Lending Club: $50 Bonus + 5% Of Loan Amount If You Lend $5,000+

Posted on January 2, 2008 // 19 Comments

Wow, here’s an interesting promotion from person-to-person lender Lending Club. They are currently offering a 5% cash bonus if you lend $5,000 or more by February 3, 2008 for both new and existing lenders on top of their $25/$50 sign-up bonus. Here are the details from their announcement:

You will qualify for the bonus by lending $5,000 or more to borrowers between December 14th, 2007 and February 3rd, 2008 (at 11:59PM Pacific time). Your bonus will be 5% of the amount you lend.

For example, if you lend $7,500 Lending Club will credit your Lending Club account with $7,500 * 5% or $375. Funds count as lent once a portfolio (or portfolios) is submitted during the aforementioned eligibility period. The loans do not have to be issued by February 3rd to qualify.

We will notify you of the amount of your bonus by the end of day, Friday, February 8th, 2008, and your account will be credited with your lending bonus by Friday, February 15th, 2008. No special sign-up or tracking is required ? we will run reports on the system to determine bonuses. Feel free to email us at lender.offer@lendingclub.com to ask about your bonus.

[…] Lenders can each earn a maximum payout of $20,000 (if they lend $400,000).

A 5% bonus definitely grabbed my interest again after making a few initial test loans. If you haven’t already, check out my LendingClub review to learn more about their setup for person-to-person lending.

At first I got all excited since banks are only paying 5% interest themselves, but then I remembered that LendingClub loans are spread out over 3 years, so it’s not like you are getting a 5% interest bonus each year (that would be sweet!). Instead, 5% spread out over 3 years is like adding roughly an additional 1.65% annual interest to the existing rate set by LendingClub. (Actually, since the 5% is given upfront, it would actually boost your returns even more.) But remember, these are unsecured loans similar to credit cards, and there is a risk of principal loss. Is that cushion worth putting in $5,000 in?

So far all of my existing loans with LendingClub are rated a safe A3-A4 (7.75 to 8.07%). Given that their minimum allowable credit score is 640, and their credit grades run all the way from A1, A2, A3 to G3, G4, G5, I would estimate that such people have credit scores well over 700 as well as other positive criteria like a reasonable debt-to-income ratio. Therefore, I would love so see my return increase to a 9.4 to 10.72% return on high-quality loans. With $5,000 available to spread across 200 loans ($25 each), that would also smooth out the default risk from a few bad loans.

Lending $5,000 for 3 years is a lot of money, but this is the best person-to-person lending deal I’ve found. Hmm… very tempting!

Filed Under: Deals & Offers, Investing //

2008 Financial Jump-Start Checklist: 5 Actions That Can Take 5 Minutes Or Less!

Posted on January 2, 2008 // 7 Comments

Even if you don’t do resolutions per se, I think most of us still have areas of improvement that we want to work on for 2008. The problem is that is it so easy to keep putting off taking action to reach our goals. Given that I think little steps are the best way to solve big problems, here is a little action checklist that may be handy (complete with handy checkboxes if you want to print it out). How about at least one per day?

Reduce or Remove A Monthly Expenditure

  • Objective: Got a gym membership but haven’t gone in months? Yard man coming too often? Got some Netflix DVDs that have been sitting on your desk for weeks? Cable bill too high?
  • Action Required: Pinpoint a monthly expense that you don’t need anymore (or as often), and make the phone call to cancel. Stop putting it off.

Raise Your 401k/403b Contribution by 1%

Lower Your Interest Rate on Credit Card Debt

  • Objective: If you’re paying any sort of interest on credit card debt, it’s worth a call to see if they’ll lower it. Interest rates have been dropping again, and the banks are as competitive as ever for your money.
  • Action Required: Call up your highest rate credit issuer, and ask for a lower rate. Quote a few of the better offers you’ve been getting in the mail. If you have good credit and are serious about paying it off, it may be best to switch to a card with a 0% intro rate on balance transfers for 12 months.

Start an Automatic Transfer To Online Savings Account

  • Objective: If you’re not saving as much as you’d like manually, try using psychology to your advantage and make it automatic instead. You can always move the money back later if it doesn’t work out.
  • Action Required: If you don’t have an high-yield savings account paying at least 4% interest, pick one and open it right away. Then log in and schedule an automatic and recurring transfer into it of $100 or whatever every month. Use multiple accounts for different goals.

Set A Short-Term Goal

  • Objective: Forget “save for retirement’ or other vague goals. Setting specific, attainable short-term goals really helps keep me on track. One of my goals is to cook dinner at home one more day each week.
  • Action Required: Think about what would make you feel really good to have accomplished 1-3 months from now, write it down, and tell your significant other or close friend about it. Set a specific end date.

