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Should I be a lender?

Poll Results: Where would you put your money?

 
  • 22% (5)
    I would help the government fund its debt. (TreasuryDirect)
  • 13% (3)
    I would help people fund their debt. (Prosper.com)
  • 9% (2)
    I would try both.
  • 54% (12)
    I wouldn't do either of these.
22 Total Votes  
post #1 of 14
Thread Starter 
Anyone who has some money in savings knows that while interest rates are still low/reasonable for borrowing that it means the rates for savings accounts, cd's and things of that nature are pretty much terrible. Most banks I have checked into are offering less than 3%. CD's are slightly better but of course you lose the liquidity. Nothing is going to get better about these until interest rates rise.

So I have found two websites that allow me to be a lender instead of a saver.

The safest and likely easiest one is TreasuryDirect where you can create an account and fund the deficit of the United States government. Rates of return are pretty decent for only having to have your money illiquid for as little as 28 days. (around 4.5%)

A second, more interesting source is Prosper.com where you can bid to give private loans to individuals and have them repaid in three years. You even get to select your own collection agency if they fall behind. It shows you the persons credit grades, loan to income ratio, their currents, delinquents, etc. and allows you to choose to fund their loan by bidding in terms of amount and interest rate. Here you can assume more risk to get a higher return. However you can also try to stick with folks with good credit scores and history. (wanna risk a 22.5% return or stay safe for say 8%)

What are your thoughts on this? Vote and share.

Nick

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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post #2 of 14
Neither a borrower nor a lender be!

Hmm, I wouldn't do either of those, but I tend to be a conservative saver: money market accounts, savings bonds, CDs, etc. I wouldn't touch the stock market with a 10-ft pole, and avoid gimmicky saving methods.
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post #3 of 14
Why the hell would you help the US government for a deficit that's largely their fault?
post #4 of 14
Quote:
Originally posted by iPoster
Neither a borrower nor a lender be!

Hmm, I wouldn't do either of those, but I tend to be a conservative saver: money market accounts, savings bonds, CDs, etc. I wouldn't touch the stock market with a 10-ft pole, and avoid gimmicky saving methods.

And exactly what do you think that money market accounts are? They are US treasuries, for the most part, with a mix of maturity dates that lets them maximise return and still stay liquid.

If you have over a 5 year horizon on your investments (before you need the money), then you are a fool to choose money markets over stocks. Stocks return 10% year over year, and you are safe as long as you don't choose bubble type stocks (value type investing), and spread out your investment in 10 or more industries.

It is true that the stock market can crash, but it always recovers within 5 years - so just leave it alone and it will bounce back. Once your horizon is less than 5 years, then start moving the money into fixed income.

Quote:
Originally posted by Placebo
Why the hell would you help the US government for a deficit that's largely their fault?

If you don't fund it, somebody else will. And it is your fault, along with every other voter.

Quote:
Originally posted by trumptman

What are your thoughts on this? Vote and share.

Nick

treasuries - yes.
prosper.com - no.

If you want higher fixed income returns, you are better off with a junk bond fund. The fund will handle all the yucky bits, and spread out risk via multiple investments. The fund managers also have more resources to make sure that the individual investments are wise.
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post #5 of 14
Quote:
Originally posted by trumptman
Anyone who has some money in savings knows that while interest rates are still low/reasonable for borrowing that it means the rates for savings accounts, cd's and things of that nature are pretty much terrible. Most banks I have checked into are offering less than 3%. CD's are slightly better but of course you lose the liquidity. Nothing is going to get better about these until interest rates rise.

So I have found two websites that allow me to be a lender instead of a saver.

The safest and likely easiest one is TreasuryDirect where you can create an account and fund the deficit of the United States government. Rates of return are pretty decent for only having to have your money illiquid for as little as 28 days. (around 4.5%)

A second, more interesting source is Prosper.com where you can bid to give private loans to individuals and have them repaid in three years. You even get to select your own collection agency if they fall behind. It shows you the persons credit grades, loan to income ratio, their currents, delinquents, etc. and allows you to choose to fund their loan by bidding in terms of amount and interest rate. Here you can assume more risk to get a higher return. However you can also try to stick with folks with good credit scores and history. (wanna risk a 22.5% return or stay safe for say 8%)

What are your thoughts on this? Vote and share.

Nick

Interesting. There are probably safer investments than prosper.com, but still, it's a novel idea. As for the treasury, well my problem there is that there are plenty of alernatives for that kind of return, no?
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post #6 of 14
Thread Starter 
Sorry if I wasn't clear enough on this but I already have very clear strategies for all my long term investments. I also already have a stock portfolio for anything that is going to be held for a medium range view (10+ years in my book) I'm talking about what I should do with money that is for a short term (less than 5 years) and largely liquid.

