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Careful though, you can quickly be picking up pennies in front of a steamroller. It's a low amount of interest for unsecured debt and when you don't get the pri

by jonknee 10y ago

Careful though, you can quickly be picking up pennies in front of a steamroller. It's a low amount of interest for unsecured debt and when you don't get the principal back that 5-7% suddenly seems not so high. And "automated diversified portfolios" is exactly what mortgage backed securities were a decade ago. Look how that turned out.

beamatronic 10y ago
For me risking no more than $25 ( the minimum ) on AA rated borrowers ( the best ) was a decent risk/reward.
- jonknee 10y ago
  That sounds like a really risky way to make pocket change. Why even bother?
  - beamatronic 10y ago
    In my experience, it turned out to be a very safe 6%. You can scale this up to any amount you wish - If you want to invest, say $1,000 total, you can choose to break it up into $25 per borrower and have 40 separate Notes. See, the whole point is, it's up to you: you may dial in exactly the amount of risk you want.
WWKong 10y ago
In other words it just takes 1 bad loan out of 20 to wipe out all the profits. Odds at vegas seems 150% better.
- ngould 10y ago
  Historically people have made money on Lending Club, and lost it in Vegas. I'll stick with Lending Club.
  - jonknee 10y ago
    There's not enough data to tell historically if people make money on Lending Club or not. People have historically made a lot of money on all sort of risky investments right up until they lost it all.
ngould 10y ago
Mortgage backed securities were not risky because they were diversified. They were risky because nobody fully understood how undiversified they were, especially at the lower grade tranches. Meanwhile, LC was alive in '08, and you can look at how their notes performed. Investors lost single digit percentages. In other words, they beat S&P by a lot.
- akg_67 10y ago
  > Meanwhile, LC was alive in '08, and you can look at how their notes performed. Investors lost single digit percentages. In other words, they beat S&P by a lot. Comparing performance of 2008 vintage loans with 2008 S&P may not be appropriate. First the 2008 loans didn't completely pay off until 2011. Second, the loans issued during recession (2008) will perform better during recovery phase (2008 onward). Such borrowers are likely to be with stable credit worthiness due to tighter credit criteria by lenders during recession. Also, as borrowers' economic condition improve with recovery, they are more likely to continue making payments instead of defaulting. The worst performance for unsecured loans is generally for loans that were issued to borrowers during boom time and as economy is headed toward recession (2005-2008). Any event that impacts borrowers capability to make payment will impact first unsecured loans, credit cards, etc. Federal Reserve (FRED) has quite a bit of data on different type of debts and how they have performed over the years if you are interested in exploring this segment further. I find the debt/lending/fixed-income/bond market segment very fascinating. It is generally not explored in-depth by most people and very quant/maths heavy.

by jonknee 10y ago

beamatronic 10y ago

For me risking no more than $25 ( the minimum ) on AA rated borrowers ( the best ) was a decent risk/reward.

jonknee 10y ago
That sounds like a really risky way to make pocket change. Why even bother?
- beamatronic 10y ago
  In my experience, it turned out to be a very safe 6%. You can scale this up to any amount you wish - If you want to invest, say $1,000 total, you can choose to break it up into $25 per borrower and have 40 separate Notes. See, the whole point is, it's up to you: you may dial in exactly the amount of risk you want.

WWKong 10y ago

In other words it just takes 1 bad loan out of 20 to wipe out all the profits. Odds at vegas seems 150% better.

ngould 10y ago
Historically people have made money on Lending Club, and lost it in Vegas. I'll stick with Lending Club.
- jonknee 10y ago
  There's not enough data to tell historically if people make money on Lending Club or not. People have historically made a lot of money on all sort of risky investments right up until they lost it all.

ngould 10y ago

Mortgage backed securities were not risky because they were diversified. They were risky because nobody fully understood how undiversified they were, especially at the lower grade tranches. Meanwhile, LC was alive in '08, and you can look at how their notes performed. Investors lost single digit percentages. In other words, they beat S&P by a lot.

akg_67 10y ago
> Meanwhile, LC was alive in '08, and you can look at how their notes performed. Investors lost single digit percentages. In other words, they beat S&P by a lot. Comparing performance of 2008 vintage loans with 2008 S&P may not be appropriate. First the 2008 loans didn't completely pay off until 2011. Second, the loans issued during recession (2008) will perform better during recovery phase (2008 onward). Such borrowers are likely to be with stable credit worthiness due to tighter credit criteria by lenders during recession. Also, as borrowers' economic condition improve with recovery, they are more likely to continue making payments instead of defaulting. The worst performance for unsecured loans is generally for loans that were issued to borrowers during boom time and as economy is headed toward recession (2005-2008). Any event that impacts borrowers capability to make payment will impact first unsecured loans, credit cards, etc. Federal Reserve (FRED) has quite a bit of data on different type of debts and how they have performed over the years if you are interested in exploring this segment further. I find the debt/lending/fixed-income/bond market segment very fascinating. It is generally not explored in-depth by most people and very quant/maths heavy.