My short-term attainable goal for this week: By Sunday 1/6, I will have at least re-allocated my investment portfolio to the proper stock/bond ratio and US/International ratios that I explored previously. It should only take part of an evening, as I’ve already chosen them.

Filed Under: Frugal Living, Investing //

Investment Portfolio: 2007 Year-End Holdings And Performance Update

Posted on January 2, 2008 // 23 Comments
12/07 Portfolio Breakdown
 
Retirement Portfolio
Fund $ %
FSTMX – Total Stock Market (~Large) $24,006 23%
DISFX – S&P 500 Index Fund (Large) $7,437 7%
VIVAX – Vanguard Value Index (Lg Value) $13,782 13%
DODGX – Dodge & Cox (Lg Value) $13,782 5%
VISVX – V. Small-Cap Value Index $12,725 12%
VGSIX – V. REIT Index $7,637 7%
VTRIX – V. International Value $8,851 13%
VEIEX – V. Emerging Markets Stock Index $10,622 10%
VFICX – V. Int-Term Investment-Grade Bond $8,037 8%
PTRAX – PIMCO Total Return (Interm. Bond) $2,393 2%
Cash (to be invested) $3,000 3%
Total $105,323

Recent Transactions
In the last quarter of the year, we ended up putting in the maximum $15,500 salary deferral in both of our 401k/403b’s. I had already put in $12,500 already in my Solo 401k, so I sent in a last-minute check for $3,000. For my wife’s 401k, it was done in big salary deferrals in October, November, and December. We were lucky that the company allows almost 100% salary deferrals.

Summary and Performance
My last portfolio update was back in September, but I figured with the end of 2007 it was definitely time for an update. It was a late decision to go ahead and contribute a lot to our tax-deferred accounts and taking away a bit from our cash hoard, so I was more concerned with getting them in on time than what I was actually investing in. Lots of changes to come soon, so I’m just posting a snapshot of what we have for now.

I did go back and track the cash inflows, and calculated our time-weighted rate of return, which ended up being 2.49% annualized for 2007. For a very rough comparison, the S&P 500 via Vanguard 500 (VFINX) returned 6.13% YTD. Part of this low performance was just due to timing, as the latter half of 2007 was a lot worse than the 1st half, and that was when we invested a lot more money. (Remember, this is the exact performance of our money, not just the averaged returns of all the funds we hold.) In 2006, our portfolio return was calculated at 24.9%. How did you do in 2007?

Filed Under: Investing, Retirement //

Do I Need To Make Any Last Minute Year-End Tax Moves?

Posted on December 28, 2007 // 24 Comments

Yikes, I’m cutting things close this year. Time to see if there are any last-minute things I need to do with the last two business days before 2008.

Selling Losing Stocks or Mutual Funds
If you have some investments that are currently in the negative and you don’t want anymore, you might consider selling them and taking the loss. This is because you can deduct the loss against your other capital gains, or even reduce your taxable ordinary income (up to $3,000 each year). In general, people like doing this. You can’t buy the same “substantially identical” investment again for 30 days though, as that would break the IRS wash sale rule.

If you have some index funds that have high unrealized losses, you might even sell them and buy a similar fund at the same time. Again, the general idea here is to take advantage of the fact that the IRS tax capital gains and capital losses differently. Losses can “save” you money at your ordinary tax rate (up to 35%), while long-term capital gains are capped at 15%. More information and an example of this technique here.

I don’t have anything that I’m looking to sell, as most of my investments are in tax-deferred accounts. I have a $31 loss right now in BRSIX, but that’s not worth the potential commission of buying a similar fund.

Make A Tax-Deductible Donation
If you mail in a donation (including a check or credit card info), it must be postmarked by December 31, 2007. Be sure to get a receipt! Usually the easiest thing is to just charge it on your credit card in time. That way you have your credit card statement as backup, and you’ll also earn some cashback rewards while you’re at it. This is the first year we might actually get to itemize our deductions, so that’s kind of nice.

On a side note, all of my Kiva loans are still doing fine, and one was even paid back early (the somewhat-controversial one from apparently-rich Ukraine!).

Using Up Flexible Spending Account funds
Our usual routine is to spend the rest of our FSA money on contact lenses solution, eyeglasses, Benadryl, and Aleve at Costco. From last year, here is a big list of things that qualify for Flexible Spending Account reimbursements. If you don’t have any immediate needs, Mapgirl had a good suggestion that you can complete your first aid/emergency kit with things like gauze that don’t expire.

