Beating Broke

Personal Finance from the Broke Perspective

Lending Club Returns Update

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As I mentioned before, I’ve been taking the normal 10% contribution amount that most would be putting into their retirement accounts and splitting it between my lending club account, and a sharebuilder account.  It’s been a bit of an experiment.  I happen to think that lending club is a relatively safe investment option for a portion of your portfolio.  I’ve still got my 401(k) from my old job, so the investments that I’ve made at lending club and in the sharebuilder account don’t even really make up 5% of my total investments.  In short, I can afford to get a bit risky with the money.  So far, it’s been anything but risky, however.  I’ll update on the sharebuilder account in another post.  Let’s take a look at what my lending club account has done.

To date, my investments look a little like this:

  • Total loans invested in: 24
  • Total loans paid off:5
  • Total loans defaulted: 0

Lending Club Net Annualized ReturnWith only 24 loans, it could be that I’ve just been lucky thus far.  I’ve had a couple of the loans go past due by 10-15 days, but nothing that hasn’t been caught up and made current.  And no defaults.  As I continue, I expect that I’ll see one or two.  With all the doom and gloom about the economy recently, I fully expected to see one already.

To date, I’ve deposited $257.20 into the account.  That includes money from before this experiment started, so it’s not all recent.  With that 257.20, I’ve invested in $511.36 in loans.  The math savvy of you will notice that the invested amount is quite a bit more than the deposited amount.  That just means that the money has turned over almost 100% since being invested.  The more recent money, which accounts for about 50% of the account hasn’t had a chance to turn over yet, or that number might be higher.  My total income, minus fees, is $36.26.

My portfolio breaks down like this:

  • 39% of the loans are D grade
  • 25% of the loans are B grade
  • 15% of the loans are C grade
  • 9% of the loans are F grade
  • 7% of the loans are E grade
  • 4% of the loans are A grade

As you can see, I’ve gone a bit riskier and weighted the portfolio towards the higher grades, but is still heavily centered around the C/C+ grade.  (Read this to see how I select loans)That keeps my return a bit higher, while also keeping the risk a bit lower.  Speaking of return, what is mine?

According to lending club, my net annualized return is 12.82%.

I like that.  It’s far better than any bank or credit union is going to pay me for my money.  To get that, I give up the liquidity of the money (I’d have to sell my notes to get the cash), and I give up some of the stability of the money (it’s riskier than a savings account or CD).  Because this isn’t my emergency fund, or normal savings, I’m ok with giving up both of those things, in exchange for an above average return.

Do you invest with peer-to-peer lending?  Do you use Prosper? Lending Club? Both?  How’s your return?

How to Overcome Disappointment When Our Financial Role Models Fail Us

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One of the biggest surprises about the whole Suze Orman “Approved Prepaid” Scam/Fiasco, to me, is that Suze Orman is a person who has been a role model, financially, for many people. She has been dispensing her brand of advice for many years, has multiple best-selling books on the subject, and regularly appears on news and talk shows trying to help people lead better financial lives. So, to have someone of that public stature, essentially attack someone I know and trust, led to some amount of disappointment. Disappointment in how she portrayed herself, and, also, eroded the trust that many had in her and her advice. (I should note that I never really cared for her style or advice, but many do and did.)

So, how do we overcome that level of disappointment when someone we trust to give good advice, and to behave in a professional manner, doesn’t?

  1. First and Foremost, remember that the person is human.  People have bad days.  They have lives outside of the limelight, and sometimes that life can bleed over and cause them to do or say things that are uncharacteristic.
  2. Remember that it’s still just advice.  You should be doing your own research and assessing what is right for you in any situation.  Remember when your mom would ask you “If your friends jumped off a bridge, would you do the same?” Well, the obvious point she was trying to drive home was that you need to be an independent thinker.  Whenever someone recommends a product, service, or action, you have to determine if you should take that advice, or find an alternative.
  3. Express your disappointment.  Many times, people will disappoint us and not even know they’ve done it.  Tell them why they’ve disappointed you.  Do it constructively, don’t be a jerk.  If they truly meant well, they’ll want to know, and they’ll want to find a way to improve.
  4. Move on.  Take what you have into account, and decide if you can continue to trust the person’s advice.  If you can, let it go, and move on.  If you can’t, let it go, and move on.  (See what I did there?)  Holding a grudge, or reacting negatively won’t help you, and it will reflect poorly on you.

