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Qwertycoatl posted:1% of everything that's in the account, annually. It's a good idea to go for index funds that should have charges of much less than 1%. Yeah for example if you had 100,000 invested in the 1% expense ratio fund you would pay 1000 a year in expenses. It really adds up over time and even worse the high expense ratio funds don't magically perform better than something like a low cost Vanguard fund/ETF.
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Oct 5, 2014 03:25
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What is a reasonable place to invest money which I expect to take out in 2 years other than a savings account? I'm concerned that most investing options are too volatile and might leave me down significantly in 2 years or not leave me with enough liquidity to actually take the money out.
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Oct 5, 2014 03:38
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semicolonsrock posted:What is a reasonable place to invest money which I expect to take out in 2 years other than a savings account? I'm concerned that most investing options are too volatile and might leave me down significantly in 2 years or not leave me with enough liquidity to actually take the money out. Savings, money market account, or Bank CD.
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Oct 5, 2014 03:44
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semicolonsrock posted:What is a reasonable place to invest money which I expect to take out in 2 years other than a savings account? I'm concerned that most investing options are too volatile and might leave me down significantly in 2 years or not leave me with enough liquidity to actually take the money out. I'd recommend social lending, but you'd need to be comfortable and familiar with it to really bet on it over a 2 year span (particularly since it will result in you needing to liquidate instead of holding to maturity), and you certainly do bear interest rate and liquidity risk with this strategy, but the benefit is that if you properly diversify, you're looking at 4-10x higher returns than the best CD's/savings and your volatility is very low.
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Oct 5, 2014 04:13
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And I would recommend anything that's FDIC insured  Just to offer a little counterpoint. Two years isn't very long at all. You probably can't diversify adequately at lendingclub even with 100 grand.
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Oct 5, 2014 04:17
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slap me silly posted:And I would recommend anything that's FDIC insured 100 grand? No way, you can diversify very well with just $5000.
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Oct 5, 2014 17:04
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There's no free lunch, all you're doing branching out into personal loans is adding risk. Personally, I wouldn't 'diversify' into junk bonds with money I needed in two years.
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Oct 5, 2014 17:16
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baquerd posted:100 grand? No way, you can diversify very well with just $5000. Regardless, it's an absolutely terrible idea if what you want is just somewhere to stow your money for a couple years. The other issues you mentioned overwhelm any concerns about diversity of the loan portfolio. On the other hand if you want to gently caress around and have fun with 2 grand it's a super idea.
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Oct 5, 2014 17:25
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Unormal posted:There's no free lunch, all you're doing branching out into personal loans is adding risk. Personally, I wouldn't 'diversify' into junk bonds with money I needed in two years. This is an odd thing to say because diversification is one of the only places I'm aware of that you could make a decent argument for a free lunch. If he's already decided to buy high risk bonds, it's dead wrong to say that diversifying his purchase is 'adding risk'. That being said, something like an I bond fund would be a more appropriate choice for a two year horizon. I would not recommend savings or CD because they are likely offering negative real returns right now.
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Oct 5, 2014 17:40
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antiga posted:This is an odd thing to say because diversification is one of the only places I'm aware of that you could make a decent argument for a free lunch. If he's already decided to buy high risk bonds, it's dead wrong to say that diversifying his purchase is 'adding risk'. Are "I bond funds" riskier than CDs? If not, then why are they not the default advice around here if the returns are higher? If so, then why would you recommend that someone take on more risk to chase returns in the current low interest rate environment?
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Oct 5, 2014 17:46
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antiga posted:This is an odd thing to say because diversification is one of the only places I'm aware of that you could make a decent argument for a free lunch. If he's already decided to buy high risk bonds, it's dead wrong to say that diversifying his purchase is 'adding risk'. Tilting towards riskier assets within a broad asset class isn't diversification.