Filed Under: Frugal Living, Investing, Taxes //

Reduce Your Trading Costs with Capital One 360 ShareBuilder

Posted on December 21, 2007 // 21 Comments

In my review of Sharebuilder a few days ago, I overlooked an important feature that commenter a schmuck pointed out. I had complained that $4 a trade is pretty high unless your monthly contributions were at least around $400. For example if you paid $4 every time to contributed $50, you’d be behind 8% right out the gate. Before, your choices of investment schedule were only weekly, monthly, or twice a month.

But when you create or edit our Automatic Investment Plan, you can now also change the frequency to “invest when the funds are available”.

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From their Help section:

How does “invest when the funds are available” work?
If you decide to invest when the funds are available you are indicating that you want your plan to invest on the Tuesday immediately after your money market cash balance meets or exceeds the plan?s total investment amount. Every Monday at 5:00pm (ET), excluding holidays, ShareBuilder will create Automatic Investment Plan orders if your account?s money market cash balance meets or exceeds the plans total investment amount.

This is great! Say you only want $100 taken out of your bank account each month. At $4 a trade, I would want the commission be at most 1% of the trade amount. So you could see your Automatic Investment Plan to buy $400 of an ETF. Now, when you reach $400 in 4 months, you make the trade. In the meantime, your idle cash is actually swept into their money market account (BDMXX), which is current yielding a somewhat decent 4.11% APY.

Like commenter Stephen said, “If you’re dollar cost averaging, it doesn’t matter when you make your purchases.” And this way it’s all automatic! You won’t need to remember to do it 4 months out. You be less likely second-guess yourself before clicking the “execute trade” button, especially if the market is temporarily tanking.

If you do decide to use ShareBuilder to implement a buy-and-hold portfolio, I think this a really good way to do it.

Filed Under: Investing //

Review of Suze Orman Show CNBC Special: Your Money Your Life

Posted on December 18, 2007 // 46 Comments

CNBC had a special Suze Orman Show last week, and I finally got a chance to watch it on TiVo. Recently, I’ve kind of lightened up on my view of Suze. Like all gurus, she makes blanket statements that may not apply to everyone, but at least she’s not pumping a get-rich-quick scheme involving real estate or stock-picking that is bound to produce more losers than winners. Overall, the show was pretty good for what was basically an hour of sound-bite-based financial advice for people (like me) with short attention spans.

Main Points
Here are her “action points”, which again seem to be generally good advice:

  • Get rid of credit card debt as soon as possible.
  • Keep your credit score high.
  • Save up an 8-month emergency fund.
  • You should have a 20% down payment for a house before buying one to live in.
  • Contribute up to your 401k/403b employer match, then fund a Roth IRA.
  • Create both a will and a living revocable trust.
  • Get adequate life insurance (term only).

I picked up two pointers that I need to research further involving estate planning. First, she stated that you can pass real estate without probate through a living revocable trust. This can save months of hassle and also can avoids court fees and lawyer fees which can eat up thousands of dollars. Second, you should always check your 401k beneficiaries, as whatever you designate on those forms actually trumps your will.

Motivational Story
There was also the oldie-but-goodie why-save-early explanation. Allow me to paraphrase:

If you saved $100 every month starting at age 25, and invested it with normal market returns, at age 65 you would have a million dollars! But you say, I’m 25, who cares? If I wait until 35, that’s only $12,000 I’m not investing. ($100 x 12 months x 10 years)

However, if you indeed started at age 35 saving $100 per month, at age 65 you would only have $300,000. That decade of waiting actually lost you $700,000!!

Of course my question was – what’s “normal market returns”. Doing the backwards math, it’s about 12.08% annualized. Very optimistic, but hey, inflated numbers make the story better. 🙂 It’s still a good lesson.

Don’t Buy Bond Funds?
Finally, a curious quote from her was that she hates bond mutual funds, and that people should only buy individual bonds. I thought to myself – how many casual investors actually buy individual bonds? Dealing with all the intricacies like call risk, par value, and quality ratings would be way too complicated for her target audience. However, digging a little deeper into her older show transcripts, I see that she actually recommends buying US Treasury Bills or Notes with a maturity of less than 5-7 years. Since these are of the highest quality and are relatively uniform, that definitely made more sense… but she didn’t explain this on the show!

Filed Under: General, Investing //

Equity Asset Allocation: Comparison of 8 Model Portfolios

Posted on December 10, 2007 // 18 Comments

I’m still planning on reshaping my investments and continuing my choosing an asset allocation series, but Thanksgiving and work has thrown me off a bit.

