Prosper as a cash or CD proxy - Advice requested

[johnh530]

While most people seem to be interested in Prosper to get a high rate of return - I am interested in using Prosper as a cash/CD replacement with a 5 year horizon.

I have retirement money in equities which are moderately aggressive - I have a budget for how much will be needed with a 5 year horizon.  If there were no inflation I would be happy to put that money in cash so if the stock market tanks I will not have to sell stocks at discounted prices.  If stock market performs reasonably then I'll make adjustments in the amount of this money based on future budget needs.

While inflation is not high, CD rates are below inflation so I'm thinking of putting this money into Prosper which seems to have higher than inflation rate of returns even for loans with AA ratings.

My main concern is will I be able to sell my notes on folio if the market tanks and I need the money? - if so how much should I expect to lose in addition to the 1% fee charged to folio?  How long should I expect to unwind things if needed?

Aside from these questions - Do you think I should go for just the AA rated notes with filters to minimize defaults or go for the gold like most people seem to do?

TIA for advice.

johnh...

[rawraw]

I'm a LC guy, but depending on when you unwind will impact Folio.  If it is 12 months from now, even selling at a discount will still bring you ahead from where you started (Just not as much ahead if you held to maturity).  You may get a 4% bump instead of a 10% bump or whatever the case may be.  But if you have to liquidate a day after the notes fund, you'll probably take a principal haircut.  And the amount is really hard to say given the little info we have.

[Peter]

Hi Johnh530,

Good to hear from you. Most investors on here, as you have surmised, are looking for outsized returns. Prosper has a less active secondary market than Lending Club but you will still be able to sell the majority of your notes easily. The one caveat with Prosper is that you cannot sell notes that are late, so you will only be able to sell your notes that are in good standing. But if you focus on AA-grade notes you will likely have a very small percentage of your portfolio that is late.

I will be happy to chat about this offline if you like. You can reach me through the Lend Academy contact form:
http://www.lendacademy.com/contact/" class="bbc_link" target="_blank">http://www.lendacademy.com/contact/

Best of luck.

[faeriering]

johnh,

Just please be aware of the risk you are taking.  CDs and cash in savings accounts at banks are FDIC insured.  This investment vehicle isn't.  The default rate on the higher grade notes are very low, but the asset isn't liquid and it isn't backed by the feds.

edit: corrected the cash statement to be specific about which cash accounts are FDIC insured thanks seattle sun for pointing out the mistake.

[lascott]

What about funds that are/like mutual funds in this space:

1) http://invest.lendacademy.com/#about-us" class="bbc_link" target="_blank">http://invest.lendacademy.com/#about-us

2) http://www.lendacademy.com/options-for-accredited-investors-at-lending-club-and-prosper/" class="bbc_link" target="_blank">http://www.lendacademy.com/options-for-accredited-investors-at-lending-club-and-prosper/

3) birchmereadvisors.com - great blogs below
Quote

[digit5]

Once your money is invested in loans every month (actually daily) some amount will be returned to your cash account as earned interest and principal paid. If your average loan return is 10%, monthly approximately 1% of your total notes will be back in your cash account. If you need a small amount of money, this can be withdrawn easily. Or, if you anticipate a need for some money you can let the interest and principal payout accumulate for a few months for that purpose. I have an account with Prosper. Since I don't need to access my investment, for now I reinvest my interest earned and principal paid off right back into more loans.

If you think you may need a substantial portion of your investment out all at once then this doesn't help you.

[Fred93]

https://forum.lendacademy.com/index.php?topic=2422.msg20807#msg88888888Quote"> from: digit5 on July 03, 2014, 04:21:00 PM

[SeattleSun]

https://forum.lendacademy.com/index.php?topic=2422.msg20790#msg88888888Quote"> from: faeriering on July 03, 2014, 10:58:00 AM

[Prescott]

Prosper is in no way a replacement for Cash or a CD.

As others have mentioned it is not FDIC insured. I'm comfortable and confident in the platform, even the secondary market which is a bit weak, that their viability and continued existence is not a concern I use in my calculations.

Looking at the interest rates in the grand scheme of things, they are higher than many / most corporate bonds, which should tell you this is just another fixed income investment in your portfolio, not a proxy for anything.

If you are trying to get a proxy, you need to be shooting for AA notes - it's a stretch to even say that AA's are a proxy for CD/Cash. I don't even like that I typed that.

You might consider short term bond fund. These typically invest in short term corporate and muni bonds for a decent return. The short term protects you some what against interest rate risk, which I think is real in the next 5 years (who knows how fast, but they gotta rise at some point). Pulling a random link http://money.usnews.com/funds/mutual-funds/rankings/short-term-bond" class="bbc_link" target="_blank">http://money.usnews.com/funds/mutual-funds/rankings/short-term-bond

Prosper / LC are good places to invest, but they should be viewed in context of your fixed income allocation, nothing else.

[TravelingPennies]

https://forum.lendacademy.com/index.php?topic=2422.msg20809#msg88888888Quote"> from: Fred93 on July 03, 2014, 05:11:33 PM