Thoughts on Lending Club

Hard Five · 19 October 2010

I have a 401k from my previous employer with about 13k in it. Based on my current employers retirement plan and 401k, my age (27), and limited debt and fairly good family income (should be debt free in next 2 years excluding my mortgage). I'm wondering what to do.

I know I have the ability to fund my retirement, and not miss this 13k in the long road, so I'm looking into non-traditional investments that have reasonable returns without huge risks (I willing to 'gamble' but nothing so risky its like giving away my money). I've been reading about Lending Club, and it seems like it might be worth a dabble.

Basically this company researches loan applicants for you, and you fund the loan in place of a typical bank. They are registered with the SEC and have a A- rating on BBB. From their numbers they appear to be fairly safe, with low defaults, while investors are getting approx 9-10% returns. I'm sure their is a certain amount of spin in the numbers, but how much I wounder?

Anyone with any experience/insight/advice?

Dtrigg · 19 October 2010

This is a joke isn't it?

flaminio · 19 October 2010

Hard Five said:
Anyone with any experience/insight/advice?

To get the money out of your 401(k) you're going to have to pay taxes and penalties. Don't do it.

If anything, roll it out to an IRA -- that way you can invest in a wide variety of securities, and not just what your plan offers.

As for Lending Club, try it, but only with new money and money you can afford to lose.

Hard Five · 19 October 2010

Lending club has a 401k option. Maybe I should have made that clear.

This is all money I'm willing to lose. I'd rather not lose it, but I'm young, in a good financial position, and this is likely the best time in my life to be "risky". I don't gamble, I have a decent savings and limited debt. Another way to put it is; I have money in a 401k that I want to rollover somewhere outside my current 401K and retirement plan, what do you think about Lending Club?

If everyone chimes in with horror stories from personal experience, I'd likely not do it. What I'm asking is based on the info available to me, it seems like a somewhat risky investment, with somewhat better then average return. Anyone have any experience?

EDIT - 2 immediate reply's, cant be mad at that.:smile:

kookoo4nsx · 19 October 2010

18 years experience and I started on Wall Street.

1) Don't do it.
2) Get to 50k in savings/retirement balance asap.
3) Do this by socking money in your 401k or IRA and by
purchasing common stock blue chips. TD ameritrade does it cheeply.

HIJACKER · 19 October 2010

kookoo4nsx said:
18 years experience and I started on Wall Street.

1) Don't do it.
2) Get to 50k in savings/retirement balance asap.
3) Do this by socking money in your 401k or IRA and by
purchasing common stock blue chips. TD ameritrade does it cheeply.

I personally believe in much more - I think $50k is the minimum one should have access to in liquid funds between checking/savings. Investments/401k.. pack away as much as possible and keep yourself debt free. If I bu a car, I pay cash, and then do "payments" back into my own savings, giving myself an interest free loan of my own money.

jond · 19 October 2010

1. Don't lose your money
2. Pay off your mortgage
3. Buy passive income(rental/subway/etc)

jond · 19 October 2010

I just googled it and I am now curious. lol.
I'm still not sure how this is different than a bank though.
A bank is a 'lending club'. I give them money, they lend it out for me, and we both get a cut of the profit.

docjohn · 19 October 2010

think about it why are "lending" clubs on the internet

popping up..well because maybe the banks are not lending..but still most qualified borrowers are dealing with banks,so who is left for these clubs to lend to

invested right you 13k will be around 100k in 25 years...

flaminio · 19 October 2010

Hard Five said:
Lending club has a 401k option. Maybe I should have made that clear.

Interesting concept. At your age, with that much money, I don't see much that can go wrong. Go for it, and make sure to report back your experiences. I may do it myself with my next 401(k) rollover.

Vega$ NSX · 19 October 2010

flaminio said:
Interesting concept. At your age, with that much money, I don't see much that can go wrong. Go for it, and make sure to report back your experiences. I may do it myself with my next 401(k) rollover.

Ahh I see the Libertarian in you (and me) is intrigued by this concept. As it should. Common sense people, with the principles of free market, filling in the gaps and replacing the corrupt and skewed banking system? Who woulda thunk it?

