To start off the week, here is a short video with one simple time-management tip:
I think the actual quote by William James should be “Nothing is so fatiguing as the eternal hanging on of an uncompleted task”. Either way, I find it very true. Found the video via this post at the Early Retirement Forums.
PineCone Research remains one of the better paying and reliable survey companies, with a payout of $3 for each 15-20 minute survey. The hardest part is getting accepted, as they only accept applications intermittently.
Thanks to readers Tom and Bryce, here is the most recent application link at Pinecone. (It probably won’t last long.) Looks open to all ages and sexes. Only one person per household can sign up.
I’ve already shared my thoughts on Pinecone and paid surveys in general here. I call them Bored Money – not terribly efficient but you sometimes get to try some neat things.
The three survey sites that I have been most active with besides Pinecone are NFO MySurvey, e-Rewards, and SurveySavvy. I like it them because they consistently offer me paid survey opportunities, they pay upon request reliably (important!), and they don’t seem to mind if I don’t do every single survey offered.
Now that LendingClub has finished their SEC filing and is one of the only P2P lenders currently operating (everyone else either shut down or is in an SEC quiet period), let’s take a look at some of the changes. You are now officially “investing” in notes offered by LendingClub, as opposed to directly “lending” to private individuals. The bad news is that this also means some new restrictions that have been added. The good news that now these notes can be traded on a secondary market, offering liquidity for loans that used to be a 3-year commitment.
I have always found borrowing from LendingClub to be very straightforward to borrowers. You get a 3-year, unsecured loan at a fixed rate. If you qualify (see below), you simply submit an free application and they tell you what rate you get. Then you can simply compare this rate with your other options – credit cards, home equity loans, whatever – before deciding if you want to attempt a listing. However, which the current credit conditions, remember that credit cards can only guarantee 6-12 months of a low rate, and home equity loans have gotten a lot more strict (and also put your house at risk).
Eligibility. However, be aware LC is only seeking “prime” borrowers. Borrowers must be a US citizen or permanent resident, and at least 18 years old with a valid bank account and a valid Social Security number. You can’t be from the following 8 States: Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota, and Tennessee. You have to have good-to-excellent credit in addition to satisfying additional requirements. From their FAQ:
In order to qualify for listing a loan request, you will need a FICO score of at least 660 with a debt-to-income ratio (excluding mortgage) below 25%. In addition, your credit history must show that you are a responsible borrower:
* at least 1 year of credit history, showing no current delinquencies, recent bankruptcies (7 years), open tax liens, charge-offs or collections account in the past 12 months,
* no more than 10 inquiries on your credit report in the last 6 months,
* a revolving credit utilization of less than 100%, and
* more than 3 accounts in your credit report, of which more than 2 are currently open.
Put together, these minimums are actually relatively strict. However, as a lender I would say that crafting a convincing loan listing showing your income, expenses, and exactly how you plan to pay off the loan is still very critical to get your loan funded.
Fees. Borrowers pay an upfront fee that is a percentage of the loan amount. The fee ranges from 0.75% to 3.50% based on the credit grade given.
The interest rates charged by LendingClub currently vary from 7.37% to 20.11% (6.69 to 19.37% after fees) based on the credit grade assigned by LC after reviewing the borrower’s overall profile. There is no eBay-like bidding here. You see the rate, you read the listing and credit grade, and you decide either to fund it or not. Remember the minimum requirements above. The rates are higher than before, probably to counter potentially higher future defaults and to match increasing rates in the overall market.
Default Rates. You can see all the stats on existing LendingClub loans here. Up to this point, I have only investing in top-grade “A” loans. Out of 332 A loans, only 2 have been late since they started in June 2007. That’s a 0.6% late rate, with no defaults yet. Across all their loans, they have had a default rate of less than 3%. This includes a few loans that were of slightly lower quality than their current minimum requirements.
