P2P lender Prosper.com exit strategy now that Folio Investing Note Trader service has been shutdown

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My wife and I each have an IRA with Prosper.com. I've been happy with Prosper and have added to it each year. I've never used the note trading part of Prosper, but I knew it was there if I ever needed it. Now that it has been shutdown, I'm concerned about an exit strategy when something should happen to us. I don't want my trustee to have to wait five years for all my loans to mature to be able to get to all the money. I've search the web, but I don't see anyone else asking this question. I would think it would be on a lot of people's minds. With no note trading option, how can someone liquidate their Prosper investment without waiting for all the loans to mature? Is your estate really going to have to sit around and wait for all your notes to mature to be able to get to all their inheritance.

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How much notice did they give? I'm on LendingClub and would have the same concern.

I would be worried that might mean they aren't doing well, but you'd think they'd make a lot on the exchange fees too. Perhaps they are just trying to meet some SEC regulations and staying away from being labeled securities traders.

walletfart said:   How much notice did they give? I'm on LendingClub and would have the same concern.

I would be worried that might mean they aren't doing well, but you'd think they'd make a lot on the exchange fees too. Perhaps they are just trying to meet some SEC regulations and staying away from being labeled securities traders.

  Looks like one month. Some details and perspective here:

http://www.lendacademy.com/prosper-closing-secondary-market-reta...

I have a lending club ira and have concern as balance is somewhat trapped as each withdraw is costly but alternative is to leave cash idle for years. Lessen impact by only reinvesting only in 36 month loans. Will at least bring down to 3 years within 2 years. Can reevaluate at that point

I'm trying to decide whether to add my 2016 Roth IRA contribution to Prosper or Schwab. I've loved Prosper for two years now, even with all their insane business practices, but if my trustee has to wait five years to get all the cash, I don't think it's a prudent investment for me anymore. I know it's not a liquid investment, but it was nice to know there was the Folio exchange if it was ever needed. Yes, you may need to take a discount, but if needed, that would be acceptable. Is everyone else okay with this scenario when you die? It doesn't matter if it's an IRA or taxable account, your family can't get to the money when you die.

What about RMDs, both for owners who hit 70 1/2 and non-spouse inheritors.  How would the IRS handle that kind of situation where the money was locked up so you couldn't take the RMD.  Is it valid to say it can't be dispersed or would they get a penalty because you didn't take the RMD.


AverageGuy09 said:   What about RMDs, both for owners who hit 70 1/2 and non-spouse inheritors.
  
You'll be required to take a distribution in the proper amount,  see your tax advisor.

Also; from a risk standpoint    Prosper loans are high-risk consumer debt notes,  and it would probably not be advisable to have a majority of your IRA assets tied up in such an illiquid high-risk instrument if you're less than 15 years from planned retirement.

This is a quandary I don't like to be in, but I like Prosper enough to give them another year of my wife's and my Roth IRAs. I've looked into Lending Club and they do allow IRA accounts to trade notes on FolioFN. I'm just hoping that Prosper gets their act together and brings back FolioFN or some other option to liquidate an IRA if desired. If they don't get their act together, maybe Lending Club will end up buying Prosper out. I just don't want to open a Lending Club account, take the time to learn all their quirks and then slowly transfer funds from Prosper to Lending Club since I've finally gotten Prosper working smoothly for me. Sorry, but I'm lazy. I know these notes are note liquid, that's the whole point of this investment class, but since Lending Club offers it, I want it from Prosper as well. Since we're in our early 50s, I know lots of changes will be happening to both of these companies over the coming years. I just hope these changes are things that are better for the retail investor.

I have both taxable and Roth IRA accounts with both Prosper and Lending Club. The accounts have been active for several years, and after all this time and all the research I have done, I can say this with all confidence... Having a P2P lending IRA account is one of the worst investments you can make. A taxable account is fine, since you can withdraw the funds any time as the payments are made. With an IRA, it is a nightmare to get your money out, especially with Prosper. At least Lending Club has a Transfer option that allows you to skip one step in the withdraw process.

Either way, be prepared to fill out confusing forms, which you must have notarized and mailed to the lending platform and to the custodian. And then, you can only get whatever cash is laying around idle at the time. It can take up to four weeks for the transfer. If you want to take more money out the following month, you have to start all over and fill out new forms. If you allow your balance to dip below $10,000, then you get hit with a $100 anual maintenance fee, which you will be paying for as long as the account is open.

