The Sun's Financial Diary » Alternative

Join Prosper, Get $50 Free Money to Start Lending

Sun — Fri, 30 Oct 2009 02:49:33 +0000

Prosper, one of the earliest players in peer-to-peer lending, was quite last year and early this year because it failed to meet regulatory requirements. It wasn’t allowed to keep operating until it was cleared by the SEC. Its chief rival Lending Club, on the other hand, was quick to get the OK from the regulator and has been expending its business while Prosper was waiting for the clearance.

Now it seems that Prosper is back, finally. While I am quite with happy with the performance I have with Lending Club so far, a little competition is always good, even in the P2P lending business.

Speaking of competition, Prosper is now offering $50 bonus to lure more lenders and borrowers. I have opened my Prosper account a long time ago. However, because of my previous resident status, I wasn’t allowed to invest, the same as what happened to Lending Club before. Then after updating my address to Virginia the other day, I got my $50 bonus and am eligible to lend directly It basically doesn’t require anything to get the bonus, except one Financial Suitability Requirement, which is like this:

The Notes are being offered only to a lender (a husband and wife are treated together as one lender) who satisfies the suitability requirements set forth below. You must meet one or more of the suitability requirements (a-b) in order to purchase Notes from Prosper.

1. I have an annual gross income of at least $70,000 and a net worth as set forth below, of at least $70,000, and I will not purchase Notes that in the aggregate, exceed 10% or more of my net worth as set forth below, or
2. I have a minimum net worth of $250,000 and I will not purchase Notes, that in the aggregate, exceed 10% or more of my net worth as set forth below.

Note: Net worth is calculated exclusive of home, home furnishings and automobiles, and Lender members may not value assets included in the computation of net worth at more than their fair market value.

The bar seems to be a little high and I don’t remember I saw the same requirement at Lending Club. If the requirement doesn’t prevent you from becoming a lender, then open a Prosper account and get the $50 free money. I haven’t invested my $50 yet as I haven’t got time to go through Prosper’s lending process. But I do plan to use the money to test the water soon

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Lending Club Loan Default and Credit Score and Debt-to-Income Ratio

Sun — Tue, 27 Oct 2009 16:16:00 +0000

In my post over the weekend, I took a quick look at Lending Club’s new statistics page. The improved web page offers potential lenders a range of tools to evaluate the overall performance and risk of lending money through Lending Club. In addition to statistics provided by LC, you can also download raw data from the new page and do you own analysis. The information is the raw data is quite comprehensive, including pretty much everything you need in order to perform a thorough analysis, such as borrowed amount, interest rate, loan grade, monthly payment, income, and credit score, etc. If you are the kind of person who like to dig into the raw data and extract valuable information from it, then new statistics page is for you. From there, you can download either the complete loan data from May 2007 to the current month with every piece of information included, or the date just for the funding loans or declined applications.

I downloaded the complete data the other day to play with it a little bit. My interest is those loans whose current status is either 31 – 120 days late, or charged off, or default. When I downloaded the data on the 24th, there are a total of 12,150 records in the file. Of them, only 6,922 loans, or about 57% of the total applications, were issued, all others are either being declined for various reasons or still the funding process. For the 6,922 issued loans, 535 of them show the current status as 31 – 120 days late, or charged off, or default. That’s about 7.72% of all issued loans.

Loan Default and Credit Score

First I looked at the loan default and the borrower’s credit score. Lending Club requires the borrower to have at last 640 FICO score to be eligible to borrow money. This helps reduce potential loan defaults by setting the requirement high.

From my analysis, the group with the highest default rate (including loans that that’s 31 – 120 days late, or charged off, or default) is those in the 679 – 713 credit score range, account for nearly 40% of the total default. It should be noted that this group is also the largest borrower group with a total of 2,438 loans. However, if looking only at loans in the same credit score group, the highest default rate is in the group with the lowest credit scores, from 640 to 659, at 18.22%. This explains why the focus in peer-to-peer lending should be on borrowers with good credit. Loans from borrowers with lower scores have better returns, but risk for lending to these people is also significantly higher.

Loan Default and Debt-to-Income Ratio

I also looked at the borrower’s debt-to-income ratio, which is a measure of a borrower’s debt burden. Using this ratio, you can have an idea whether or not the borrower can live up to his/her obligation of repaying the loan. However, what I found is a little interesting.

Overall, the loan default rates for DTI ratio from 6% to 20% are roughly the same, at around 20%, of all the loans issued. However, when looking at each particular DTI range, the default rate for DTI ratio below 5% is the highest among all groups at nearly 10%. Usually, the lower the debt-to-income ratio(DTI), the less likely the borrower will be late in making payment, but that’s clearly not the case as the above plot shows. Instead, when borrowers claim they have a higher DTI ratio (above 20%), the default rate for this group as a whole is quite low.

Looks like I may need to change the way I select Landing Club loans

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Lending Club Loan Default and Credit Score and Debt-to-Income Ratio

Lending Club’s New Statistics Page Looks Good

Sun — Sat, 24 Oct 2009 20:06:12 +0000

One of the biggest challenges when investing through social lending platforms such as Lending Club is evaluating loans to minimize, but not totally avoid, risks involved in lending money to total strangers. It’s not an easy task because, though Lending Club does its job to collect and verify the data, there’s just some much information you can access in the borrower’s profile. When I choose loans to fund, much of my research focuses on each individual borrower’s qualifications, such as credit, income, job and debt, etc., because these data in critical in selecting the right borrowers.

In my previous post, I outlined steps I take when I evaluate Lending Club loans. That’s the procedure I usually take when deciding which loan to fund and which to stay away. However, for those who are still considering whether peer-to-peer lending, such as Lending Club or Prosper, can be used as an alternative investment vehicle or not, the main concern is probably the collective performance of Lending Club: The total amount of loans funded, average interest rate, overall delinquency rate, and average borrower credit score, etc. For to-be lenders, a single borrower and loan request have much less meaning than the overall statistics of the all Lending Club borrowers.