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Oct 5, 2014 17:46
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Unormal posted:Tilting towards riskier assets within a broad asset class isn't diversification. Diversification is irrelevant if you're talking about investing in fundamentally different assets. Personal lending is risky but diversifying it into small loans to many individuals instead of one bond is a textbook example of decreasing your risk. Again, personal loans are not what I would recommend but your post made no sense. I bonds were an example and not necessarily a personal recommendation (because I don't know the posters situation in detail, there are annual purchase limits etc). That being said they are treasury bonds indexed to inflation so they are not more risky than a CD. antiga fucked around with this message at 17:55 on Oct 5, 2014 |
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Oct 5, 2014 17:52
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slap me silly posted:Do you think? I haven't played with it for ages. Is anybody tracking numbers for that, size of portfolio vs. variability of return or something? I remember having a hard time interpreting LC's stats, they were always kind of vague about how they computed returns for instance. They've come a long way, and personally, after 6 years of 10-16% returns each year, I've drunk the kool-aid and social lending is now 90% of my bond portfolio.
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Oct 5, 2014 17:53
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antiga posted:Diversification is irrelevant if you're talking about investing in fundamentally different assets. Personal lending is risky but diversifying it into small loans to many individuals instead of one bond is a textbook example of decreasing your risk. Again, personal loans are not what I would recommend but your post made no sense. Bank CDs are extremely diverse loans across a large number of individuals plus depost insurance. Personal lending is just a higher risk (junk) form of savings or bank CDs; and in general they are all in the bond-like (lender/debtor) asset class. Simply tilting towards higher risk bond-like assets is not diversification, it's simply increased risk. To be more precise, to be "diversification", the returns of an asset class compared to one that diversifies it in a portfolio should be uncorrelated. The returns on all bond-like instruments (savings accounts to personal loans) are highly correlated, and therefore you do not diversify a portfolio by mixing between them, you merely set a risk profile. If you want higher risk, go for it, it's a perfectly legitimate investing tactic to seek higher rewards at higher risk. It is not, however, diversification. Unormal fucked around with this message at 18:00 on Oct 5, 2014 |
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Oct 5, 2014 17:57
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Unormal posted:To be more precise, to be "diversification", the returns of an asset class compared to one that diversifies it in a portfolio should be uncorrelated. The returns on all bond-like instruments (savings accounts to personal loans) are highly correlated, and therefore you do not diversify a portfolio by mixing between them, you merely set a risk profile. The thing is, while the default rate is high, it is offset with the higher interest rates, and social lending allows you to invest in hundreds of loans ("diversifying") so that a dozen defaults don't hurt very much. This form of diversification lowers risk and volatility because individual loans are not correlated with other individual loans. A home owner in Illinois wanting money for home improvement does not correlate well with a debt consolidation loan in Florida, for example.
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Oct 5, 2014 18:03
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baquerd posted:The thing is, while the default rate is high, it is offset with the higher interest rates, and social lending allows you to invest in hundreds of loans ("diversifying") so that a dozen defaults don't hurt very much. This form of diversification lowers risk and volatility because individual loans are not correlated with other individual loans. A home owner in Illinois wanting money for home improvement does not correlate well with a debt consolidation loan in Florida, for example. http://en.wikipedia.org/wiki/High-yield_debt
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Oct 5, 2014 18:05
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Individual loans do not behave like corporate bonds. Individuals behave differently than corporations. For example, while the subprime mortgage crisis in your wikipedia article there was in full swing, social lending was taking off and delivering excellent returns.
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Oct 5, 2014 18:09
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baquerd posted:Individual loans do not behave like corporate bonds. Individuals behave differently than corporations. For example, while the subprime mortgage crisis in your wikipedia article there was in full swing, social lending was taking off and delivering excellent returns. Actually, corporate junk bonds during that exact time period (2008-2010) were posting stellar yields, because the lending risk was higher across the board. So yes, in fact they do behave like they are highly correlated with corporate bonds. 