Looking at the overall late and default rates as compared to credit grades, it would appear the “sweet spot” is currently B and C grade loans. However, I personally still like minimal risk and plan on sticking mainly to A grade loans.
Finally, it is interesting to note that out of the $23 million of issued loans, there was also $199 million of “declined” loans. I’m not sure if this is due to rejection by LendingClub, or simply prospective lenders deciding that the loans were unsatisfactory. It also could be due to a lack of funds by lenders, so only the “best” loans were funded.
Eligibility. After the SEC filing, you must now meet certain minimum income and net worth requirements. You must also be a resident of on these 25 states (new states are added as they are approved):
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Minnesota, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.
Liquidity. All loans you take on can now be sold on a secondary market at FOLIOfn, so if you need your money back it is possible. As an existing lender, I had to fill out some additional information, but my application was approved in a day and I can now view a listing of loans that people want to sell. FOLIOfn charges the seller a 1% trading fee.
Fees. Lenders pay a 1% service charge on all interest payments. Due to reasons that I haven’t worked out, this reduces the APR by less than 1%.
In general, my use of LendingClub has been limited to some experimental investing. I like the idea and I like trying out new financial services, but as I mentioned, I’m also very risk-averse. My loans have to have an A-grade (I choose them myself and don’t use LendingMatch). Also, they have to outline a clear plan for repayment. My main problem so far is a lack of such high quality loans. I’ve only funded about 8 loans so far, but the volume seems to be picking up. I’ve been earning about 7% (8% minus fees) with no lates or defaults. The movement of money back and forth between my bank is smooth, just like with an online bank. I only wish there was an “instant funding” feature, as I don’t like to keep idle cash sitting there, but I like the ability to fund attractive loans quickly before they fill up.
In fact, although I usually don’t care about this sort of thing, yesterday I used their loan map mashup and actually found a loan by a local store that I have shopped at before. After reading it over, I am now moving some funds in to help fund that loan. Should be interesting.
How are your experiences with Lending Club?
Ah, hedge funds, so sexy with their “rich people only” requirements and secretive investments. I have been catching up on a bunch of news articles about Bernard Madoff, who was recently arrested after admitting that his hedge fund was “all just one big lie” and a “giant Ponzi scheme”, estimated that his investors will lose about $50 billion. If true, this represents the one of the largest cases of investor fraud and definitely largest Ponzi schemes in history. The SEC said it appeared that virtually all of the assets of his hedge fund business were missing. Oops.
According to this NY Times article, lucky investors included J. Ezra Merkin, the chairman of GMAC; Fred Wilpon, the principal owner of the New York Mets; and Norman Braman, who owned the Philadelphia Eagles. Unfortunately, there was also substantial money from several charities and endowments. Finally, throw in a few other hedge funds which did zero original thinking and instead simply invested their money in Madoff’s hedge fund as well.
Mr. Merkin, a prominent philanthropist and the founder of several hedge funds, including one called Ascot Partners, jolted his clients on Thursday with a letter announcing that “substantially all” of that fund’s $1.8 billion in assets were invested with Mr. Madoff.
“These investors were never aware that all of their money was invested with Madoff,” Mr. Susman said. “They are obviously shocked.”
Surprise! I also love the marketing techniques:
Mr. Madoff emphasized secrecy, lending his investment accounts a mysterious allure and sense of exclusivity. The initial marketing often was in the hands of what one source described as “a macher” (the Yiddish term for a big shot). At the country club or another exclusive rendezvous, the macher would brag, “I’ve got my money invested with Madoff and he’s doing really well.” When his listener expressed interest, the macher would reply, “You can’t get in unless you’re invited…but I can probably get you in.” [WSJ]
Sometimes it seems that human nature just dooms us to want to believe in impossibly easy money. If you aren’t familiar, check out this previous post on 12DailyPro (another Ponzi which suckered in a much less wealthy crowd) and a book about life of the original 1920s Charles Ponzi.