To help those who are still making up their minds to better understand how Lending Club works and what a lender can expect from P2P lending, Lending Club has recently launched their improved statistics page, where a potential lender can find such information as:

The average LC borrower FICO credit score is 724;
LC average annualized return is 9.66% after fees and defaults;
The average annualized default rate of all LC loans is 3.16% since inception.

And a lot more information including comparison of returns between Lending Club and stock markets and breakdowns of each loan category (LC has a total of seven loan categories, from A to G, where A is the highest loan grade, depending on the borrower’s credit worthiness). If you want to dig deeper into the data before making a decision, you can even download all the data in to Excel and do you own analysis.

Go to Lending Club and see if and how you use the new statistics to improve your P2P lending

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Lending Club’s New Statistics Page Looks Good

Learn More About Lending Club Credit Rating and Collection Process

Sun — Fri, 09 Oct 2009 14:40:52 +0000

I have been using Lending Club as an alternative investment vehicle for more than half a year now. At beginning, I could only invest in LC loans through their note trading platform because of the residency restrictions. Then since last month, I began to invest directly with Lending Club after moving from NJ to VA.

Currently, I have funded 103 notes with an average weighted rate of 12.97%. Overall, I am happy with the performance so far, though I also have some bad luck with a few notes. Two of them are late for a few months already and one is late for more than 16 days. The total value in these late loans is $112. No doubt that the losses will erode the profit. How much big of the hit isn’t clear yet since there’s still a slim probably that I may get some of the money back, though I am not very optimistic about the outcome.

Actually, the biggest problem of lending money to total strangers through social lending platform such as Lending Club and Prosper is the risk of losing money when the borrowers fail to live up to their obligations to pay. That’s the risk that I can try to minimize (see what I checked before investing in Lending Club loans) but can’t totally avoid because expected things, those you can’t by scrutinizing their credit file or employment history or income, do happen.

If you are also interested in investing through Lending Club, but have questions/concerns about the process, especially the risk involved and what LC is doing to reduce the lending risk before a loan is issued and recover your money after a borrower failed to make payment, here’s an excellent webnair from Lending Club about LC credit rating and collection process. In the presentation, LC walks you through the process of screening each borrower and going after delinquent borrowers. At the end, a lot of real questions from concerned lenders are answered in the Q&A section.

Here are a couple of screenshots from the presentation to give you an idea what is covered in the webnair.

First, how Lending Club’s return compares with bank yields and credit card interest rates.

Then LC explains what defines the grace period, late and defaults and what they will do when any of these happens.

Check out the webnair. It is worth your time if you are considering become a lender (see how you can get $25 bonus to start lending).

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Invest Directly with Lending Club

Sun — Thu, 10 Sep 2009 04:10:02 +0000

I have been quite active in investing with Lending Club since February. However, for months, I can only buy loans on the secondary market because of Lending Club’s residence restriction which prohibits residents of New Jersey from lending directly. Though I was able to buy some notes at discount early on, most of the notes I purchased recently all came with a markup, some times as much as 1.5%. I don’t mind paying a little premium to buy a good loan that will eventually earn me 10+% return, but the extra 1% will eat a big chunk of a 8+% Grad A loan. I’d love to lend directly so I can keep all the profit.

Now, as I am resident of Virginia, I can finally use Lending Club’s primary market to lend directly

I cashed out some loans last month to reduce the risk of my portfolio after two of my loans failed to make payments. The money from the sale has been sitting in my account idle for nearly a month because I was waiting to change my address so I don’t have to pay a premium to buy a loan. After I updated my address last night, I decided to put the money back into the market. Since I am eligible for direct lending, Lending Club’s LendingMatch tool is quite handy to help me find loans I want to fund.

Basically, LendingMatch screens Lending Club’s loan inventory and find notes that collectively meet my expected return. With LendingMatch, all I need to do is specify the amount of money I want to lend and the average interest rate I want to have, the tool will then pick up loans from different grades and show the distribution of loans and overall risk of the selection. For my investment amount of $500 and target rate of 12.35% (it’s just a number I picked without any specific ration why I want this rate), a total of 20 loans were chosen (it’s good that no $50 or more loan was selected) and the overall risk level is 0.29 out of 1. The risk is quite low in my opinion.

Before sending my order for processing, I went through the results (see how I screen Lending Club loans) and identified one loan that I considered as too risky and removed it from my order. For that particular loan, E2 grade loan with 16.70% interest rate, the borrower wants to get $18,000 to consolidate debt. What worries me is the borrower’s credit history, which shows he has 23 open credit lines out of a total of 57 and a revolving credit line utilization ratio of more than 66%. Though the month income is good (more than $6,000/month), the borrower appears to be quite active in seeking credit lines. That doesn’t make me feel very easy about lending to him. So eventually I removed that loan from my list and ordered only 19 loans.

I still have some money left in my account that I want to lend, but will wait until this order is cleared because I don’t want to fund more than one loan from the same borrower. This is another way to reduce risk.

BTW, if you are interested in becoming a lender but haven’t started yet, see how you could win $2,500 from Lending Club.

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Lending Club $2500 Giveaway

Sun — Fri, 04 Sep 2009 02:48:31 +0000

Are you using Lending Club? If not, then here’s your chance to win $2,500.

The popular peer-to-peer lending site is going to have its 25,000th investor some time this month. To celebrate this milestone, Lending Club announced yesterday that the 25,000th registered investor will receive a total of $2,500 cash from LC!

I started investing with Lending Club in February. In half a year, I have built a portfolio of 78 loans with total outstanding principal at $2,065. Though there are some minor setbacks recently (2 of my loans were late more than one month and are now in the hands of collection agency), I am still very optimistic about receiving good return from my investments (Lending Club the average net annualized return is 9.6%, which is much higher than bank savings account). And since we are moving to Virginia, I will soon be eligible to invest directly in the primary market.

