated ... And even total assets in the industry at the moment are a drop in the ocean

Money lending's nothing new .. So risk seems mostly platform-specific at the moment - down to the process of assessing risk and setting rates ... I'm sure there'll be more failed experiments along the way, so I personally avoid some of the higher return platforms - specialising in property development and things - although plenty of hedge funds do well in that space (often leveraged), and just accept that there can be losses

I'd suggest 5-10% in (large, established) P2P lending is almost a no-brainer way to bring a stocks/bonds portfolio into the 21st century .. A stable 7.5% return in all market conditions is what you strive for with hedge funds ... But things can change too ... I was getting on great with Funding Circle (UK) for over a year - when I could set rates and trade loans .. 18% returns (not efficient markets) .. But then they changed the T&C overnight and now it's a democratised 7.1% return with no compensation pot - so suddenly it's become the least attractive P2P platform I'm on
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

ogrehead
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Re: Lending Club - Thoughts?

Post by ogrehead » Sat Jan 23, 2016 9:22 pm

I find P2P lending a lot more interesting than P2P investment, none of which I would touch with a 10-foot pole.

I haven't put anything in them (unless Kiva counts, which it doesn't; I've lend a few 100 through there before I decided it's relatively ineffective).

My burning question is, why would anyone borrow from them if they could borrow from a bank or credit union? And if they can't, then how can they prove to me that they are a safe borrower when they couldn't prove that to a bank? I know some people fall through the cracks, but I just don't find it very believable overall. I've looked at these sites at various times in my life to see if they were attractive for refinancing, and the rates were always much higher than I could get elsewhere.

So I am concerned that the risk to lenders may be higher than it appears. Are there good aggregate statistics over meaningful timeframes? I would think they have to be transparent. What's the prepayment risk?

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Hodor
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Re: Lending Club - Thoughts?

Post by Hodor » Sat Jan 23, 2016 9:43 pm

ogrehead wrote: My burning question is, why would anyone borrow from them if they could borrow from a bank or credit union? And if they can't, then how can they prove to me that they are a safe borrower when they couldn't prove that to a bank? I know some people fall through the cracks, but I just don't find it very believable overall.
Why should they prefer a bank or credit union? The P2P lending rates are competitive or better than what a bank will offer for an unsecured consumer loan. That's if the bank even wants to bother lending you $12,000 to refinance your credit cards. Add in the convenience of being able to get the loan from home and it's no surprise that people would choose P2P lending. I certainly would do it if I had a large amount of high-interest credit card debt.

lack_ey
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Re: Lending Club - Thoughts?

Post by lack_ey » Sat Jan 23, 2016 9:48 pm

ogrehead wrote:My burning question is, why would anyone borrow from them if they could borrow from a bank or credit union? And if they can't, then how can they prove to me that they are a safe borrower when they couldn't prove that to a bank? I know some people fall through the cracks, but I just don't find it very believable overall. I've looked at these sites at various times in my life to see if they were attractive for refinancing, and the rates were always much higher than I could get elsewhere.
You don't think that some people just dislike banks (either the experience/customer service or the thought of them making a lot of money from you) or want a different set of hoops to jump through?

What kind of rates on unsecured loans could you have gotten elsewhere? What was the difference like? I think the rates are what, like 7% or so for the best borrowers from P2P lending. I'm not buying that the rates aren't competitive, but I've never been in the market. The P2P lending platform's cut is usually 1%. A bank's got a lot of staff to pay and profits to make.

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Maynard F. Speer
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Re: Lending Club - Thoughts?

Post by Maynard F. Speer » Sat Jan 23, 2016 10:15 pm

I believe some banks are now looking to follow the P2P model themselves, as it's simply more efficient

The market ultimately sets rates, so I think where you're really benefiting is obviously in lower overheads, and in being able to very cheaply diversify risk .. A 1% cut covers legal teams and debt collectors, sometimes recovery funds ... Smaller banks and lenders may effectively need to pay a lot more in insurance
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

ogrehead
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Re: Lending Club - Thoughts?