People are disappointed with their role models all the time.  People that we hold in high regard do something stupid, and fall from our good graces.  It’s important to take the lessons that are available, improve upon your filter, and move on.

As I mentioned in the previous post, I don’t think that Suze Orman’s card is, necessarily, a bad card.  I think it’s entirely possible that she created the card with the best intentions, and truly believes that it can be a useful tool for those that use it.  I do think that the marketing for the card is far too broad, aimed at people who shouldn’t be using the card at all.  I do think that she (or whomever is running her twitter account) overreacted to the criticism that was being presented by PT and others.  Suze lost a lot of trust with a lot of personal finance writers over the whole fiasco.  Depending on how the fallout from the whole situation lands, she might get some of that back, she might not.  But, it’s those writers, expressing their disappointment, that might save a few people from using the card when they shouldn’t.  It’s those same writers that may cause Suze to change her course, and improve upon the card based on the recommendations they made.

Disappointment is normal.  We feel it all the time.  How we react to it, and handle it, is what makes the difference.

Frugality Will Change You

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Ninja, over at Punch Debt in the Face, wrote an article last week about being addicted to savings that got me thinking. Or, thinking harder, I suppose.  The attitude that he talks about towards savings is one that I’ve noticed in myself and others who have gone the way of the Frugaler.  He calls it an addiction.  I think it’s something a little more sneaky.  Something that creeps up on you and then grabs hold and won’t let go.  Something many will call “Habit”.

Views vary on how we pick up habits, but, by definition, a habit is something that you do over and over without much thought.  An unconscious task that you repeat.  It’s no coincidence that many addictions are also referred to as habits.  Smoking is sometimes referred to as a bad habit.  A pot of coffee a day is sometimes referred to as a bad habit.  But, a savings habit is a good habit.  One that many will struggle to establish.  Drug habits, smoking habits, and coffee habits are all habits that are easy to pick up because they cause a pleasure response in you body.  A savings habit is a bit harder to pick up.  But, as Ninja will attest, it can be done.

How?  Repetition.  Do something repeatedly, for a long enough time period, and it becomes a habit.  Being a successful Frugaler is a product of habit.  We start off forcing ourselves to turn off lights as we leave a room, shop for good deals before buying something, save a certain amount out of every paycheck, and set aside a certain amount each month for charitable giving.  And, before we know it, those things that we started off forcing ourselves to do become habits and we do them automatically, without having to think about doing them.  If there’s one thing anyone with a bad habit will tell you, habits are hard to break.

I know that I’ve felt it.  I often spend a month or more deciding on whether to buy something or not.  Especially if it’s on that fringe where it may or may not be necessary.  I’ve spent weeks bidding on items on eBay, determined to get an item at a specific price point.  Something that I could have paid a few dollars more for and had weeks earlier.  Like the junkie looking for his/her next fix, I’ve got a saving habit that I can’t quit.  The more I do it, the harder it is to spend any money at all.

Of course, like anything that’s good for you, there is a line where it becomes slightly less good for you, and then can become downright bad too.  Saving is good.  Pushing your savings to a point where you’re taking it to extremes is less good.  And becoming a downright miser is bad. Setting savings goals is a good way to limit the extremity of your saving.

A Frugality habit will change you.  As your savings tasks become habit, it becomes easier and easier, and eventually, you hardly notice it.  What are your savings habits?  How did you establish them?

photo credit: epSos.de