If you are interested in investing with Lending Club and having the chance to win $2,500, use this like to open an account and receive $25 bonus just for becoming an lender, regardless whether you win the giveaway or not. Since peer-to-peer lending involves a greater risk than having the money in, say, a savings account, make sure you do your homework thoroughly before funding a loan. Here’s what I usually consider before investing in a loan.

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Two of My Lending Club Loans Are 30 Days Late

Sun — Thu, 13 Aug 2009 02:49:54 +0000

Apparently, I was a little overstated the status of my Lending Club loans when I updated my loan portfolio and stated that there was no late or default. Somehow, I skipped one page where there are two $50 loans that are already more than 30 days late when I checked last night, both from the same borrower

Those two loans (C3 grade loan, 13.16% interest rate) were acquired in late February when I started to invest with Lending Club and they are among the first batch of notes I bought. Back then, I guess I was so eager to get the lending going, and start making money, that I didn’t realize that the two loans are from the same borrower until now. This, of course, is a big mistake because lending more money to the same borrower by funding multiple loans can only increase, not reduce, the risk.

For these two loans, they were both new loans when I bought them back in February and payments were made on time in the first four months from March to June. Then the borrower was late in July, then again in August. Meanwhile, Lending Club appears to be doing what they can to contact the borrower and collect the payment, but failed:

8/7/09 (Friday) Engaged external collections agency
8/4/09 (Tuesday) Attempted to contact borrower (left voicemail)
8/4/09 (Tuesday) Contacted a borrowers relative
7/31/09 (Friday) Attempted to contact borrower (left voicemail)
7/30/09 (Thursday) Contacted a borrowers relative
7/30/09 (Thursday) Attempted to contact borrower (left voicemail)
7/28/09 (Tuesday) Attempted to contact borrower (left voicemail)
7/28/09 (Tuesday) Sent email to borrower
7/27/09 (Monday) Attempted to contact borrower (left voicemail)
7/27/09 (Monday) Payment Failed
7/24/09 (Friday) Sent email to borrower
7/24/09 (Friday) Sent email to borrower
7/22/09 (Wednesday) Attempted to collect payment
7/20/09 (Monday) Attempted to contact borrower (left voicemail)
7/16/09 (Thursday) Attempted to contact borrower (left voicemail)
7/16/09 (Thursday) Payment Failed
4/27/09 (Monday) Borrower contacted Lending Club

Of course, I am quite upset about the possible default of these two loans and the loss of $100 (less than 5% of my total Lending Club investments). The borrower’s credit was quite stable initially, thus there wasn’t a red-flag as far as I can tell, but the credit score dropped more than 100 point in the latest assessment this month.

I was trying to sell those two loans at a discount after noticing payments were late. Unfortunately, there’s no takers, even though I have reduced the price a couple of times. At the same time, I also reviewed my loan portfolio and identified a few more loans that are from the same borrower, all purchased in the early stage of my P2P lending business. Too reduce the risk of my investments so what happened to those two loans will not happen again, I put all the notes from the same borrowers (a few $50 loans and the rest are $25 loans) up for sale at a small discount. Since all loans are still current, some of them have already been taken.

It’s unlikely that I will get anything back from those two loans (I hope I am wrong, but I don’t expect too much even with the involvement of the collection agency). Oh well, that $100 can be the price I paid for the lesson I learned from this:

Never lend money to the same borrower;
Never fund large loans.

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Two of My Lending Club Loans Are 30 Days Late

Lending Club Loan Portfolio Update

Sun — Thu, 23 Jul 2009 14:40:22 +0000

Nearly five months ago I started to invest through Lending Club in order to add a little bit more diversification to my investments. Since then, I have been steadily building up my portfolio. The process is rather slow though since I can only buy notes on the secondary market, which I sometimes forgot to do even though I have money sitting idle in my account.

Anyway, things have been going quite well for me so far. Every payment (principal plus interest) has been received on time. No late and no default. Currently, I have a total of 77 loans in my portfolio with four more that I bought today pending.

Before I only bought loans with higher interest rates, mostly Grade B, C, and D. Now I also start to a few Grade A loans to spread the risk a little more. The problem for me now is that I can’t lend money directly and loans that are on sale on the secondary market are getting more and more expensive (because the demands are high?). I remember when I started, I had no problem finding notes at discount. Now I always have to pay a premium to buy a loan Fortunately, it won’t be long before I can lend directly myself (we are moving to Virginia, which is one of those states where direct lending is permitted).

I always believe, like any other investments, that the size of the investment is important in making meaningful money. This is especially true with Lending Club because of the risk of default, though I haven’t experienced any yet. I don’t have a target of how many loans I want to own, but I think 100 will be the minimum. As long as the general performance is good, I can accept a few defaults.

BTW, Lending Club recently added Annualized Return to the account, so lenders can see the exact return of their investments. Too bad this information isn’t available to me now because all my loans were purchased with different markups/markdowns.

If you are interested in becoming a lender on Lending Club, check out how you can get $25 ign up bonus to start lending.

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Where Is Gold Heading to?

Sun — Wed, 17 Jun 2009 02:28:38 +0000

I am a firm believer of investing in gold.

Having been investing in gold since 2002 (Tocqueville Gold Fund (TGLDX) is my main vehicle to invest in gold though I have also bought a few gold coins in the past couple of years), I was pretty excited when gold broke the key $1,000/ounce mark in March 2008. But since then, gold has been traded down in general.

But then you’d think that with the government printing money at a record speed to finance the stimulus and recovery, gold could easily retake the $1,000 level and be traded even higher. That didn’t happen until March 2009 when gold did claim back the $1,000 an ounce level as the stock market got hammered by seemingly endless turmoils in the financial market. The rally, however, was yet again a short-lived one, with gold reaching as low as $870/ounce in April. Since then, gold has made another attempt to break $1,000/ounce, but failed (only reached $990) and currently is traded around $930.