To skip ahead a bit, here are several sample asset allocations from various sources for the equity (stock) side of your portfolio. I thought it would be helpful to see them all side by side and compare how different authorities might split things differently between domestic and international stocks, how they deviate from the “total” market indexes, and whether they choose to incorporate additional asset classes like real estate or commodities.

For more information about any specific portfolio and the source, just click on the pie chart.

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[Read more…]

Filed Under: Investing, Retirement //

Lending Club Review: Free $25 To Start, P2P Borrowing

Posted on December 7, 2007 // 69 Comments

Next up in the person-to-person lending showcase is Lending Club. I recently joined up because they were offering the carrot of $25 sign-on bonus, and I was curious to see how they differentiate themselves from Prosper Lending (review, $25 bonus). As usual, this overview will primarily be from the perspective of a potential lender/investor in these unsecured consumer loans.

Lending Standards
LendingClub only allows borrowers with a minimum credit score of 640. Prosper initially had no bottom, but later raised it’s floor to a 520 credit score, which by itself eliminated 45% of their loan listings! So lots of subprime action over at Prosper, but very little over at LendingClub. Some people may disagree on whether this a plus or a minus.

Setting Interest Rates For Loans
With Prosper, prospective lenders bid on loans in an eBay format. Essentially, all the lenders as a whole set their own market rate. But with LendingClub, they do all of it for you.

The mechanism for setting a fair interest rate is complex: it involves a proper assessment of the risk associated with each loan (based on the borrower’s credit history, current situation, income, debt and other factors), an understanding of the volatility associated with each level of risk, and a proper reward for that volatility. We have access to large amounts of information and historical data from the credit bureaus, which puts us in a unique situation to set attractive, fair and equitable interest rates. Rates also depend on the amount of the loan (with larger loans bearing higher rates).

Each loan request made by a borrower is attributed a Lending Club grade ranging from A1 to G5. Here are some sample corresponding loan rates:
[Read more…]

Filed Under: Deals & Offers, Investing //

Zopa US Initial Review: A Credit Union Disguised As Person-to-Person Lending

Posted on December 6, 2007 // 12 Comments

Zopa US joined the person-to-person lending arena recently. From a potential lender’s perspective, I was excited to see what they had to offer since Zopa has been operating in the U.K. for a while, and with several features that made them different than the current leader in p2p lending within the US, Prosper.com (review, $25 sign-up bonus). These include:

  • More Flexibility – You set your rates, choose how long you want to lend for (1 to 5 years) and decide on a risk level. With Prosper, all loans are for 3 years, there are no other options.
  • Risk-Based Interest Rate – Each borrower has a risk-assessment done, and your investment rate is based upon what risk grade you want to invest in. This is different from the pure reverse-auction format of Prosper.
  • Easier Diversification – If you lend ?500 or more, your money is spread across at least 50 borrowers. That’s only ?10 per borrower. On Propser, the best you can do is split it to $50 per borrower.

Which of these were extended to Zopa US? None of them.

With Zopa US, they have basically turned into a credit union. Your only choice is to buy a NCUA-insured 1-year certificate of deposit, currently paying 5.10% APY. While the rate is better than average, it’s nothing spectacular. That’s it. Minimal risk, minimal return.

Oh, there is a bit of optional charity if you like. You can “choose your rate”, which mean if you choose a rate of 4.90%, then 0.2% goes the the borrower to help them pay off their loan. But borrowers pay at least 8.75% interest on their own loans! Who’s making money off the rate spread? Zopa, not you. 🙁

Person-to-person lending was supposed to cut out the bank as middleman. But this just the same old bank/credit union setup. My guess is that Zopa went this route because US regulations don’t allow them to replicate the UK model here. Very disappointing!

Filed Under: Investing //

Help Your Family Buy A House – And Make It An Investment

Posted on November 28, 2007 // 21 Comments

Over Thanksgiving my parents and I discussed the possibility that one day my parents might retire and move near us. Of course, my parents live in a “normal” part of the country where a 2-bedroom condo doesn’t cost $600,000. So the idea of us helping them to buy a home sometime in the future came up. If my siblings and I all put in an equal amount, we would simply inherit an equal share when the time came.

Coincidentally, I also ran across this article by the “Mortgage Professor” which addresses a similar idea: A new take on gift of equity: Turn it into an investment. Instead of a parent simply giving their kids money for a down payment which may put a dent in their own retirement savings, they should structure it as an investment with multiple shareholders.

