Author Topic: 36 or 60?  (Read 1882 times)

SkaXc0re77

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36 or 60?
« on: March 19, 2013, 04:07:37 pm »
Does this matter to you guys?

Now I know investment time matters on a personal investor-goals kind of way so let me just say I am only 25, so I do not look at this as a "short term" thing were in a few years I'd need my money back.  I have enough liquid savings floating around to survive.  But I have an IRA with a Franklin Temp Mutual fund so I wouldn't consider this nearly as long term as that... Every time I get $25 in payments, I buy a new note so it's not like I'm cashing out, but something about the 60 months make me feel ... weird.  And I know its not about opinion because historical performance and models is what most of you go off of... soooo

36 or 60 or Both indiscriminately?

Dennis

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Re: 36 or 60?
« Reply #1 on: March 19, 2013, 07:43:40 pm »
I think when you say "weird" you're probably asking if there is higher risk in 5 year notes as opposed to 3 year.  There may or may not be.  Great answer I know, but the reality is that P2P is still too young to have an exact answer for that.  But I believe the higher interest rates on 5 year notes do compensate for that risk - that's just an opinion though. 

I've been doing this for 19 months now, and have accumulated 41 charge-offs on 1400+ notes between LC and Prosper, but am still making a 15%+ return overall.  At Prosper 56% of my money is in 3 year notes, 44% in 5 year notes.  Of the 25 charge-offs there, only 4 are from 5 year notes with 21 being from 3 year notes.  At Lending Club 36% (between 2 LC accounts) is in 3 year notes,  and 64% in 5 year notes.  I have 16 charge-offs at LC, 9 are from 5 year, 7 are from 3 year.  So in my brief and limited experience in P2P lending, I don't see 5 year notes yet as riskier than 3.  But of course that could change over time.

SarahV

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Re: 36 or 60?
« Reply #2 on: March 19, 2013, 07:51:43 pm »
I don't pay attention to it at all. We don't really have enough history with 60 to say for sure. I have around half and half now but I think I will be moving more towards 60 because you can get a higher interest rate from the same quality of borrowers. Just like you can get a higher interest rate from the same quality of borrower if you go for large loans over small loans.

AmCap

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Re: 36 or 60?
« Reply #3 on: March 19, 2013, 08:29:44 pm »
I think I slant more towards 60 month loans...more an issue of availability than anything else, given the notes I look for.

Quote
...I am only 25, so I do not look at this as a "short term" thing were in a few years I'd need my money back.

This part of your statement caught my eye - I don't know that there's been much discussion on how investor age affects investment strategy.  I assume that the investors who contribute here range in age.  In other asset classes, I think there's general consensus that people should back off more aggressive strategies as they get older.  Is that the case here?

New Jersey Guy

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Re: 36 or 60?
« Reply #4 on: March 19, 2013, 10:19:21 pm »
"In other asset classes, I think there's general consensus that people should back off more aggressive strategies as they get older.  Is that the case here?"

I think it's more of a case when one plans to retire, and not as much as about age.

I'm 54.  I'm looking at 65 to retire, but I may stretch it to 67 depending on how my health holds out.  (So far, great!).

My Mutual funds are still moderately aggressive.  My trading strategy on Lending Club is very aggressive.  I figure I still have a good 7 to 8 years before I start to level my money into safer investments to conserve capital. 

Young people (Age 25) should be aggressive.  As far as stocks and bonds, stocks have always out-performed bonds over the long haul.  And cost-averaging can be your best friend.  And with 40 years of saving time to look forward to, aggressive investments will keep ahead of inflation and produce more superior results than playing it on the conservative side.

Yup, I have gray hair! I drive boring cars.  But I also have a 5-year old son!  He's got his own mutual fund.  Type-Very Aggressive Growth.
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SkaXc0re77

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Re: 36 or 60?
« Reply #5 on: March 19, 2013, 10:39:55 pm »
well im aggressive on here but my overall feeling of the experience is that it isn't "risky" when done intelligently.  I use IR.com and "sort of" know whats going on there.  Clearly I ask lots of silly questions here to fine tune what I'm doing. 

Yes, my money is tied up FOREVER since I'm not old enough to even start worrying about retiring.  But I still feel weird tying my money up for the next 5 years when that's 1/5 of my life so far.  (even tho my IRA is locked up for the next 40+...Ya there was panic attacks when I opened that sucker).