Where is gold going from here? Can the precious metal find support at $930 and start to trade higher again? Or is it forming a double-top and going to test recent lows again?

In this latest INO educational video (more about INO and MarketClub), gold’s recent trade was examined from the technical analysis point of view. Check it out if you also want where gold is heading to.

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Lending Club Loan Composition

Sun — Wed, 13 May 2009 19:38:17 +0000

It has been nearly three months since I last updated my Lending Club loan portfolio, even though I wasn’t quiet during this period of time. In fact, I have already more than doubled the number of loans I own since I got into the peer-to-peer lending business in February. Right now, I have 54 notes in my portfolio, with two more pending (it seems that Lending Club takes more than one day to settle the purchases I made). The loan composition of my portfolio looks like this:

As you can see nearly three quarters of my loans are Grade C & D, with loan interest rates from 12.53% to 15.37%, with the rest in Grade B (10.95% to 12.21%) and E (15.68% to 16.95%). So far I don’t have any Grade A loan, nor do I have Grade F and G loans. The reason for avoiding Grade A loans, which theoretically have the least risk of default, is that I am in this to make money that I may not be able to make from other places, such as savings accounts. While 7.37% to 9.63% interest rates are good, I don’t feel the return is high enough. Since I am taking the risk to lend money to strangers, I want to get better returns. To me, there isn’t too much difference in terms of risk between lending money to a person with a 650 credit score and one with 750 score, as I mentioned in the how to evaluate Lending Club notes post. And Lending Club’s own statistics somehow showed there isn’t a very strong correlation between default rates and credit ratings. For example, since January 1, 2008, a total of 3,751 loans were issued and there were 123 defaults. Among loans that defaulted, 30 are Grade D loans, which is the highest number among all loan grades, followed by 25 Grade C defaults. These two groups of loans also make up the most of loans I own. But on the other hand, 22 Grade B loans defaulted while only 18 Grade E and 18 Grade F loans were 120+ days. How since 2009, there’s only 2 defaults among 1,358 loans issued, both Grade C loans.

For my own portfolio, so far I don’t have any late payment, but it could be because that all my loans are new. Six months or one year from now, things could be a little different though. That’s when late payment or even default starts to occur as I was told. Going forward, I plan to add some Grade A loans with interest rates at the high end to the mix to spread the overall risk a little bit further.

Anyway, with 54 loans currently in my lending portfolio, I am receiving more than $60 in payment every month, enough for me to make one ($50) or two (two $25) loans. One thing I have noticed recently is that notes are hardly sold at discount. At the beginning, I can easily find loans with markdowns for sale. Now, I sometimes had to pay a small premium (less than 1%) to buy the notes. Maybe it’s a sign that demands are up so sellers can charge a little more.

If you are interested in P2P lending through Lending Club, be sure to check out my previous post in which I went through the process of how to use Lending Club Note Trading Platform to invest. Besides, you can also get $25 Lending Club sign up bonus to become a lender.

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A Few Options to Invest in Gold

Sun — Thu, 26 Mar 2009 18:04:20 +0000

if you are interested in having the bullion in your portfolio, of course.

ETFs

This is probably the easiest way to invest in precious metals, gold and silver. There are some several precious metal ETFs available as I discussed in my previous post. Among them, two are very popular: SPDR Gold Shares (GLD) and iShares Silver Trust (SLV).

Mutual Funds

Another way to invest without actually owning the metals is mutual funds, which is how I invest in gold. The fund I use is Tocqueville Gold Fund (TGLDX), but there are plenty of choices in the mutual fund arena. However, since mutual funds are required by law to invest a certain amount of assets in equities, gold or silver mutual funds are, in fact, investing in mining companies, not the metal itself. To find the fund specializing in precious metals, you can use Yahoo Fiance’s Mutual Fund Screener. A total of 61 funds were returned, including TGLDX and Vanguard Precious Metals and Mining Fund (VGPMX). Remember that there are funds charge with front load or high initial investment.

Gold Money

What’s interesting about Gold Money is that you can use gold purchased through Gold Money as a payment method. As I mentioned early in my Gold Money review post, the Gold Money account can be used as a checking account, believe it or not, as long as the payee also has a Gold Money account. Through Gold Money, you own the gold your purchased, but don’t actually take possession of the metal. Gold in your account can be cashed out and deposited to your checking account linked to Gold Money.

Gold Coins and Bars

All the three options listed above are good if you don’t want to store any physical gold yourself. If you do, however, want to hold gold coins or bars in your hands, then you need to go to a bullion dealer. There are many dealers out there as well. After comparing a few gold dealers myself, I went with Bullion Direct (GovMint is another choice), where I bought a few gold and silver coins.

Gold Pool Accounts

I know a few places offer such accounts and one of them is the EverBank Metal Select Account. A pool account is a special storage account where a pool of investors collectively own the gold in the account, thus allowing each individual investor own a fraction of an ounce of the metal in the account. A pool account reduces investor’s cost on storage and insurance as these costs are shared by all investors in the account. If you simply want to trade gold or silver, then a pool account is easies way. Kitco, another major online dealer, also has a gold pool account.

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Lending Club Introduces Self-Directed IRA in Peer-to-Peer Lending

Sun — Thu, 26 Mar 2009 02:27:56 +0000

Lending Club, the only SEC registered peer-to-peer lending site, today announced the introduction of the first ever self-directed IRA to let lenders save for retirements through P2P lending. The new self-directed IRA accounts are managed by EntrustCAMA, a custodian of both self-directed and real estate IRAs.