Post by ogrehead » Sat Jan 23, 2016 10:18 pm

lack_ey wrote:You don't think that some people just dislike banks (either the experience/customer service or the thought of them making a lot of money from you) or want a different set of hoops to jump through?
No, actually, I think people generally don't like parting with their money. Anyway, if you borrow money from Lending Club, you're actually taking a loan out from WebBank--a BANK. LendingClub simply funds the note to WebBank, gets a nonrecourse assignment, and services payments. In the event of default, it's WebBank that sends its goons out to collect, to the extent it cares.
What kind of rates on unsecured loans could you have gotten elsewhere? What was the difference like? I think the rates are what, like 7% or so for the best borrowers from P2P lending. I'm not buying that the rates aren't competitive, but I've never been in the market.
I checked, and a lot. In recent times through my credit union and local community banks, I've borrowed for as little as 1 to 2% for 12-month loans, and as little as 5% for 72-month loans. All unsecured signature loans with no prepayment penalties where I walked in, sat down, did the 1-page application and got the money in hand in about 15 minutes. I do have excellent credit.

As far as investing goes, these really belong in tax-advantages since they pay interest. To avoid getting whacked with $100 fee you really have to go all in with $5,000 your first year and $10,000 your second year. I'm concerned about their note-trading platform; that you'd likely be holding these notes to maturity and the ability to maintain a good average length on loans, as well as how easy it would be get out. It's tempting to stash some money in there, but I'm going to continue to resist.

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Toons
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Re: Lending Club - Thoughts?

Post by Toons » Sat Jan 23, 2016 10:23 pm

Prior thread :happy
viewtopic.php?t=152092

Do a search and you will find quite a few more. :happy
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Noobvestor
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Re: Lending Club - Thoughts?

Post by Noobvestor » Sat Jan 23, 2016 11:26 pm

My brother created an algo to trade LC notes right as they come out based on set criteria. He is finding there are players trading even faster than he is. So what is left for the individual investor to choose from? The ones the presumably fancy/smart algos leave behind. So in a way, it's getting to be more like stock picking - the best traders are in there early, get the good deals, and individuals trying to DIY get less.

Me personally: I played with it for a while, despite liquidity, concentration, etc... risks, and came out with a 7.1% annualized return - it started higher but inevitably drops over time with defaults, etc... Doesn't seem worth it to me when I could just buy a more liquid junk bond fund if I really wanted stuff like this.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

mjb
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Re: Lending Club - Thoughts?

Post by mjb » Sat Jan 23, 2016 11:45 pm

I've been using lending club since 2011. I was really active until the end of 2012, then the big banks started using automated buys. I couldn't get decent deals and a few of my loans defaulted, dragging down my returns. Then around 2014/2015 Lending Club changed some of their platform rules, changing the process for roboinvesting and I started up again.

Decent returns, but you will have notes default. If you are risk adverse, avoid it. If you decide to try, I suggest you start slow, avoid the really low quality ones, and buy in chunks of $25.

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ClevrChico
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Re: Lending Club - Thoughts?

Post by ClevrChico » Sun Jan 24, 2016 12:30 am

It's tempting, but then you see people getting around 7% return, tax inefficiency, and possibly more complicated tax returns.

I'd add Vanguard High-Yield Corporate Fund Shares to an IRA and have a better investment.

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Maynard F. Speer
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Re: Lending Club - Thoughts?

Post by Maynard F. Speer » Sun Jan 24, 2016 1:10 am

I'd think there's much more risk in high-yield bond funds today, and dealing fees for laddering as many as you'd to match P2P lending's diversification would run into $thousands (presumably)

I'd think any low volatility bond fund that can return 7% over the next 10-20 years, with rates where they are, would be doing extremely well
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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TomatoTomahto
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Re: Lending Club - Thoughts?