I actually tend to be risk adverse tho - the chance to lose it almost never out-ways the chance to make it triple in my mind.

New Jersey Guy

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Re: 36 or 60?
« Reply #6 on: March 19, 2013, 10:46:31 pm »
"But I still feel weird tying my money up for the next 5 years when that's 1/5 of my life so far."

You don't have to.
You can take the bigger interest payments at the start for as long as you wish.  When you feel the note isn't worth holding anymore, sell it off.  So basically, you aren't tying your money up for 5-years.  You can turn your notes over every 12-months if you want. (Or tomorrow, for that fact)

Lending Club is liquid.
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SkaXc0re77

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Re: 36 or 60?
« Reply #7 on: March 19, 2013, 10:57:21 pm »
liquidish

I have 15 notes currently listed, 30 expried/cxled due to payment, and have only sold 17 (with an 18th pending).  18/63 - batting .286 this month :-P (yay baseball almost starting!)

SeanMcD

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Re: 36 or 60?
« Reply #8 on: March 20, 2013, 03:13:36 pm »
Bear in mind that if you churn your notes very quickly, you'll be lowering your returns due to the time it takes for loans to fully fund, get approved, and start accumulating interest.  This assumes you're purchasing new loans - if you're purchasing loans on FolioFn, the downtime doesn't apply.

Simon

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Re: 36 or 60?
« Reply #9 on: March 21, 2013, 02:48:42 pm »
Big fan of 60month loans  8)
Writes at the peer to peer lending site LendingMemo.

AnilG

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Re: 36 or 60?
« Reply #10 on: March 21, 2013, 10:06:49 pm »
I don't invest in 60 month loans. I have analyzed historical data extensively on my blog wrt loan term. My primary reasons for not investing in 60 month loans

- limited history. None of 60 month loan vintage has gone through full maturity cycle.
- with longer length loans, in addition to default risk, inflation, interest rate, and market risks also become very important.
- Lending Club doesn't compensate lenders for higher risks with 60 month loans.
- 60 month loans have much higher default risk.

Does this matter to you guys?

Now I know investment time matters on a personal investor-goals kind of way so let me just say I am only 25, so I do not look at this as a "short term" thing were in a few years I'd need my money back.  I have enough liquid savings floating around to survive.  But I have an IRA with a Franklin Temp Mutual fund so I wouldn't consider this nearly as long term as that... Every time I get $25 in payments, I buy a new note so it's not like I'm cashing out, but something about the 60 months make me feel ... weird.  And I know its not about opinion because historical performance and models is what most of you go off of... soooo

36 or 60 or Both indiscriminately?
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

SeanMcD

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Re: 36 or 60?
« Reply #11 on: March 22, 2013, 05:47:50 pm »
- Lending Club doesn't compensate lenders for higher risks with 60 month loans.

The interest rate for 60-month loans is 5%-6% higher than it would be for the same loan with a 36-month repayment period.  How is that not compensating lenders for higher risk?

Zach

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Re: 36 or 60?
« Reply #12 on: March 22, 2013, 07:01:29 pm »
- Lending Club doesn't compensate lenders for higher risks with 60 month loans.

The interest rate for 60-month loans is 5%-6% higher than it would be for the same loan with a 36-month repayment period.  How is that not compensating lenders for higher risk?

I had the same thought as well...
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DanB

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Re: 36 or 60?
« Reply #13 on: March 24, 2013, 06:53:12 am »
What Anil is saying (obviously) is that the 60 month loans are not compensating investors enough to make them the better choice. For those of you who disagree with that assessment, I'd suggest you buy as many of them as you can, hold them & come back 2-3 & even 4 years from now (when they'll still be defaulting) & we can revisit this conversation.  :)

berniemadeoff

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Re: 36 or 60?
« Reply #14 on: March 24, 2013, 11:32:46 am »
I'm not sure why this has to be a binary decision.  If you believe you have a good way of identifying good borrowers, the returns on a 60mo note will be better than a 36mo from a similar borrower. If I was just randomly buying notes (via Prime for example), then I might exclude 60mo notes.  Anyways, nobody really know how any of this will pan out in the long run and LC and Prosper are constantly changing their formulas for setting rates, etc, so it's all basically educated guesses.