I've been saying this for a while now. You've got two types of people with bad credit right now. Those who have a history of bad decisions and poor money management and those caught up in a unique housing mess who got led into a bad, large one time purchase and foreclosed but are for the most part, somewhat fiscally responsible. However, in the eyes of the banks, based on the antiquated and myopic credit rules, there is no distinguishing between these two types of people and they are lumped in together in the same category. There is money and opportunity to be had for those that are able to look a few inches below the surface of a blanket credit score number and it is clear the banks are way to plodding and inept to do this. Enter the entrepreneur who is willing to think outside the box.

Hard Five · 20 October 2010

flaminio said:
Interesting concept. At your age, with that much money, I don't see much that can go wrong. Go for it, and make sure to report back your experiences. I may do it myself with my next 401(k) rollover.

oNotOptimizeForBrowser/> </w:WordDocument> </xml><![endif]--><style>  </style> It seems the majority here are against it, but there is something that tells me, much like Vegas said, that not all people who don't go the traditional bank route are going to default. In certain cases, those with good credit may go this route as it appears some can qualify for lower rates here, then through traditional debt consolidation loans. In that respect, everyone (except the banks) wins. Lower interest rates for the borrower, better return on investment for me. In this system you choose which loans you fund, so ultimately it’s up to you how risky you are.

I like the idea of buying rentals, but we’re talking 13k, not 200k. I also know traditional investing is good for the long run, but my current 401K and retirement program will more then fund a comfortable retirement, so I want something moderate to throw caution to the wind. I do appreciate the responses though, and I totally agree if I did not have two other retirement plans in place, I would never consider this.

I’m kind of leaning towards it but I’m still on the fence…

ANYTIME · 20 October 2010

Curious - What do you consider comfortable? You are 27, correct? And when is retirement going to be for you?

Hard Five said:
<meta http-equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 9"><meta name="Originator" content="Microsoft Word 9"><link rel="File-List" href="file:///C:/TMP/msoclip1/01/clip_filelist.xml"><style>  </style> It seems the majority here are against it, but there is something that tells me, much like Vegas said, that not all people who don't go the traditional bank route are going to default. In certain cases, those with good credit may go this route as it appears some can qualify for lower rates here, then through traditional debt consolidation loans. In that respect, everyone (except the banks) wins. Lower interest rates for the borrower, better return on investment for me. In this system you choose which loans you fund, so ultimately it’s up to you how risky you are.

I like the idea of buying rentals, but we’re talking 13k, not 200k. I also know traditional investing is good for the long run, but my current 401K and retirement program will more then fund a comfortable retirement, so I want something moderate to throw caution to the wind. I do appreciate the responses though, and I totally agree if I did not have two other retirement plans in place, I would never consider this.

I’m kind of leaning towards it but I’m still on the fence…

Big_D · 20 October 2010

I have about $36K to rollover from my previous employer and my investment advisor suggested that I roll it into a Roth IRA and pay the taxes on it so when I retire the money has already been taxed. I am not sure that I can afford to pay the taxes on it this year so I am waiting to see how my next tax return goes. Something to think about.

Vega$ NSX · 20 October 2010

ANYTIME said:
Curious - What do you consider comfortable? You are 27, correct? And when is retirement going to be for you?

+1

A healthy retirement portfolio should take into account the following:

1) Taxes will most likely be higher when you retire
2) The value of money will be lower when you retire (inflation)
3) There probably won't be any social security or pension to supplement your own retirement savings (in other words, you need to plan like you are on your own)
4) People will be living much longer in 40 years than they are today. At the current rate of we are living 10 years longer per 40 years, in 40 years the average life expectancy will be roughly 88 years old.

It amazes me how many people don't take any of that into account. For example:

401K limits currently equal $16,500/year. Current IRA limits currently are roughly $5,000/year. Assuming you max it out with catch up limits for 40 years from age 25 to 65, you will have roughly $5,250,000 assuming around a 7% rate of return. However, assuming 4% inflation, that will only be worth approximately $720,000. So when you are ready to retire at 65 and plan on living to an average age of 88, you'll need to spread out $720,000 over 23 years. That comes out to about $31,000/year BEFORE you pay taxes on it. Assuming you'll pay 25% taxes you'll basically need to live on $23,250 per year. I sure hope all cars and homes paid off. And so much for visions of sailing around the world.

