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  • Reconsidering Prosper – Thinking about Lending Club

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    When I first started thinking about becoming a P2P (person to person) lender, the only place to do it was Prosper. Then Lending Club came along, but I figured the two would be much the same. And now that I’ve set aside the money I’m going to lend, I figured I’d just go with Prosper since I’m already an affiliate there.

    Then I read this post from The Dough Roller and realized that the two companies aren’t necessarily the same and that rates and fees can vary – sometimes significantly. Obviously, more comparison is warranted.

    Fortunately, I have a pretty good idea of type of borrower I want to lend to (I’ll be going with relatively low risk borrowers since I’ve read that default rates get pretty high with the higher risk borrowers – unsurprisingly). I’m going to use the info provided by DR to compare rates and fees on the type of loans I would be comfortable making before I decide which company to go with. I may even diversify my risk and lend with both companies.

    Good customer service from Sharebuilder

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    I posted a few months ago about buying my first individual stock purchase – a tiny fraction of Berkshire Hathaway that I bought through Sharebuilder. At the time, Sharebuilder was offering a $90 bonus to Costco’s Executive level members, which we are. The bonus was actually my main motivation for buying the stock, since essentially the stock was free. The only problem was, we never got the bonus.

    Calling Sharebuilder about the bonus has been on my to-do list for a couple of weeks now, but today I finally realized I could use their online contact form so I sent them a quick email explaining the problem. Within a few hours, I had the following response:

    Thank you for contacting us about Costco cash card you never received. We have credited your account with $90, that you are free to use in any way you wish.

    I was close to writing off the $90 just because I didn’t want to deal with the hassle of contacting them, but it turned out to be painless and worth the effort. I’ve withdrawn the $90 and will be using the money to fund my first Prosper loan. Stay tuned!

    I’m staying the course by avoiding my account balances

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    Intellectually, I completely agree with FMF, JLP and everyone who says the best way to invest in the market is to keep investing and not be scared off when the market is down. It’s easier said than done, though, when I see that not only have my gains from the past year been wiped out, but I’ve actually lost some of the principal that I invested.

    In the long run, it’s not going to matter much. I’m not planning on withdrawing money from any of my investment accounts for at least 15 years. And most of my investing is on automatic – withdrawals from our paychecks to our 401(k)s, automatic withdrawals from our bank account, and so on. It’s not too hard to forget about the automatic investments and just let them be.

    What is hard is logging into the various web sites and seeing the actual account balances. On some sites, it’s unavoidable because it’s the first thing that’s displayed when I log in. And some of the sites I can avoid but some of them I need to get into for reasons other than checking the account balance.

    When I see those low numbers, especially when I know that the number is less than what I’ve deposited into the account, it’s hard not to get depressed, or at least not feel a little bit down. That’s when I start wondering what else I could or should be doing. And if I don’t stop my mind from wandering off too far, I’ll end up driving myself crazy with “what if”s and “I wonder”s. What if I used our savings to pay off our debt? I wonder if we are diversified enough. What if I put the money that I was going to invest in the stock market into a CD? I wonder if I should change the allocation of our retirement contributions? And so on and so forth.

    The easiest way to maintain my sanity is to avoid seeing those low account balances in the first place. So I do what I can to minimize the number of times I have to log in on the various web sites. I take a quick glance at paper statements to make sure they look about right and then file them away. I try as hard as I can not to think about the money I’m losing, and to focus on the fact that my dollar-cost averaging will pay off in the end.

    Which isn’t to say I won’t be relieved when this plunging stock market ride is over.

    What about you? Are you staying the course, and if so, what are you doing to calm your fears?

    Image credit: Yahoo! Finance

    I bought a (fraction of a) stock!

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    A few weeks ago, I bought a very tiny share of Berkshire Hathaway B stock. This is the first time I have ever bought an individual stock. Until now, all of my equity investments were in mutual funds only, so this felt like a really big step for me – even though I only spent $50. $46 went toward the purchase and the other $4 went toward Sharebuilder‘s commission. The only reason I even took this plunge was because Jonathan posted about a $90 Costco bonus for Executive members (which we are) who open a new Sharebuilder account. We haven’t received our $90 Costco giftcard yet but I expect it to arrive in the next couple of weeks. The best part is that our tiny share of BRK.B is already worth $52. I don’t expect to make a fortune this way (obviously), but it was good to push beyond my comfort zone.

    Expanding Personal Boundaries

    I’ve discovered that I’m not the only one who finds expanding my personal boundaries to be a worthwhile goal. Over at Money Smart Life, Ben posted about what he calls extreme investing, “extreme” being a subjective term. As he puts it:

    The reason you might want to do a little extreme investing is that it can help broaden your financial horizons. As creatures of habit we tend to stick with what we know, whether what we’re currently doing is the best thing for our situation or not.

    He gives some guidelines for practicing extreme investing, the most important of which is that you should play with only a small amount of money – specifically, an amount that you can afford to completely lose. That’s exactly what I did in buying one-hundredth of one share of BRK.B – actually, we come out ahead on this one since our cost was only $50 but we’ll be getting $90 from Costco, which we would have spent anyway.