Currently, Lending Club self-directed IRA plan participants can choose to invest in either a Roth or Traditional IRA (for individuals) or SEP or SIMPLE IRA (for small businesses) through the new service. And investments in the Lending Club self-directed IRA, like investments in an ordinary IRA account, also enjoy tax free growth (which means that contributions to the Lending Club self-direct IRA are also subject to the annual IRA contribution limit, which is at $5,000 for 2008). To enroll in the program and contribute for the 2008 tax year, you need to:

Complete the secure online account application with EntrustCAMA;
Print, sign, and mail your forms to the address provided by EntrustCAMA (Must be postmarked by April 15, 2009 for 2008 tax season);
Fund your account with a check, 401(k) rollover, or existing IRA account transfer to Lending Club.

According to Lending Club website, the self-directed IRA plan charges a flat $250 annual account maintenance fee (there will be no fee in 2009 if the account is opened before April 15).

I have been lending through Lending Club for a little over a month (check out my Lending Club review and lending portfolio if you are not familiar with LC) and so far I am quite happy with how things go with LC, mainly because there’s no late payment yet. Despite the good but still very short experience, I don’t think I will get a self-directed IRA through Lending Club for myself because of the high fee, if nothing else. I don’t have a self-directed IRA account, so there’s no way for me to compare it with what others charge, but a $250 annual fee is more than 5% of the total allowed contribution of $5,000. That’s just too much for an IRA account.

It’s good that P2P lending now becomes an option for retirement savings. But at this cost, I think it’s better to just use it as a small diversification of ordinary investments.

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Should Gold be in Your Investment Portfolio?

Sun — Thu, 19 Mar 2009 16:18:03 +0000

I have talked a lot about gold here. The reason is I am a believer that gold, not physical gold though, should have a place in the portfolio, not exactly for hedging against information but for diversification. Take a look at the performance of the stock market and gold since 2007, for instance. After reaching the all-time high in October 2007, the Dow has lost nearly half of its value, while during the same gold has actually gained about 10%. Of course, if you only have something like 5% of your investment in gold (invested in GLD for example), the gain won’t do much good to your portfolio as whole if the equity portion of your investment has tumbled 40 – 50%, but still that’s the little help we can always use.

Today, spot gold again surged more than 7% after the Fed announced yesterday that it plans to buy up to $300 billion long-term Treasuries in a bid to halt the economy from sliding into even deeper recession. The move immediately stirs up inflation concerns among investors, who then traded gold from down $30 an ounce yesterday to up nearly $70 today. That’s a dramatic turnaround. The

TIME yesterday published an interesting article on gold, discussing whether gold is the safest investment. The most amazing statement I read from the article is this:

At such high prices, gold ceases to have much practical use. There is no theoretical rationale why anyone should even want to invest in it. Gold has value only because we believe it is valuable. It is a collective hallucination.

This view is probably held by many who believe that gold’s gain is nothing but speculations (if gold price going up only because of traders’ fear of inflation, then that’s speculation). But then again, as the TIME article pointed out,

Gold, then, can be considered a currency, unique in that it is not directly tied to any country’s economy. With a global recession that is bound to continue to shake up the purchasing power of all foreign currencies, gold is safer from political and economic instability than cash.

What do you think? Are you investing in gold in any form, stocks, mutual funds, ETFs, coin,s bars, or even jewlery?

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Should Gold be in Your Investment Portfolio?

What I Checked Before Buying Loans with Lending Club

Sun — Thu, 12 Mar 2009 18:27:24 +0000

Is Lending Club Safe? As a platform for peer-to-peer lending, Lending Club itself is safe. It’s lending money through Lending Club that carries risk. However, by carefully evaluate and select each loan, risk can be reduced and return can be improved.

I have been gradually building up my Lending Club loan portfolio in the past few weeks. Currently I have bought 29 loans through Lending Club Note Trading Platform, with loan returns from 10.20% to 15.68%. So far three payments have already been received with no late payment, which is a good and encouraging start. However, all these three loans are current, meaning that payments have already started before I acquired the notes. The rest notes I own are all new loans with first payment expected sometime this month. I will have a better feeling about my investments until I receive first payments on the other 26 loans.

And I am not done yet. In the next few weeks, I will be looking to add a few more loans to my portfolio. Since right now I am only welling to buy small loans (loan amount at $25) at discount, good loans with right prices are not always available. In addition, with current total expected monthly payment of $35 from my lending, I should be able to fund a new loan every month if everything goes well.

So far I have discussed the process of selecting a note within the Note Trading Platform and mentioned that I can get the original loan listing to find out more about the borrower. In the following, I want to share what I considered before lending money to other people through Lending Club. Though I can only lend on the secondary market, what discussed below can also be applied to lending through the primary market, i.e., lend directly to the borrowers.

Above is a screen shot of a detailed listing of one of the loans I own. Since I can only buy loans on the secondary market through Note Trading Platform, initial screening, such as loan rate, loan amount, remaining payments, sale prices, etc, has already been done from inside the Platform. Once I found a note that I am interested in, the next step is go to the initial loan listing and dig out some details.

For every listed loan, the details are divided into six parts, including Loan Details, Borrower’s Profile, Borrower’s Credit History, Loan Description, Borrower’s Affiliations, and Questions & Answers. Each part carries some information that can help me determine whether I want to lend my money to the borrower or not.

Loan Details

Loan details give me a quick summary of the loan I am interested in. In addition to loan amount, purpose, monthly payment, grade and rate, and status, I also pay close attention to the percentage of funding received and the total number of lenders committed to the loan since the date the request is submitted. The reason is clear: Since I am not the only one lending money to the borrower (if it’s a large loan, there will be a lot of lenders to fund the loan), I want to get a sense how other people feel about the borrower. Every lender evaluates the loan independently using his/her own criteria and priorities. If a large number of people signed up to fund the loan in a short period of time since it was listed, then there’s a consensus on the trustworthiness of the borrower. And that could make me feel a little bit comfortable about lending the money to the borrower as well. If, on the other hand, a long time has past and the loan is still not fully funded, then I will be cautious too.