The point being is, the scenario above is the best case scenario IF AND ONLY IF, you are putting away at least $21,500 PER YEAR starting at 25 and continue to do so until 65. And let's face it, how many people do you know are currently doing that?

Hard Five · 20 October 2010

ANYTIME said:
Curious - What do you consider comfortable? You are 27, correct? And when is retirement going to be for you?

oNotOptimizeForBrowser/> </w:WordDocument> </xml><![endif]--><style>  </style> Without going into retirement and my life in super detail, as it stands right now the retirement from my employer will bee approx 550-600k at 56 when I’m eligible for retirement. In coordination with a safe 401k that was started when I began employment I should be in the ballpark of a million (according to my employers investment advisor). My wife should also be in the 3-500k ballpark depending market returns, but I honestly don’t know the specifics of her retirement investments/projections.

I am however very ‘safe’ with the majority of my money (hence I haven’t yet purchased the NSX of my dreams as it would be a poor financial decision to finance a depreciating asset). At the end of 2011, we will have paid down 31k in debt in 2 years, which was accumulated from school loans and credit cards used to get through college. We are on track to pay off our 30 yr mortgage in 22 years, all the while saving for my daughters college fund. Once the existing debt is finally wiped out, we will be a six-figure family with no debt other then a mortgage. At that point, our ability to fully fund our “safe” investments will give us a comfortable retirement.

Inflation will undoubtedly hurt, but our home will eventually appreciate, and be fully paid off when I’m 49, which will leave 7 years of income free debt before ‘early’ retirement. Obviously, should I wish to keep working past 56, that’s an option as well. With that being said the best way to make god laugh is to have a plan so we’ll see…

My best friend does investments for Wells Fargo, but only works with clients with a minimum of 100k, which I’m sadly not at. He is however, extremely cautious and does not ever recommend anything I would see as even moderately risky. His advice is always be conservative, which is financially prudent, and great advice 99% of the time. However, hasn’t anyone else ever had the urge to play with, or set aside a portion of their retirement to see what if?[/FONT]

Big_D said:
I have about $36K to rollover from my previous employer and my investment advisor suggested that I roll it into a Roth IRA and pay the taxes on it so when I retire the money has already been taxed. I am not sure that I can afford to pay the taxes on it this year so I am waiting to see how my next tax return goes. Something to think about.

Funny enough, my friend recommended this as an option as well, but it sounded crazier then anything I was looking into, so I didn't give it much thought. Maybe its worth looking into the long term tax consequences of going this route...

Vega$ NSX · 20 October 2010

Hard Five said:
Funny enough, my friend recommended this as an option as well, but it sounded crazier then anything I was looking into, so I didn't give it much thought. Maybe its worth looking into the long term tax consequences of going this route...

FYI - ANY time you can fund a Roth IRA, it almost ALWAYS makes sense to do so. It is one of the best investment vehicles out there. It is not some crazy or wild retirement plan. It's basically a 401K where you pay your taxes up front, it grows tax deferred and at retirement, you withdraw tax free. Keep in mind, if you make too much money (greater than $106K for single filer, $167K for joint) you are not eligible to contribute, so take advantage of it if you can. Keep in mind that the government is allowing a one time conversion for all existing standard IRA's to Roth IRA's and will give you a two year window to spread out the upfront taxes for those above the income limit.

Here is a pretty simple and strong investment strategy:

1) Max out 401K
2) Max out Roth IRA
2a) If not eligible, max out IRA
3) Convert all existing IRA's to Roth IRAs and pay taxes on them (while you can)
4) Pay off all debt
5) If you have kids invest in a 529
6) THEN, and ONLY THEN, if you have additional investment money, go ahead and invest in other vehicles like real estate, stocks or lending clubs etc.

Scin · 21 October 2010

I invested in about 40 or 50 loans on Prosper (more as project, never got to the serious money point) a short while after it came out, lets just say that was right before the crash. Credit scores and all the nice statistical analysis I did didn't count for much at that point. I'm still waiting on my bailout money.

I would suggest you stay away. Since the company handling the transactions doesn't actually have their money on the line they aren't very motivated in dealing with collections. Nearly half of my loans defaulted, a lot of them happened a ways into it so I received some payments from the defaulted loans, when it was all said and done I think I was about -20% ROI.

Thoughts on Lending Club

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