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Oct 5, 2014 18:19
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Unormal posted:Actually, corporate junk bonds during that exact time period (2008-2010) were posting stellar yields, because the lending risk was higher across the board. So yes, in fact they do behave like they are highly correlated with corporate bonds. You might have to walk me though how these charts are correlated. 
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Oct 5, 2014 18:26
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baquerd posted:You might have to walk me though how these charts are correlated. Guess they're not! 8%-27% interest rates still makes them extremely risky, but if interest rates are that stable over long periods, then they look like they'd provide some diversification against a more volatile portfolio. Comparative yield over time, scaled roughly correctly:  Lending tree default rates:  Compare to corporate high-yield bonds, which SPIKE to 10%:  Scale comparison:  So while they likely would bring some diversification (since it appears that personal loan default rates are fairly consistent over economic decisions for a given situation and credit score), they remain extremely risky investment vehicles. Only the class A personal loans have a risk profile like corporate high-yields, and you can see that the Class A personal loans are actually fairly correlated with high-yield bonds in terms of curve (though lower volatility with the presented data). The lower classes of personal loans are just extremely high risk bonds, with high yield along with extremely high default rates. Unormal fucked around with this message at 19:21 on Oct 5, 2014 |
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Oct 5, 2014 18:32
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Claiming that social lending can have higher return than equities at a lower risk point heavily violates even the weakest forms of the efficient market hypothesis and is quite frankly, absurd. Madoff is chuckling from his cell - his fund only returned 10%. Unormal is correct, the word diversification is being misused here. Diversification is just a strategy, risk control is the goal. All consumer loans are inter-correlated with each other because they share a common underlying varible; the unemployment rate (source: the year 2008). This means that (like equities and other types of bonds) there is a base amount of risk that you can't diversify away. In anything even approaching an efficient market, that undiversifiable risk is the only thing that you as an investor are being paid for. There is very little difference between a lendingclub portfolio of 200 notes and one with infinite notes - once you have enough notes you rapidly converge to the risk profile of asset class itself. The class has happened to do well for the (extremely short) duration of its existence, but that duration has been a relatively stable period with low inflation and constant job growth. There is a little overlap with the GFC but if you look carefully at the lendingclub data you will find a lot of older, underperforming loans that are not included in their sitewide statistics, under the age-old underwriter fallacy of "we have changed our policies since then so the data is no longer relevant." When the next recession hits the default rates on LC will skyrocket. I like LC a lot. They charge very low fees and have opened up a direct market for consumer debt, which should reduce gouging by banks against consumers. Choosing notes and doing analysis on them is fun. But I would absolutely not suggest this as short-term investment. If you need your money in 2 years, don't use junk debt, equities, or even treasuries. Use a CD if you know exactly when you need the money, or a savings account if you do not.
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Oct 5, 2014 20:13
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Eyes Only posted:Claiming that social lending can have higher return than equities at a lower risk point heavily violates even the weakest forms of the efficient market hypothesis and is quite frankly, absurd. Madoff is chuckling from his cell - his fund only returned 10%. That's the fun part - the market is very inefficient with a great many opportunities to profit off of this. As time goes on, this will become increasingly less so, and many things have already changed to make the markets more efficient. quote:Unormal is correct, the word diversification is being misused here. Diversification is just a strategy, risk control is the goal. All consumer loans are inter-correlated with each other because they share a common underlying varible; the unemployment rate (source: the year 2008). This means that (like equities and other types of bonds) there is a base amount of risk that you can't diversify away. In anything even approaching an efficient market, that undiversifiable risk is the only thing that you as an investor are being paid for. OK, well, LendingClub calls it diversification and I don't think anyone really wants to split hairs on that. https://www.lendingclub.com/public/diversification.action The above link shows that 10th percentile to 90th percentile at 200 notes (edit: typo) is around a 6% spread, and at 1000 notes it's still a 3% spread. This really highlights that this isn't an efficient market yet, that it's still a little wild and there's profit to be made outside of index-style investing. quote:The class has happened to do well for the (extremely short) duration of its existence, but that duration has been a relatively stable period with low inflation and constant job growth. There is a little overlap with the GFC but if you look carefully at the lendingclub data you will find a lot of older, underperforming loans that are not included in their sitewide statistics, under the age-old underwriter fallacy of "we have changed our policies since then so the data is no longer relevant." When the next recession hits the default rates on LC will skyrocket. That's entirely fair, and it's fair to say using this for a short-term investment is riskier than many things. I think if you know what you're doing, the risk/reward is very disproportionate right now, but for anyone that's not already creating their own risk models and running programmatic analysis, it may look very different. baquerd fucked around with this message at 20:39 on Oct 5, 2014 |
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Oct 5, 2014 20:31
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I just throw a few notes in here or there if I've put over 1k into savings that month after maxing retirement accounts. I look at it like buying a scratch off ticket.