Borrower’s Profile

The borrower’s profile tells me the borrower’s employment, homeownership, and most importantly, monthly gross income and the debt-to-income ratio (DTI). According to Lending Club, the DTI is calculated with the borrower’s monthly debt payment obligation (from the borrower’s credit report) divided by monthly income. However, this calculation does not include mortgage accounts or the loan’s expected monthly payment. Honestly, I found this calculation quite weird though. The monthly loan payment as well as mortgage should be included in the DTI calculation in my opinion. What’s the likelihood of making late payment for the borrower who, for example, makes $2,500 every month but has to pay $500 monthly loan payment and $800 mortgage payment on top of $1,000 revolving credit balance? So in the case, I won’t simply look at the DTI and conclude that the borrower has a low debt obligation if the DTI is low. I will instead combine the borrower’s income, monthly payment, mortgage/rent payment, and credit card balance to determine the debt-to-income ratio.

Borrower’s Credit History

In fact, I don’t too much attention to the borrower’s credit score because, as we know, a lot of factores could affect a person’s credit score. If the borrower only has a short credit history, his/her credit score won’t be high, but that doesn’t mean the borrower is not responsible. When reviewing the borrower’s credit history, obvious information such as delinquencies are important, so are the borrower’s revolving credit balance, credit utilization ratio, and recent inquires. A high utilization ratio is alarming, but not necessarily mean the borrower abuses his/her credit (if, for instance, the borrower maxed out a 0% APR card he/she recently obtained, the ratio is likely higher). While I won’t focus too much on the credit score itself, I will, however, try to get a little more information if the borrower’s credit score dropped since the loan was initially listed.

BTW, the borrower’s credit history shows when the earliest credit was opened. I will be more interested in when the latest credit was opened.

Loan Description

The borrower gives potential lenders the story on why the money is needed and what it is for. However, since the description is not verified by Lending Club or anybody, there’s no way to tell whether what were told are true ot not. In general, I’d prefer a borrower tells us a story than those who didn’t say anything.

Borrower’s Affiliation

Here I can get a feeling of whether the borrower has a stable job, thus a stable income. In this economic environment, layoffs are massive and everywhere. A stable job (if there’s one) means payments are unlikely to be interrupted.

Questions & Answers

If I still have questions after going through all the information above, I can write to the borrower in the Q&A part, asking for clarification. For example, I mentioned that I will take the borrower’s monthly mortgage/rent payment into account when calculating the DTI, but the information is not directly provided in the borrower’s profile. I will need to ask the borrower to give me a number. Actually, I can submit any relevant question to the borrower in the Q&A section. If the borrower clearly answered my questions to my satisfaction, then I will be happy to fund the loan. If the borrower isn’t straightforward, then I’d rather stay away.

Final Thoughts

On one hand, I want to protect myself by avoiding investing in loans that appear to be too risky. On the other hand, peer-to-peer lending itself carries a significant level of risk. During the loan selection process, I want to evaluate every piece of information carefully from the beginning so I won’t regret my decision should something bad happen later. However, there’s no guarantee that a loan will stay current through out the 36-month period. The risk is always there. If you want to get into the P2P lending business through Lending Club, doing your homework (evaluating each loan thoroughly and carefully) may reduce the risk of default of your investment, but can’t avoid it. That’s why you could receive much better return from lending to other people than to banks

Special offer: Now you can get $25 Lending Club sign up bonus to start lending.

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What I Checked Before Buying Loans with Lending Club

Lending Club Adds Yield to Maturity Data to Notes

Sun — Fri, 06 Mar 2009 17:03:26 +0000

I logged in my Lending Club account today to buy a few more note, then I noticed something that’s apparently new in the Note Trading Platform.

It’s a new column of data called (click the above screenshot to enlarge). If you are not familiar with Yield to Maturity (YTM), then you can check out the definition on Wikipedia. Basically, it’s the rate of return I will actually get if I hold the note to maturity (usually 36 months if I buy a note with the maximum number payments remaining).

Before, the only rate information on Lending Club is the interest rate of the loan, which is determined mainly based on the borrower’s credit. However, if you can only invest in Lending Club’s secondary market, like I do, then interest rate alone won’t tell you how much you will make from your investment. Other factors, such as the purchase price of a note, on-time payment of the note’s remaining payments, and reinvestment of principles all play a role in determining your rate of return should you decide to hold the note to maturity. Among these mentioned above, a note’s asking price, with a markup or discount, is the biggest element. That’s why I only buy notes at par value or with a discount

If you are interested in P2P lending through Lending Club Note Trading Platform (for those who are not qualified for direct lending), be sure to check out my Lending Club Note Trading Platform review. You can even get a $25 bonus now to get started.

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Lending Club Adds Yield to Maturity Data to Notes

My Lending Club Portfolio

Sun — Wed, 25 Feb 2009 03:58:45 +0000

I wasted little time in building up my Lending Club portfolio.

Only a few days in the peer-to-peer lending business, I already have, believe it or not, 20 loans (notes) in my portfolio 8 of them are $25 loans and the rest are $50 loans at a total value of $794.68. Right now, I don’t want to any loans that are greater than $50 because I want to spread the risk by making more small loans than a small number of large loans.

As I mentioned in my Lending Club review post, all the notes I own now were purchased through LC’s Note Trading Platform and all were bought at slight discount, which isn’t too bad.

As you see from the above picture, so far I have avoided high grade loans, grade A in particular. You probably wonder why no high grade loans. On one hand, the argument of investing in high grade loans is valid because high grade loans are assigned to borrowers with better credit scores, who are less likely to default or be late (Lending Club doesn’t its own homework when assigning a loan grade). Lending money to these more credit worthy borrowers is, therefore, less risky, at least on theory. On the other hand, I am into this to make money, good money even though at a small amount. Since high grade loans pay lower interests, buying A grade notes will not make me achieve my goal faster. Besides, as I said yesterday, people with low credit score won’t necessarily be late in making payments. When I first got my credit score in 2003, it wasn’t a very good score. If I use that score to get a loan on Lending Club, my loan won’t be a grade A either, but then I never missed any payment. So I am going to bet on lower grade loans to make more money

Anyway, I should be receiving my first payment of a grand total $0.80 ($0.59 principle plus $0.21 interest) very soon. A small step, but a good one

BTW, you can now get $25 bonus when opening a Lending Club account. Check out the exclusive offer for this blog’s readers.