This is a follow-up about the WT Direct Winter Bonus promo good for up to $250 on top of their standard interest rate of 3.06% APY, if you open a new account and maintain a certain average balance for January and February. There is still time to participate, the deadline is to fund via ACH transfer initiated by 12/22 now 12/31/08.
I’ve decided to participate, since I get to remain liquid and interest rates look to only be dropping lower. 3-month Treasury Bills were yielding a negative interest rate for a while! See my previous post about this offer for details about the fine print. Below is some more info gathered after applying myself.
Application Process and Setup
The application process was pretty standard, with this bar above the application providing a good overview. First, they gather the personal info. Second, they use the now-popular Equifax ID check questions to verify your identity. Third, you can fund electronically with account and routing numbers, although you must come back and verify trial deposits later (you don’t have to fund all at once for the bonus). Finally, you can electronically sign the application and disclosures. There were no physical forms to send in, although a welcome packet does arrive by mail. They state explicitly that there is no credit check:
This information will be used only to verify your identity and will not be used for any other purpose. We do not perform a credit check and your answers to these questions will not affect your credit rating.
If you count Day 0 as the application day, the trial deposits should arrive either Day 1 or 2. If you verify them immediately, then your deposit should be sucked out on Day 3. Ignoring weekends, your funds should show up on Day 5, at least based on my experience.
If you are linking with other savings account, WT Direct may show up as Wilmington Trust Bank, which is what the WT stands for. Your account number is given to you at the end of the application, and the routing number is 052173464. WT Direct’s online transfer system allows unlimited linked banks, and transfers to external accounts are free both in and out with a 2-3 day transfer time.
Last time, WT Direct offered people who signed up under their promotion an 0.50% extra APY for 4 months after it ended. Hopefully they’ll do that again.
Here is a chart that plots out the distribution of annual returns of the US stock market as measured by the S&P Market Index*. Guess where 2008 is so far?
This chart does a great job to fix the assumption that some have that the 8% or 10% annual returns we hear about come every year. Nope, those are just historical averages. Sometimes we lose 40% or more, and sometimes we gain 40% or more – in just one year! So you can’t say today that it will take X years at 8% per year to get back to what you had before. It could take longer, or it could take a lot less.
* The source for this data is a bit vague since both the S&P company and the S&P 500 index did not exist in 1825. Most sources quote Value Square Asset Management, Yale University. I found it via Daily Kos through Bogleheads and Get Rich Slowly. Here is another similar graph. It is not clear if the chart is based on total annual return, or simply a percentage change in price each year, but it looks like the latter. This paper (also from Yale) with data from 1815 to 1925 might be related.
Vanguard has a new article titled The importance of saving more, which tries to address evidence that investors may believe that “choosing investments that offer the possibility for relatively higher returns—and accepting the accompanying greater degree of risk—is a more viable alternative than saving more.”
In addition, the last few months probably have many of us re-examining the amount of risk we are comfortable with in our portfolios. I know I have. So what can we do?
Taken from the article, the figure below shows hypothetical outcomes for different portfolios based upon the following scenario: A 35 year-old individual begins saving 4% (grey bars) of his gross annual salary ($50,000, adjusted annually for inflation) each year for 30 years. In the red bars, the same individuals instead saves 6% of his salary. I highlighted two of the more interesting situations with the green arrows:
Here you see that based on historical data, the combination of a 50% stock/50% bond allocation and a 6% contribution rate leads to a similar range of outcomes as a 100% stock allocation and a 4% contribution rate. In fact, the former has a slightly better median outcome with much smaller swings over the years.
For example, a 50/50 asset allocation this year would have been down only around about 20%, instead of the stomach-churning 40% drop of a 100% stock portfolio. Wouldn’t that have been nice?
Higher savings provides a higher probability of success by shifting some of the responsibility for accumulation from the less-certain return stream of risky assets to a more-certain savings stream. In the end, if an investor is trying to maximize future wealth, a marginally higher savings rate rather than a substantially higher risk portfolio is the most likely path to retirement success.