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Oct 6, 2014 15:14
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Nail Rat posted:I just throw a few notes in here or there if I've put over 1k into savings that month after maxing retirement accounts. I look at it like buying a scratch off ticket. I just can't see it being worth anything other than the mild entertainment value of playing internet loanshark. Then there's the people getting richer than all gently caress on your risk. I'm sure someone can take me to task on that but there's something just doesn't sit right with the dude making insane bank for providing you the conduit to take all the risk by shelling out your money. Then it's just a lot of work besides.
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Oct 7, 2014 02:12
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Aristotle Animes posted:I think the entertainment value is probably the one of the healthier ways to approach it. It's maddening to me to see people tying their money into that crap. Once that note is noncollectable, it's gone. And once a ripple hits, it's all going to go in the shitter it's not like you can dump (for any more than pennies) or ride it out till it's back above water again. You're done or you're throwing in good money after bad a year or two or 5 later trying to recoup. It boils down to the same issue of diversification. Sure have some money in P2P (I do) but put money into other asset classes as well. Then rebalance every few years.
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Oct 7, 2014 04:35
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Not to mention with lending club it's ordinary income taxation, which is much higher than all the tax breaks you get from holding stocks long term.
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Oct 8, 2014 05:40
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etalian posted:Not to mention with lending club it's ordinary income taxation, which is much higher than all the tax breaks you get from holding stocks long term. I think the tax treatment is probably the worst thing about social lending, especially if you do any secondary market trading because then you get to mess with the uncertainty of how to calculate cost basis, but even if you don't there's the uncertainty of how to handle charge-offs. Again, personally I've been getting an average of 9% after tax XIRR in the 28% tax bracket for years, so I strongly believe that there's enough information asymmetry and inefficiencies to turn a big profit and this is a highly valuable asset class. Even I don't have more than 10% of my overall portfolio in it though. baquerd fucked around with this message at 13:11 on Oct 8, 2014 |
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Oct 8, 2014 13:09
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I realize there's probably a decent amount of overlap between this thread and the "Bad with money" thread, but everyonee should check out this post as a reminder about intelligent investing strategies. It might even be worth adding to the OP, e.g.quote:Investing in mutual funds sounds OK, but I know of a really hot stock that shows no signs of slowing down. Shouldn't I just throw everything in there for a while?