He has made an Excel spreadsheet which tracks the percentage of home equity that is owned by each party. It took me a while to figure out all the variables, but here are the basics of what you need to consider:

  • Ongoing investments. Sometimes you not only need help with a downpayment, but also the monthly payment. Or maybe you don’t need it but the investor wants to help out. Ongoing payments are also handled by the worksheet.
  • Interest rate. You’ll need to set an rate of return for the investor’s cash if they “cash-out” before the end of the mortgage. One suggestion is to simply make it the same as the mortgage rate.
  • Rent credit. If only one party is occupying the home, they should be required to credit to the investor a market rate of rent. The rent should include regular adjustments to keep in line with inflation.
  • Property improvements. It should be decided how property improvements will be decided upon and how to credit each partner.
  • Exit strategy. If you don’t plan to ever sell the house, then you should outline an exit plan so that the investor can get access to their money after a set period of time.

So let’s say an investors helps put down $25,000 on a $300,000 house. The assisting investor wouldn’t just be getting $25,000 + 6% a year, you’d also be collecting a portion of “rent” from the person you are helping. The occupant gets to buy their house with less money tied up initially, and would be sharing any potential profit or loss. Sure there is plenty of room for conflict, but I think for some families it might work out well.

Filed Under: Investing, Real Estate //

Investment Gift Idea For Children: A Roth IRA?

Posted on November 25, 2007 // 22 Comments

A few very forward-thinking readers have asked me about ways to help their kids or other young folks by giving them a Roth IRA. This seems like an awesome idea to grab them some tax-sheltered action. I’ve thought about this in passing, but never really did the research into the technicalities of it. One good article on this subject is over at Fairmark called Roth IRAs for Minors. Combine this with official IRS publications and a few magazine articles about employing your children, and here’s what I found:

The Facts

  • There is no age requirement to open an IRA.
  • Many, but not all, IRA providers will allow you to setup an IRA account for minors.
  • The primary requirement is the child needs to have taxable earned income to make a contribution. So to make a $4,000 contribution, they would need $4,000 of income. Earned income means that dividend or interest payments don’t count.
  • An important difference between IRAs and 529s is that once the child reaches 18 or so, they get complete control over the money and can do whatever they want with it.

The Payoff
How much money are we talking about? Umm.. a lot! From the Kiplinger article:

Let’s assume you give your 15-year-old daughter $1,000 to fund a Roth IRA. If the money inside the account grows at an annual average rate of 8% — well below the long-term average return for stocks — that $1,000 will grow to about $47,000 over the 50 years it takes for today’s teen to reach retirement age. If you added another $1,000 a year until she turned 20 -? and never added another dime — that initial $5,000 investment would be worth nearly $250,000 by her 65th birthday. With a Roth IRA, the full amount will be tax-free when it’s withdrawn in retirement.

Now the question is how to obtain that taxable earned income?

Income From Non-Parental Employer
This is probably the most legitimate and straightforward way, also the hardest to get. Examples for small children might be acting or modeling from an agency not directly owned by the parents. For teens this could include money from tutoring, bagging groceries, or working at the movie theater. In addition, this income may be subject to payroll taxes like Medicare and Social Security Tax at 7.65%.

Income From Parents As Employer
Maybe you already run your own business, and could use the services of a child – web design? computer set-up or consulting? From the Fairmark article:
[Read more…]

Filed Under: Family, Investing, Retirement //

TradeKing and Scottrade Promotion: Reimbursed Account Transfer Fees

Posted on November 17, 2007 // 21 Comments

Looks like TradeKing is trying to convert some customers from “one of the larger online brokers”… I wonder who they are talking about? From an e-mail today:

Due to the effect the sub-prime mortgage fallout has had on one of the larger online brokers, some investors have asked us if we’re at risk for similar problems. The answer is a resounding “No.” TradeKing does not invest in any mortgage-related securities, including sub-prime mortgages.

Furthermore, we protect your account against losses up to $25 million as a member of the Securities Investor Protection Corporation (SIPC), and with supplemental coverage from Lloyd’s of London. If you’re concerned about an account you hold with another broker, perhaps you should consider consolidating your assets with TradeKing. We’ll even reimburse any account transfer fees your other broker may slap on you between now and December 31, 2007.

This reimbursement offer may save you $50-$100 if you’ve been wanting to do an ACAT account transfer to them from your existing broker. Scottrade also offers up to $100 in fee reimbursements for inbound transfers [update: if your account value is greater than $25,000]. Read more about both brokers in my TradeKing review and my Scottrade review.

You’ll should also weigh the upfront benefits against the potential commission savings if you go with a broker offering free stock trades.

Filed Under: Deals & Offers, Investing //
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