As opposed to many rules of thumb, not everyone at the same age has to have the same asset allocation. Savers may get to take less risk and sleep better at night. 🙂 Something to think about…
I’ve been trying to re-balance my portfolio using my recent 401k contributions, but I ran into some speed bumps, so here is a brief interim update.
| Retirement Portfolio | Actual | Target |
| Asset Class / Fund | % | % |
| Broad US Stock Market | 27.7% | 34% |
| VTSMX – Vanguard Total Stock Market Index Fund | ||
| DISFX – Diversified Stock Index Institutional Fund* | ||
| FSEMX – Fidelity Spartan Extended Market Index Fund* | ||
| US Small-Cap Value | 9% | 8.9% |
| VISVX – Vanguard Small Cap Value Index Fund | ||
| Real Estate (REITs) | 8.5% | 8.5% |
| VGSIX – Vanguard REIT Index Fund | ||
| Broad International Developed | 25.8% | 25.5% |
| FSIIX – Fidelity Spartan International Index Fund* | ||
| International Emerging Markets | 7.1% | 8.5% |
| VEIEX – Vanguard Emerging Markets Stock Index Fund | ||
| Bonds – Short-Term | 4.6% | 3.8% |
| VFISX – Vanguard Short-Term Treasury Fund | ||
| Bonds – Inflation-Indexed | 12.7% | 11.3% |
| VIPSX – Vanguard Inflation-Protected Securities Fund | ||
| Cash | 4.7% | 0% |
| FDRXX – Fidelity Cash Reserves | ||
| Total Portfolio Value | $95,678 | |
* denotes 401(k) holding given limited investment options
Contribution Details
For 2008, we have finally both contributed the annual maximum of $15,500 each towards our respective 401ks. We have not made any 2008 IRA contributions, but we did make 2007 contributions in April 2008. We will likely do our 2008 contributions in April 2009 deadline.
YTD Performance
The 2008 year-to-date time-weighted performance of our personal portfolio is now -42.5% as of 12/8/08.
For reference, the Vanguard S&P 500 Fund has returned -36.69% YTD, their FTSE All World Ex-US fund has returned –47.98% YTD, and their Total Bond Index fund is +2.20% YTD as of 12/8/08. The Vanguard Target 2045 Fund has returned -35.79 YTD, primarily due to a small international allocation.
Investment Changes
In my wife’s 401k plan, a few new investment options were added, including the Fidelity Extended Market fund (FSEMX). This is a nice complement to their in-house S&P 500 index fund. If you take 75% S&P 500 and 25% Wilshire 4500 Completion Index, you pretty much get the Total US Market, so we have moved our investments to that and sold off the bit that we had in the actively-managed Dodge & Cox fund. Nothing else in that 401k is terribly appetizing.
We have used our new contributions to bring us back towards our asset allocation target, with a 85% stocks/15% bonds split. This means I have been buying more International, REIT, and Small Cap. I have also been swapping funds around to make things “fit” better, due to the limitations of spreading money across different accounts.
You’ll notice that I am really below-target in my US allocation, and have $4,500 in cash. This is because the fund minimum for the Fidelity Spartan Total US index fund is $10,000 (in my 401k). In early 2009, I hope to add enough money to reach the minimum. I could buy ETFs instead or another more expensive Fidelity fund as a tracker, but not sure if I want to pay the roundtrip commissions given that it will be less than a month. Currently on the fence.
You can view all my previous portfolio snapshots here.
Blockbuster Online is running a new PayPal promotion where new members can get a $25 rebate for signing up for any Blockbuster movie subscription trial and keeping (and paying) it for at least on month. Any plan qualifies. Their cheapest plan is only $3.99 per month, which allows you one video out at a time via mail only, with a maximum total of two per month. So you could see it as “lots of free movies” or “$21 + two free movies”. Just in time for some movie watching over the holidays!