The strategy I've read about with t-bills involves stacking t-bills at different experation points so that you have some level of monthly liquidity if an emergency comes up but so it is also possible to get 4-4.8% return on this money.(If I remember correctly the interest on t-bills is exempt from most taxes and thus helps the rate of return as well)

The prosper.com site is basically a three year commitment which I consider to be short-term. There is more risk, but also a higher possible return. Rates are around 8-10% for folks with grade A and AA credit. These are typically 700+ credit scores and folks who pay with no lates.

Glad for all the current input and it is appreciated.

Nick

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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post #7 of 14
Quote:
Originally posted by trumptman
The prosper.com site is basically a three year commitment which I consider to be short-term. There is more risk, but also a higher possible return. Rates are around 8-10% for folks with grade A and AA credit. These are typically 700+ credit scores and folks who pay with no lates.

Why would somebody with such a good credit score borrow money at 8-10%? Even as a student, I got a credit card consolidation loan at a lower rate than that (I don't remember what prime was at the time, but it is pretty low now).
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post #8 of 14
Thread Starter 
Quote:
Originally posted by e1618978
Why would somebody with such a good credit score borrow money at 8-10%? Even as a student, I got a credit card consolidation loan at a lower rate than that (I don't remember what prime was at the time, but it is pretty low now).

When I looked at a couple banks, the rates for personal unsecured loans with 36 month repay rates were above 13%.

Nick

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

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post #9 of 14
T-bills are safer. Full faith and credit and all that. Normal (inflationary) risks of being a lender of course, but that seems to be under control. Only tax free at state/local level. Municipal bonds are another option...but these are more comparable to t-bonds than t-bills. Free of federal income taxes and (sometimes) state and local as well.
post #10 of 14
Treasury Direct isn't a bad option. If I'm going to take more risk I'll just buy corporate bonds of varing credit quality. I'm not into individual lending.
post #11 of 14
Quote:
Originally posted by e1618978
And exactly what do you think that money market accounts are? They are US treasuries, for the most part, with a mix of maturity dates that lets them maximise return and still stay liquid.


I know what money markets are, I should have been more specific and stated that I just don't have the time or inclination to follow the market and companies closely enough to know when to sell/buy, etc. I have also read too many letters in the business section of the paper from people who lost their shirt on tech stocks/airlines/other companies that seemed like a good investment but went under or the bubble burst. Yes, they usually did something dumb like investing on word of mouth or putting all their stock in just one or two companies then not following up on it, but like I said I just don't have enough business acumen to be a 'pro' at the market.
You need skeptics, especially when the science gets very big and monolithic. -James Lovelock
The Story of Stuff
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You need skeptics, especially when the science gets very big and monolithic. -James Lovelock
The Story of Stuff
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post #12 of 14
Thread Starter 
Just an update, I tried both of these. I'm of the opinion so far that both of them are pretty interesting ways to invest.

Prosper.com has been a lot of fun. You set up an account and then fund it with a transfer from your checking account. Afterwards you can bid the money out for lending using any number of criteria. The amount loaned can be small and that way you can spread your risk over several lenders. When making a bid, it shows you the persons credit grade and also a chart showing the typical default rate for each credit score.

After you win your various bids, the money is loaned out and tracked much like how your stock portfolio might be tracked. It shows the status of each loan, the interest accrued, the average interest rate for your loan portfolio, and the value of your loan portfolio including accrued interest. (always nice to have the big picture)

On really interesting feature about Prosper.com is the ability via groups to literally put your money where your mouth is regarding who or what you support. There are groups by ethnicity, by sexual orientation, but educational level, by political orientation, you name it. You can make your loans to single parents, transgendered asians, even Mac users! (The craziest bunch of all or course.)

Treasury Direct isn't much fun because, well t-bills are pretty damn boring. However it has been incredibly easy and might be worth a look for those who want to get a better return than a savings account. The account set up is similar to Prosper.com. You set it up and then the account is verified. You then tell the account what you want to buy and for what term. The money is withdrawn on the auction day and returned with interest at the end of the term. I tried a 28 day t-bill. It was purchased for $996.40 and 28 days later it dropped an even $1,000 back into my account.

Anyone else have any other similar websites that they recommend?

Nick

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

Reply

"During times of universal deceit, telling the truth becomes a revolutionary act." -George Orwell

Reply
post #13 of 14
Nick, great thread, let's even expand the scope more. I don't know where to begin, with managing money. And I graduated two weeks ago and soon I'll land a full-time job, hopefully. Currently since I only have like 1000 bucks to my name, I have a Citizen's bank account that doesn't even have interest. Like I said I kind of don't know what I'm doing. Any insight would be great...I'll also be researching in the coming weeks in to money management...I want to set up my money in Quicken or something like that too once I land a job. Also any thoughts on that? Any better software?
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post #14 of 14
Do you have anything like Premium Bonds Stateside? They're good because they're risk free, not so good in that they're like a mini lotto, albeit with much better odds, depending on how much you pay in.
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