Post by TomatoTomahto » Sun May 15, 2016 10:49 am

Does anyone have views how the recent public turmoil affects Lending Club's participants?
Okay, I get it; I won't be political or controversial. The Earth is flat.

Valuethinker
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Re: Lending Club - Thoughts?

Post by Valuethinker » Sun May 15, 2016 11:29 am

Maynard F. Speer wrote:I'd think there's much more risk in high-yield bond funds today, and dealing fees for laddering as many as you'd to match P2P lending's diversification would run into $thousands (presumably)

I'd think any low volatility bond fund that can return 7% over the next 10-20 years, with rates where they are, would be doing extremely well
{EDIT restarted thread}

We have had another recent thread on P2P.
Last edited by Valuethinker on Sun May 15, 2016 11:33 am, edited 1 time in total.

Alchemist
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Re: Lending Club - Thoughts?

Post by Alchemist » Mon May 16, 2016 12:45 am

My thoughts?

The short version: limited upside, potentially massive downside.

Less short version: People who need unsecured loans from P2P platforms, regardless of their current credit score, are not people who are in a good place financially. They are likely on the verge of defaulting on other lenders or are spending recklessly. Both are factors that the current credit score cannot tell you about, it is after all a trailing indicator of someones actual ability to pay debt. The score only goes down after they fail to pay someone and then only a month afterwards. The moment the economy hits a down turn, many of those borrowers will default. How do I know that? Because people with cash reserves to weather recessions don't need to borrow money from Lending Club. Once in default you have essentially zero chance of getting your money back. At least with a stock, the value can recover. A defaulted unsecured loan? That money is gone and staying gone. Do I want to risk that for maybe 7% return? Nope. Other people of course can, but I suspect most P2P lenders are not accurately assessing their risk of losing most or all of their investment.

EasilyConfused
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Re: Lending Club - Thoughts?

Post by EasilyConfused » Mon May 16, 2016 1:40 am

I put some "fun money" into Lending Club in July 2013 and invested as many $25 increments in higher-interest loans -- 15%-26% -- as I could. Almost 3 years later my net annualized return is at 10.7%. I'm happy with that, but about 6 months in I realized that in a good economy I could likely make similar returns in other investments with longer track records and in a bad economy these unsecured liar loans are likely to default like crazy. So rather than reinvesting my proceeds I've been cashing out once a month and letting my balance dwindle. You're not missing out on much, in my opinion.

mevans154
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Re: Lending Club - Thoughts?

Post by mevans154 » Mon May 16, 2016 11:51 am

I also invested some "fun money" into Lending Club starting in March 2013. I was investing $100/week until I reached $15,000 in deposits.

To date I have invested in 2,627 loans and have averaged a 8.61% annual return (after defaults and fees). I buy most of my loans on the secondary market with a criteria of having no missed payments to date.

Of my 2,627 loans that I have purchased the current breakdown is as follows:

Weighted Average Loan Rate - 19.57%
Payments to Date - $38,697.68
Principal - $32,560.42
Interest - $6,132.71

Issued & Current (1,201) - $16,630.22
In Grace Period (30) - $308.34
Late 16 - 30 days (16) - $263.34
Late 31 - 120 days (62) - $929.43
Fully Paid (1,173)
Default (3) - $31.55
Charged Off (144) - $2,052.64

My Charged-off rate is currently at about 5.48% which I think is high but less than the published default rate Lending Club advertises for the types of loans I invest in.

I look at this as an income fund and I think most people would be hard pressed to find another type of income fund with similar or superior rates of return for the given risk.
"Be greedy when everyone is panicking, and panic when everyone else is greedy"... Couldn't agree more!!!

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Re: Lending Club - Thoughts?

