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Beware of Peer-to-Peer Lenders Top peer-to-peer lending sites include the Lending Club, Prosper, Funding Circle, Upstart, Kiva & Zopa. |
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May 17, 2015: When
we have the next economic
contraction or recession, those who make loans via peer-to-peer lending
could see a nasty surprise. Top peer-to-peer lending sites
include the Lending Club, Prosper, Funding Circle, Upstart, Kiva &
Zopa.
During the past few months I have seen interest by people not known for having the best investment timing ask about peer-to-peer lending sites as a way to get better returns for their fixed income. My stock reply is I want my fixed income investments guaranteed by the government. These investments could be more risky than owning dividend paying stocks, my preferred investment for "risk assets." Spreading risk between 100 risky borrowers could mean you lose money when the economy turns down. The sites who want your money for a fee to broker these deals will keep your fees and you will be stuck with zero collateral if the borrowers default. When interviewed for the article "How the 'sharing economy' helped me claw out of massive credit card debt," Ron Davis, the face on the Prime Meridian web site said something to Ken Sweet that reminded me of what the regional banks were doing just before the financial collapse that scared me enough to sell my very profitable position in Fidelity Select Regional Banks mutual fund BEFORE the financial collapse. Excerpts from the Ken Sweet AP article that should leave you scared:
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Prime Meridian Income Fund provides investors low cost access to short-duration high yield consumer loan portfolios from creditworthy borrowers that produce consistent returns. This fund lets investors participate in the enormous and profitable consumer credit market that has previously been the exclusive territory of a few big banks. The objective of the fund is to outperform peer-to-peer lending platforms and other fixed income portfolios by using a dedicated API with proprietary credit algorithms to overweight the best risk/reward loans in a broadly diversified portfolio. Pay Attention: The Prime Meridian Income Fund is available to "Accredited Investors" only. That means you have to be large enough to buy something stupid and take responsibility for this. You are not granny looking to invest her life savings of $10,000 in a CD... sort of like you need to be a pension fund or rich person who can sign a sheet saying you know this is a risky investment... with more risk than banks are willing to take.... The big banks sold the risky loans to "accredited investors" before the financial collapse. It was the big pension funds and large institutions who suffered along with rich, "accredited Investors" whom the law assumes are smart enough to know what risk they can safely take. Obviously, I believe many of them are fools, including large pension funds. My Advice remains the same. Take risk with individual stocks and index mutual funds via the "Core and Explore" approach detailed in my newsletter [Subscribe ] and keep your fixed income as safe as possible. I prefer to take risk with high risk stocks (currently two biotech stocks and a gas drilling stock) where the upside is unlimited rather than make loans to folks wishing to pay off credit card debt at a lower rate. . |
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Note 1. Source: Prime Meridian Income Fund "Prime
Meridian Income Fund provides investors low cost access to
short-duration high yield consumer loan portfolios from creditworthy
borrowers that produce consistent returns. This fund lets investors
participate in the enormous and profitable consumer credit market that
has previously been the exclusive territory of a few big banks. The
objective of the fund is to outperform peer-to-peer lending platforms
and other fixed income portfolios by using a dedicated API with
proprietary credit algorithms to overweight the best risk/reward loans
in a broadly diversified portfolio." Note 2. Top 6 Peer to Peer Lending Sites |
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Disclaimer: The information contained in this web site is not intended to constitute financial advice, and is not a recommendation or solicitation to buy, sell or hold any security. This blog is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. Copyright © 2015 Kirk Lindstrom. Note: "CORE & Explore®" was coined by and is a registered trademark of Charles Schwab & Co., Inc. |