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My Lending Club Portfolio

Gold Price Reached 6-Month High As Equities Tumbled

Sun — Sun, 01 Feb 2009 15:24:00 +0000

In case you didn’t notice, the bullion has quietly made a comeback as stocks fell. On Friday, spot gold surged $22.20 (2.4%) to reach $927.20 an ounce, the six-month high (see the following chart from Market Club), after a government report showed that GDP contracted at an annual rate of 3.8% in the last quarter of 2008, the most in 27 years, after a 0.5% decline in the third quarter. The two consecutive negative quarterly GDP growth also marks the official start of a recession, even though economists have long declared that the recession actually began in December 2007.

Let’s get back to gold. After breaking through the $1,000 milestone in March 2008, gold has gone through some rough time. As economies around the world slipped into recession, demands for commodities fell sharply and the appeal of precious metal also faded. At the end of October, gold even dropped below $700. But since then, gold has regained most of the lost ground. Investors again looked at gold as safe haven amid turmoil in stock markets.

But where is gold heading from here? Back to $1,000? Or, as somebody else predicts, $5,000 in 5 years? There’re also arguments that gold may stay at the current level for a while before any breakthrough.

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Gold Price Reached 6-Month High As Equities Tumbled

Fibonacci Rule and How to Use it in Trading Gold Explained

Sun — Fri, 30 Jan 2009 16:50:00 +0000

Do you know what Fibonacci rule is?

Basically, Fibonacci sequence is a sequence of numbers in which each successive number is equal to the sum of the two preceding numbers, such as 1, 1, 2, 3, 5, 8, 13, . . . The rule used to generated Fibonacci sequence is called Fibonacci rule, which can be fn+1 = fn + fn-1, where f1 = f2 = 1.

But can you apply Fibonacci rule in trading and profit from it?

INO.com has an educational video that explains how Fibonacci rule works in trading gold, following the bullion’s recent fluctuation in prices. If you are interested, use this link to watch the video and learn how to apply the rule to improve your trading and profit, hopefully

BTW, I covered INO’s free stock analysis tool the other day. Check it out if you want to learn more Instant Stock Analysis and Market Club.

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Fibonacci Rule and How to Use it in Trading Gold Explained

What Is Going on with Gold?

Sun — Wed, 29 Oct 2008 02:31:04 +0000

The stock markets are pretty volatile these days with huge up-and-down swings happening almost on a daily basis (the past month has produced 5 of the 10 largest drops of the Dow). At the same time, gold, which I follow quite closely, also had some roller coaster rides lately, but the general trend of gold is the same as that of the stock market: down. The bullion has traded around $690 an ounce just a couple of days ago. That’s the low of the year!

So what happened to gold? Has it bottomed out, as this article on Goldprice.org indicated? If you are interested, here’s a free video presentation from INO TV explaining the movement of gold price recently. The analyst in the video also says gold is currently oversold and due for a rebound. A rebound seems to be a sure thing, in short term at least, as it happened following some significant drops before. For the long term, I am still looking at gold as an alternative investment that provides diversification to my portfolio, though I don’t exactly use gold as a hedge against inflation.

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What Is Going on with Gold?

Is Gold a Good Choice to Hedge against Inflation?

Sun — Fri, 03 Oct 2008 14:08:28 +0000

Early last month, I had a post on gold when the bullion recorded its biggest one-day increase ever in price. If you follow this blog long enough, then you know I have talked a lot about good. My investment in gold is not the metal itself, though I bought a couple of pieces of hardware. I invest in gold through a mutual fund, Tocqueville Gold Fund (TGLDX), which mainly invests in precious metal miners (a better choice to invest in gold without physically owning the metal is via gold ETFs such as SPDR Gold Shares (GLD)). When I first bought TGLDX, it was in 2002 when gold was somewhere around $300 an ounce. I never imagined gold could go over $1,000 back then (otherwise, I could have bought a few more gold coins ). The reason for me to have gold in my investments was, well, I need some exposure to the precious metal sector as a diversification.

I never bought gold because I want to hedge against inflation and I didn’t buy gold coins because I want to have them as an investment (I could have better returns if the money was invested in stocks). But there are many traders do use gold as a hedge, against inflation, falling U.S. dollar, geopolitical tensions, etc. And there are always demands for gold jewellery from countries like China and India.

After I posted then entry, long-time reader Tim gave his take on using gold as a hedge:

gold is in a bubble. there is no underlying fundamental that justifies the high price. just like in the early 80s, gold with precipitously drop like two tons of cement, and hopefully Guido didn’t cement your feet in when it does. we are no longer on the gold standard, yet people have this antiquated notion that gold is a hedge against inflation. well since the last bubble and precipitous drop, gold remained flat and declined, so how good is that hedge? that’s right, terrible.

moreover, gold is traded like stocks now, unless you actually buy gold bullion, which most people these days do not. since you don’t own the hard gold asset, it isn’t worth anything because you can’t trade it if the world goes belly up. the premise behind gold being inflationary precaution is because the antiquated notion that you can trade gold as currency. well, with investment shares, you don’t have the physical commodity. so tell me how you own gold? that’s right, you don’t.

even if you did physically own gold, it isn’t worth the bullion or share price, it is worth scrap price which is far less than market price. again, unless gold by weight is being valuated to exchange for goods and services, it isn’t worth the share trade price or even the true bullion price.

people were very happy when gold was dramatically rising past $1k/oz, i’m sure those people were sad when it precipitously fell towards $700/oz. again, diversification and look at the fundamentals. you can ride the wave now, but gold will go back down to $300-$500 eventually and there won’t be any warning when it does in the current euphoria over gold. again mitigate your risk on gold as well.