Post by Jack FFR1846 » Mon May 16, 2016 12:11 pm

ogrehead wrote:
lack_ey wrote:You don't think that some people just dislike banks (either the experience/customer service or the thought of them making a lot of money from you) or want a different set of hoops to jump through?
No, actually, I think people generally don't like parting with their money. Anyway, if you borrow money from Lending Club, you're actually taking a loan out from WebBank--a BANK. LendingClub simply funds the note to WebBank, gets a nonrecourse assignment, and services payments. In the event of default, it's WebBank that sends its goons out to collect, to the extent it cares.
What kind of rates on unsecured loans could you have gotten elsewhere? What was the difference like? I think the rates are what, like 7% or so for the best borrowers from P2P lending. I'm not buying that the rates aren't competitive, but I've never been in the market.
I checked, and a lot. In recent times through my credit union and local community banks, I've borrowed for as little as 1 to 2% for 12-month loans, and as little as 5% for 72-month loans. All unsecured signature loans with no prepayment penalties where I walked in, sat down, did the 1-page application and got the money in hand in about 15 minutes. I do have excellent credit.

As far as investing goes, these really belong in tax-advantages since they pay interest. To avoid getting whacked with $100 fee you really have to go all in with $5,000 your first year and $10,000 your second year. I'm concerned about their note-trading platform; that you'd likely be holding these notes to maturity and the ability to maintain a good average length on loans, as well as how easy it would be get out. It's tempting to stash some money in there, but I'm going to continue to resist.
What $100 fee?

I invested $100 and after some payments came in, another $18.21 (to make another $25 note). One of the borrowers just paid off their note, so I decided to pull out what was available....$38.78. My plan now is to pull out money as I'm able and leave in only the amount over my original investment. I have nobody late or anything out of 5 notes.
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Re: Lending Club - Thoughts?

Post by moshe » Mon May 16, 2016 12:15 pm

EasilyConfused wrote:I put some "fun money" into Lending Club in July 2013 and invested as many $25 increments in higher-interest loans -- 15%-26% -- as I could. Almost 3 years later my net annualized return is at 10.7%. I'm happy with that, but about 6 months in I realized that in a good economy I could likely make similar returns in other investments with longer track records and in a bad economy these unsecured liar loans are likely to default like crazy. So rather than reinvesting my proceeds I've been cashing out once a month and letting my balance dwindle. You're not missing out on much, in my opinion.
Add to the LC "value" story the recent sudden departure of the founder/CEO. I am also withdrawing any payments out of my modestly sized account. Hope they survive long enough...

~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams

Valuethinker
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Re: Lending Club - Thoughts?

Post by Valuethinker » Mon May 16, 2016 12:31 pm

moshe wrote:
EasilyConfused wrote:I put some "fun money" into Lending Club in July 2013 and invested as many $25 increments in higher-interest loans -- 15%-26% -- as I could. Almost 3 years later my net annualized return is at 10.7%. I'm happy with that, but about 6 months in I realized that in a good economy I could likely make similar returns in other investments with longer track records and in a bad economy these unsecured liar loans are likely to default like crazy. So rather than reinvesting my proceeds I've been cashing out once a month and letting my balance dwindle. You're not missing out on much, in my opinion.
Add to the LC "value" story the recent sudden departure of the founder/CEO. I am also withdrawing any payments out of my modestly sized account. Hope they survive long enough...

~Moshe
They may well survive, or get taken over. But it's likely that returns going forward will be compressed, the US is probably near a peak of a credit cycle (hopefully nothing like the implosion of 2008-9) but the beginning year of a new presidency tends to be a recession year, I think (if you want an explanation for that, Central Bankers tend to not "rock the boat" politically, and so they wait until post Election for tightening- -but there are also other factors, GWB was inaugurated as the dot com bubble burst, Obama as the credit crisis hit full swing, Ronald Reagan as interest rates soared under Volker in the aftermath of the Iranian oil crisis, etc.-- perhaps it's just human nature).

I think it's becoming a more risky place to be, P2P lending.

ctreada
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Re: Lending Club - Thoughts?

Post by ctreada » Mon May 16, 2016 3:00 pm

I have similarly used some play money to try this out.

I try to select people with an 800+ credit score and want to consolidate debt. I want to say that about 75%+ of my loans are people in this situation and are classified as "Low Risk" in my portfolio there.