I urge anyone reading this to reconsider before opening a P2P lending IRA, or contributing any more money to one.
All your gains will get gradually wiped out when you stop buying new notes, and your pile of idle cash continues to accumulate, earning absolutely nothing for about 5 years. It is a lousy investment indeed.

I've had a LendingClub taxable account for several years and after all this time & all the research I have done, I can say this with all confidence, having a P2P lending account taxable accounts is one of the worst investments you can make.

All interest is taxed at ordinary income and all losses are capital losses capped at 3k/year.

In addition, despite in risky notes that LC claimed to have the highest returns (11-13% at the time of investment), the returns are more like 4%, before taxes. Not sure how they calculated the 11-13% or the projected returns by note type as they don't disclose it but it certainly doesn't reflect the ROI reality--try ~4% before the terrible tax grinder.

Additionally my investing took place in 2012 & 2013 so the portfolio is almost wound down now, however they have ramped up their subprime & overall lending significantly since then so I would expect future returns to be even lower.

IF you have capital gains from other sources it could be a more viable lower risk, lower yield strategy outside an IRA. If not it's just not a great idea.

P2P lending is a suckers game, the secondary market even moreso. There is a reason banks won't loan those borrowers the money.


LendingClub Return
Disclaimer
LeveragedSpeculator said:   I've had a LendingClub taxable account for several years and after all this time & all the research I have done, I can say this with all confidence, having a P2P lending account taxable accounts is one of the worst investments you can make.

All interest is taxed at ordinary income and all losses are capital losses capped at 3k/year.

In addition, despite in risky notes that LC claimed to have the highest returns (11-13% at the time of investment), the returns are more like 4%, before taxes. Not sure how they calculated the 11-13% or the projected returns by note type as they don't disclose it but it certainly doesn't reflect the ROI reality--try ~4% before the terrible tax grinder.

Additionally my investing took place in 2012 & 2013 so the portfolio is almost wound down now, however they have ramped up their subprime & overall lending significantly since then so I would expect future returns to be even lower.

IF you have capital gains from other sources it could be a more viable lower risk, lower yield strategy outside an IRA. If not it's just not a great idea.

P2P lending is a suckers game, the secondary market even moreso. There is a reason banks won't loan those borrowers the money.

  
I've averaged over 13% pre-tax returns on my LendingClub portfolio.  I use an automated filter to select notes to lend.  What were you investing in that only resulted in a 4% return?

 

drewz05 said:   
LeveragedSpeculator said:   I've had a LendingClub taxable account for several years and after all this time & all the research I have done, I can say this with all confidence, having a P2P lending account taxable accounts is one of the worst investments you can make.

All interest is taxed at ordinary income and all losses are capital losses capped at 3k/year.

In addition, despite in risky notes that LC claimed to have the highest returns (11-13% at the time of investment), the returns are more like 4%, before taxes. Not sure how they calculated the 11-13% or the projected returns by note type as they don't disclose it but it certainly doesn't reflect the ROI reality--try ~4% before the terrible tax grinder.

Additionally my investing took place in 2012 & 2013 so the portfolio is almost wound down now, however they have ramped up their subprime & overall lending significantly since then so I would expect future returns to be even lower.

IF you have capital gains from other sources it could be a more viable lower risk, lower yield strategy outside an IRA. If not it's just not a great idea.

P2P lending is a suckers game, the secondary market even moreso. There is a reason banks won't loan those borrowers the money.

  
I've averaged over 13% pre-tax returns on my LendingClub portfolio.  I use an automated filter to select notes to lend.  What were you investing in that only resulted in a 4% return?

 

  How long have you had that portfolio?

My portfolios were also reporting north of 13% returns when I was actively buying more notes with the incoming payments. That number has steadily been decreasing since I stopped buying notes, and now my current rate of return is reported at 3.54%, with most of my notes being well past the 12 month maturity mark. I am not sure if that estimate takes into consideration all the idle cash that has been accumulating, but I sure consider that a loss since that cash would be doing much better invested in the stock market. Heck, even bonds would be better.

I can tell you that Prosper's estimated returns report a "higher" rate than Lending Club. How accurate those numbers are, that's hard to determine.
As for the composition of my portfolios, I have close to 4000 notes, most of which are grades C, D, E, with a few F and G. Surprisingly, most of the notes that have gone sour have been B and C.