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Oct 8, 2014 15:01
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Aristotle Animes posted:I think the entertainment value is probably the one of the healthier ways to approach it. It's maddening to me to see people tying their money into that crap. Once that note is noncollectable, it's gone. And once a ripple hits, it's all going to go in the shitter it's not like you can dump (for any more than pennies) or ride it out till it's back above water again. You're done or you're throwing in good money after bad a year or two or 5 later trying to recoup. Yeah peer to peer lending is a somewhat dubious asset class for obvious -Hard to cash out on bad notes/bad liquidity -Like many things larger scale investments, bi money institutional investors have already invaded P2P lending making individual investors run at a big disadvantage -Not tax advantaged unlike stocks -vulnerable to interest hikes and economy jitters, with no easy to cut your losses like with stocks. -The whole concept is offering big 10%+ returns for a good reason similar to why junk bonds have awesome returns
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Oct 9, 2014 03:46
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So, as soon as I started working I wanted to start putting cash away into an IRA, so I went through an Edward Jones investor who got me into some funds via American Funds. Overall the funds had low management percentage fees, but there is a 5% charge for every investment I make (which will go down once I hit certain levels invested with American Funds). I'm starting to think I'm getting screwed on the 5% thing. I obviously can't recover that part now, but I would like to cut my losses where I can. I actually have a Traditional IRA and a Roth IRA (I qualified for Roth last year, but won't this year or any future year). What is the best move I can make here?
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Oct 9, 2014 19:37
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Yes. you are getting screwed on the 5% and probably on the expense ratios too. Open an IRA with Vanguard for future stuff. You could transfer the current ones over, or just let them sit, depending on the various costs involved. What are they in right now?
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Oct 9, 2014 19:44
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slap me silly posted:You could transfer the current ones over, or just let them sit, depending on the various costs involved. Looks like Edward Jones charges $95 to transfer an account out.
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Oct 9, 2014 21:36
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cowtown posted:Looks like Edward Jones charges $95 to transfer an account out.  Why would anyone ever bank with this place?
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Oct 9, 2014 21:40
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RFX posted:I'm starting to think I'm getting screwed on the 5% thing. I obviously can't recover that part now, but I would like to cut my losses where I can. They're not just screwing you, they're stealing your investing kidneys and leaving you in a bathtub full of ice. Just get out and tell lots of people how lovely they are.
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Oct 9, 2014 22:39
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Or to shed the metaphor; they want YOUR money to be THEIR money, so they're taking a little bit every time you do anything. At all.
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Oct 9, 2014 22:57
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For lazy index investing you could also just buy the Vanguard total world ETF and also put a small percentage in the total bond ETF. High expense ratios suck since you are paying more for something that doesn't have better performance than the low expense ratio funds.
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Oct 10, 2014 04:26
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Cicero posted:
Advertising and ignorance.
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Oct 10, 2014 13:32
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Nail Rat posted:Advertising and ignorance. That, and completely no guidance and wanting to get things done fast. So what do I do? Just go to the Vanguard website and follow some idiot-proof tutorial to open an IRA? Then call Edward Jones and pay them $95 to get my money out of there? Are there any tax implications I need to think about, or does it not matter as long as I put $5500 in an IRA in 2014?
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Oct 10, 2014 16:37
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RFX posted:That, and completely no guidance and wanting to get things done fast. Initiate the IRA transfer from Vanguard's website (go to Vanguard and open an IRA). They have a system where you literally can't mess it up. Opening an IRA doesn't cause any implications of any sort. You could open up 10,000 IRA accounts and it wouldn't matter. All that matters is putting money in an IRA from a source other than another IRA or 401k.
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Oct 10, 2014 18:22
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RFX posted:That, and completely no guidance and wanting to get things done fast. Initiate the transfer from Vanguard. If any hiccups occur along the way, they will contact you to provide the necessary signatures, confirmations, etc. But it is important that Vanguard accepts the money as a trustee to trustee transfer. Generally, the check should go straight from Edward Jones to Vanguard, with the check written to Vanguard for your benefit. If you do it this way, it will be without any tax complications whatsoever. Basically, just start an IRA account application online at Vanguard, and you should see an option for transferring assets, and just follow all of the instructions, and they will take care of it for you. I have done this at least a dozen times. If you have Edward Jones send you a check, you will have to go by the 60 day rule. Also, for your Traditional IRA, they will deduct taxes, which you will have to fill the gap for when you deposit to Vanguard, and then declare it on your tax returns. This method is obviously much worse.
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Oct 10, 2014 18:23
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