A little less than a year in, I'm generating a 7.66% return. It was my best performing investment class last year.

Of my 409 notes,
4 have been charged off already
4 are late 31-120 days
1 is late 16-30 days
2 in grace period
32 have been fully paid back.

Interestingly, just about all of my defaults are from the 20-25% of High Risk deals. I have 8 out of 97 High Risk loans either charged off or late. Contrast that against my "Low Risk" portfolio with 1 default and 2 late payers from 312 "Low Risk" loans.

I'll give up a little return in exchange for a better borrower. I think it's an awesome system for the honest borrower and I wouldn't necessary paint with the broad brush to assume that people who need this are all in dire straits and unworthy of your play money.

moshe
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Re: Lending Club - Thoughts?

Post by moshe » Mon May 16, 2016 3:19 pm

ctreada wrote:I have similarly used some play money to try this out.

I try to select people with an 800+ credit score and want to consolidate debt. I want to say that about 75%+ of my loans are people in this situation and are classified as "Low Risk" in my portfolio there.

A little less than a year in, I'm generating a 7.66% return. It was my best performing investment class last year.

Of my 409 notes,
4 have been charged off already
4 are late 31-120 days
1 is late 16-30 days
2 in grace period
32 have been fully paid back.

Interestingly, just about all of my defaults are from the 20-25% of High Risk deals. I have 8 out of 97 High Risk loans either charged off or late. Contrast that against my "Low Risk" portfolio with 1 default and 2 late payers from 312 "Low Risk" loans.

I'll give up a little return in exchange for a better borrower. I think it's an awesome system for the honest borrower and I wouldn't necessary paint with the broad brush to assume that people who need this are all in dire straits and unworthy of your play money.
My concern is with the ongoing stability of LC itself. If borrowers know the company is it trouble they may choose to pay LC (IOW you and me!) last.

~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams

Valuethinker
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Re: Lending Club - Thoughts?

Post by Valuethinker » Tue May 17, 2016 2:21 am

moshe wrote:
My concern is with the ongoing stability of LC itself. If borrowers know the company is it trouble they may choose to pay LC (IOW you and me!) last.

~Moshe
This is the key.

I hadn't appreciated that the loans are not, in fact, made directly by the investor the borrower. Instead the investor appears to be an unsecured creditor of LC. That's a very high risk investment by anyone's standards.

That really does put me off the whole asset class.

Valuethinker
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Re: Lending Club - Thoughts?

Post by Valuethinker » Tue May 17, 2016 4:21 am

http://www.tracy-alloway.com/?p=456

some interesting analysis on P2P lending and LC in particular.

ctreada
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Re: Lending Club - Thoughts?

Post by ctreada » Tue May 17, 2016 9:24 am

moshe wrote:
My concern is with the ongoing stability of LC itself. If borrowers know the company is it trouble they may choose to pay LC (IOW you and me!) last.

~Moshe
I agree, which is why for us it's ~1% of our portfolio or less.

I do enjoy helping people out, insofar as they pay back of course. :)

amarone
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Re: Lending Club - Thoughts?

Post by amarone » Wed Aug 03, 2016 3:24 pm

ctreada wrote:I have similarly used some play money to try this out.

I try to select people with an 800+ credit score and want to consolidate debt. I want to say that about 75%+ of my loans are people in this situation and are classified as "Low Risk" in my portfolio there.

A little less than a year in, I'm generating a 7.66% return. It was my best performing investment class last year.
I know this thread is a little old, but shortly after the time of the quoted post I reassessed my investment in Lending Club. I, too, was getting about 7.5% - according to Lending Club. However, I had a feeling that chargeoffs were increasing. I found that according to Quicken, my returns were actually only 5.5% And this is for what are basically junk bonds.

I then analyzed chargeoffs and found them to be 60% higher per month this year than in 2015. I fear for what will happen to returns when the economy hits the next downturn. I am getting out.

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