What do you think of gold? Is it a good choice to hedge against inflation? If not, what can be the choice?

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Is Gold a Good Choice to Hedge against Inflation?

Gold Saw Biggest Jump in History

Sun — Thu, 18 Sep 2008 02:09:53 +0000

Remember this chart because you won’t see it very often, if again at all.

Today, gold price jumped the most in its history, rocketing up $84.50 to close at $864.10 an ounce. Last week this time, gold just touched a 11-month low of $742.

Gold has been under a lot of pressure lately. As the U.S. economy slows, the demands for commodities are down, so is the appeal of gold as a hedge. At the same time, the U.S. dollar gained a lot of ground against the Euro in recent months. All these events together pushed gold price lower and lower. But that course was reversed today, amid fear of systemic risk of U.S. banks as I mentioned earlier. Investors returned to safe heaven in precious metals such gold and silver, which also jumped $1.73 an ounce to $12.34. Of course, the surge in oil price today, after briefly breaking the $90 mark yesterday, also fueled the rally.

Can this trend continue? As long as the uncertainty in the stock market continue, investors are still nervous, it could.

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Gold Saw Biggest Jump in History

American Eagle Gold Coin in Short Supply?

Sun — Fri, 22 Aug 2008 04:14:51 +0000

Did you buy any gold coin recently? I didn’t, but it looks like there’s some kind of shortage of gold coins.

Gold has gone through a volatile period lately as the U.S. dollar rebounded strongly against the Euro and commodities, including oil and precious metals, posted sharp decline. Traders abandoned gold as a hedge against the dollar, causing the bullion to reach a 8-month low of $786 an ounce on August 15th. However, gold didn’t stay in the sub-$800 territory for long. After a government data released on August 19th showed U.S. wholesale inflation jumped 1.2% in June due to soaring energy cost, the fastest pace in 27 years, gold started to recover. In two days, gold gained more than $45 to close at $833.85 today.

Though we don’t know whether this is a temporary bounce or the signal of a real recovery (gold reached $1,011/ounce on March 17th), the big drop in gold price last week did generate strong demands for the bullion. In fact, the demand was so strong that the U.S. Mint has temporarily suspended shipment of the popular American Eagle gold coins to bullion dealers, according to a Reuters story today.

Well, I didn’t take advantage of the drop. Maybe I should have. No, I am going to buy another gold coin. I am thinking of buy some extra shares of Tocqueville Gold Fund [[TGLDX]], my investment in the precious metal.

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American Eagle Gold Coin in Short Supply?

Bought another Piece of Gold from Bullion Direct

Sun — Sat, 26 Apr 2008 03:13:20 +0000

A little over one year ago, I bought a Buffalo gold coin from Bullion Direct (my review of Bullion Direct) when the price was around $640 an ounce. Somehow, I never considered that as an investment, though gold has gained a lot in the past year. Currently at $885, gold actually made a good investment

Since then, I have always been thinking of getting another one, again not because of the rising gold price. We have two daughters, so we want to have two pieces. After watching gold went all the way to $1030/ounce then pulled back to under $900, I did what I have been waiting to do: I bought another piece of gold yesterday at $908 from Bullion Direct! This time I didn’t buy the coin. It’s a 1-ounce gold bar.

Will I buy another one? Probably not, at least not before it drops to under $640 if it can go down that much. I certainly hope it won’t return to that level

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Bought another Piece of Gold from Bullion Direct

Ladies and Gentlemen, Here’s the $1,000 Gold!

Sun — Sat, 15 Mar 2008 03:44:30 +0000

Just when you think the stock markets might have turned the corner (stocks gained the most in five years on Tuesday and S&P issued a statement yesterday saying the end is near for subprime related writedowns), another bomb dropped on the Wall Street today: Bear Stearns, one iconic company on the Street, needs emergency funding from JPMorgan Chase and the Federal Reserve Bank of New York to stay alive!

That news didn’t do any good to the stock markets which gained a little at the open after a mild inflation report from the government. Stocks dropped more than 300 points at one point and eventually closed almost 200 points down, giving up all the gains of the week.

As stocks got pounded, commodities surged and spot gold broke the $1,000 mark for the first in history (BTW, oil also reached a record $110 a barrel)! It was just six months ago, when gold was around $750, the manager of Tocqueville Gold Fund (TGLDX), that fund that I own, predicted $1,000 gold. And now, here we are, $1,000 gold!

*Photo from Goldinvestingsource.com

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Ladies and Gentlemen, Here’s the $1,000 Gold!

Record Gold Price, Again

Sun — Thu, 21 Feb 2008 04:28:55 +0000

US stocks reversed course Wednesday, making a 240+ points swing from down 154 points to close the session up 90 points.

As stocks turned around, gold also got a boost to reach a new record of $945.80 an ounce. The precious metal rallied after a government report showed that inflation picked up stem in January with CPI rising 0.40% and core CPI 0.30%, both exceeded expectations. Year-to-date, bullion has gained more than $100. Gold based exchange-traded funds (ETFs) are the bright spots in a disappointing market so far. Among gold ETFs, streetTRACKS Gold Shares (GLD) has returned 13.07% in 2008 and iShares COMEX Gold Trust (IAU) gained 11.16%. It’s obvious that gold is quite hot these days. However, if you look at platinum, you will know what’s hotter. Platinum price has risen $532 an ounce since the beginning of 2008, that’s equivalent to a gain of nearly 35%.

BTW, crude oil also made a run to close above $100 a barrel for second day in a row. Pretty soon, we are going to feel the pain at the pump

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Record Gold Price, Again