    My Next Venture: Prosper

    I seem to be getting all of my extreme investing ideas from Jonathan. I’m thinking that my next project will be to open a Prosper person-to-person lending account with $50. After I fund my first loan, Prosper will give me $25, which effectively reduces the amount I’ve risked to a mere $25. However, I need to learn a little bit more about Prosper, so I hope my peers who’ve blogged about lending on Prosper won’t mind answering a few questions that I haven’t been able to find answers to on the Prosper web site.

    Investing for the Future

    As I’ve mentioned previously, one of my major goals is to study personal finance and learn much more about money management than I currently know – basically, I want to give myself an unofficial education equivalent to that of a certified financial planner. But I’ve tried reading the CFP textbookI asked for and received last holiday season, and I just don’t have the brain power to study right now. Nevertheless, I think a little extreme investing is a fun alternative for the meantime to help me learn about investments outside my comfort zone.

    Great Debate over at AFM: To Sell or Not To Sell?

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    I’m sorry I didn’t have a chance to post this before I went to work this morning, but there’s a great debate going on over at All Financial Matters in the comments to this post criticizing a post over at The Simple Dollar. To sum up, The Simple Dollar’s Trent wrote a post advising a reader who was uncomfortable with the stock market plunge to take her money out if it would make her feel better, and then reinvest when she felt more comfortable. AFM’s JLP has taken Trent to task for this advice, pointing out that the best way to maximize a stock market investment is to stay put for the long haul. The comments are full of people agreeing with JLP, Trent’s response to JLP’s post, JLP’s response to Trent’s comments, Trent’s response to JLP’s comments, and so forth.

    It’s interesting to see the strong emotions – especially Trent’s, as he stands by his original position despite all the arguments to the contrary. I have to admit that while I usually read The Simple Dollar every day, I glossed over his original post because I’m not interested in the advice he’s giving a reader about her investments. I have my investment strategy (index funds, dollar cost averaging, buy and hold) and I’m not looking to educate myself further right now (due to time constraints, as I’ve mentioned previously).

    However, I think the biggest problem is that Trent never mentioned asset allocation. Based on her question, it sounds like the reader’s 401(k) is entirely invested in growth funds. She asked if she should move some of that into a money market to wait out the stock market’s losses, then reinvest when the market turned around. Trent told her that she shouldn’t have an investment that’s causing her to lose sleep – so maybe the biggest problem is really that he didn’t answer her question. She didn’t say that she was losing sleep, she was really asking if she should time the market to mitigate her losses in the growth stocks. In any event, investing entirely in growth funds is a bad idea – hasn’t she ever heard of diversification? I think what Trent should have told her is that it would be a great idea to move some of her 401(k) money out of the growth funds – not into a money market, but rather into bonds. Her peace of mind needs to come from diversification – otherwise, she’ll just end up stressed from not having any investments that are growing to meet her retirement needs.

    This is also a great time to bring up Mapgirl’s post on why you shouldn’t trust personal finance bloggers. Very few bloggers are experts, and I’m pretty sure no bloggers owe a fiduciary duty to their readers except in extremely rare circumstances. We all just offer our own opinion, based upon on our personal beliefs and experience. But it’s up to each reader to make the most of his or her own money.

    The debate continues on The Simple Dollar in the comments here.

    College Savings Series Part II: Coverdell Education Savings Accounts – Financial Tip of the Week (Feb. 27)

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    This is the second part in a series on saving for college. Part I: Options is here.

    I’m a huge fan of Coverdell Education Savings Accounts. Except for the contribution limits, they are the ideal vehicle for college savings. The money grows tax-free, there is a wide range of investment choices, and the money can be used for expenses incurred prior to college.

    Coverdells used to be called Education IRAs because they work a lot like Roth IRAs. You contribute post-tax money, up to $2,000 per year, and it grows tax-free. You invest it like you would in an IRA. Therefore, unlike with 529 plans, you have a lot of choice about how to invest your money. If you already have an IRA that you’re happy with, you probably won’t have to do a lot of research since you’ll already be familiar with the investment options of the company your IRA is with. In selecting your investments, however, keep in mind that the time frame for when you will need the money might be different from your time frame for retirement and that you might want to allocate your money differently than you would for retirement.

    The money in Coverdell accounts can be used as soon as your child enters kindergarten. That means you can use it to pay for private school tuition. Even if you plan to send your child to public school, a Coverdell can be an attractive option because you can use it for expenses like books and computers.

    The biggest drawback with Coverdells is the relatively low contribution limit of $2,000 (the limit is lower if your income is over a certain amount, but the income threshold is quite high). There is a penalty for over-contributing, so you want to make sure that no more than $2,000 is contributed each year per child, especially if several people are contributing. There is no limit on the number of Coverdell accounts a child can have, so long as the contribution limit isn’t exceeded. That means you can easily diversify your investments, for example by opening one Coverdell with a mutual fund company and another Coverdell with a bank so you can invest in a CD.