Here are selected portions of the fine print:
Eligibility: You must be a new BLOCKBUSTER Online subscriber in order to take advantage of the free trial to BLOCKBUSTER Online and this Offer. Eligible Purchase: To receive the $25 Cash Back Offer, simply stay on as a paying BLOCKBUSTER Online subscriber, using PayPal as your payment method, for one (1) monthly billing cycle. Any BLOCKBUSTER Online plan qualifies for the $25 Cash Back Offer, so long as you remain a paid subscriber for one monthly billing cycle. Offer Period: The $25 Cash Back Offer starts on November 19, 2008 at 12:01 am Central Time and ends on December 22, 2008 at 11:59 pm Central Time. Cash Back Payment: The cash back payment will be deposited into your PayPal account within 6-8 weeks after the promotion ends.
I just got a letter from Washington Mutual / Chase telling me that they have closed my credit card account with them effective November 14th, 2008. That’s nearly a month ago! The reason stated was simply that I hadn’t used it in over 12 months. I normally wouldn’t care too much, but this is a relatively old card (back from when they were Providian) which helps your credit score and it also gave me a free FICO score update each month. Doh! I might call them and see if there is anything that can be done.
Now, it’s totally within their rights to do this, but it is kind of annoying and not the best customer service in my opinion. Last month, I got a similar letter from Citibank, but it warned me that if I didn’t use it within a month, it would be closed. So I just used it quickly and everything was fine. That seems like a more reasonable response.
The easy solution is to remember to use each of your credit cards at least once per year. I would simply use it to pay $5 towards your cell phone or cable bill online, since they let you do multiple partial payments. Then mark the card and tuck it away again. Here’s a solid list of the best credit cards for 2012 to get you started.
Part of estimating your needs in retirement and also in buying life insurance is to know your likely life expectancy. Although kind of morbid, one calculator to help you do this is The Longevity Game by Northwestern Mutual. You just answer a few questions about your lifestyle and family history, and it gives you a number based on their actuarial tables. Fun animations too!
It turns out my median life expectancy is 85, while my wife’s is 95. Not sure how she plans on enjoying a decade without me, but I have been working out more this week as a result. 🙂 This site was found inside one of the 18 books I am trying to read simultaneously, Worry-Free Investing. The books uses it to show that for couples, there is a very good chance at least one of you will reach 95 or 100. So if you want to retire early, you basically need a portfolio that you can live off the income essentially forever while also having the principal keep up with inflation.
Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 3-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of good low fee 0% APR credit card offers, I don’t think I’ll be doing anymore in the near future.
Retirement and Brokerage accounts
Ignoring new contributions, my retirement accounts have lost about ~$8,500 over the last month. I will perform another portfolio update soon to find more accurate year-to-date return numbers.
I have sent in another $5,000 late last month and $5,000 this month in order to max out my pre-tax 401k contributions for this year. My asset allocation is way off target so I need to sit down and try to rebalance using these funds today. It might be tricky to due to the $10,000 minimums for index funds at Fidelity, and I might actually buy ETFs and pay the trade commission.
Cash Savings and Emergency Funds
Why am I not panicking (yet)? Well, I think a big part is my fat cash pile that serves as my emergency fund. In my mind, having a separate short-term reserve keeps me from worrying about my long-term “can’t touch” portfolio.
I have about $49,000 net in sitting in different forms of safe cash earning from 3 to 6% interest, while now my entire retirement portfolio is worth about $93,000. I will keep accumulating cash until I reach a full year’s worth of expenses, which is about $60,000. I think this is prudent given the high unemployment rate right now.
Home Equity
This is the second month of testing out my new way of estimating our house’s value. Again, I take the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total). I use this final number as my estimate for home value. Looks like my home value has dropped by another 1% or so.
Overall, another tough month. However, I am very thankful we both still have jobs – knock on virtual wood!
You can see our previous net worth updates here.
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