The regular income I am getting from the taxable accounts is actually not bad. It is pretty stable, and the high rate of sub-prime interest compensates well for the charge-offs and defaults. But I have stopped buying any more notes because I just don't trust the business model of either Lending Club or Prosper. If they go down, the entire portfolio is at risk. Granted, my P2P portfolio is only a small percentage of my investments, but still, it makes me nervous adding any more.

My main gripe is, as I stated in my previous post, the way they handle IRA accounts. Your money is trapped, and if you decide to get out, it will cost you in opportunity loss with all the idle cash left sitting around. And if you decide to take it out gradually (which is a pretty painful process), you must either leave $10,000 behind, or start paying anual maintenance fees until the last note is closed. Keep in mind that notes can remain active well past the 5 years, if they are in a status where recoveries can still be pursued. Heck, I still get payments once in a while from notes that have charged-off many months ago.


Lending Club returns
Disclaimer
I have also noticed reduced returns in recent years and have been liquidating my portfolio. My returns on "primary notes" are actually slightly less than zero, but that's probably just because all of the best loans have already been sold (at a profit).

I used Upstart to meet a minimum spend offer and was considering sticking with that platform, but then they raised their fees, got rid of the fee refund for defaults, and removed the ability to invest in anything other then a fully blended portfolio, so I decided not to reinvest there, either.

I posted my original question on another forum as well. You might want to take a look for other thoughts on this issue.

http://forum.lendacademy.com/index.php/topic,4311.0.html 

cestmoi123 said:   
drewz05 said:   
LeveragedSpeculator said:   I've had a LendingClub taxable account for several years and after all this time & all the research I have done, I can say this with all confidence, having a P2P lending account taxable accounts is one of the worst investments you can make.

All interest is taxed at ordinary income and all losses are capital losses capped at 3k/year.

In addition, despite in risky notes that LC claimed to have the highest returns (11-13% at the time of investment), the returns are more like 4%, before taxes. Not sure how they calculated the 11-13% or the projected returns by note type as they don't disclose it but it certainly doesn't reflect the ROI reality--try ~4% before the terrible tax grinder.

Additionally my investing took place in 2012 & 2013 so the portfolio is almost wound down now, however they have ramped up their subprime & overall lending significantly since then so I would expect future returns to be even lower.

IF you have capital gains from other sources it could be a more viable lower risk, lower yield strategy outside an IRA. If not it's just not a great idea.

P2P lending is a suckers game, the secondary market even moreso. There is a reason banks won't loan those borrowers the money.

  
I've averaged over 13% pre-tax returns on my LendingClub portfolio.  I use an automated filter to select notes to lend.  What were you investing in that only resulted in a 4% return?

 

  How long have you had that portfolio?

  I opened it in June of 2013.

drewz05 said:   
LeveragedSpeculator said:   I've had a LendingClub taxable account for several years and after all this time & all the research I have done, I can say this with all confidence, having a P2P lending account taxable accounts is one of the worst investments you can make.

All interest is taxed at ordinary income and all losses are capital losses capped at 3k/year.

In addition, despite in risky notes that LC claimed to have the highest returns (11-13% at the time of investment), the returns are more like 4%, before taxes. Not sure how they calculated the 11-13% or the projected returns by note type as they don't disclose it but it certainly doesn't reflect the ROI reality--try ~4% before the terrible tax grinder.

Additionally my investing took place in 2012 & 2013 so the portfolio is almost wound down now, however they have ramped up their subprime & overall lending significantly since then so I would expect future returns to be even lower.

IF you have capital gains from other sources it could be a more viable lower risk, lower yield strategy outside an IRA. If not it's just not a great idea.

P2P lending is a suckers game, the secondary market even moreso. There is a reason banks won't loan those borrowers the money.

  
I've averaged over 13% pre-tax returns on my LendingClub portfolio.  I use an automated filter to select notes to lend.  What were you investing in that only resulted in a 4% return?

 

  
Blended portfolio of D through G rated notes, without too many G's as they don't issue too many.  13%+ sounds to me like your portfolio is very new.  My primary notes Net Annualized Return is 3.83% and Adjusted Net Annualized Return is 3.70%.



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