Guest Post from Living off Dividends (aka on Prosper WealthBuildingLessons).
I have a blog called living off dividends where I discuss, among other things, my passion for investing and generating income that can be used to replace one’s salary. I have numerous different types of investments like rental properties, stocks, canadian income funds, CDs, foreign currency ETFs as well as owning loans on Prosper.com.
Since a lot of my net worth is in illiquid investments like real estate, the rest of my investing has to be relatively liquid. This means that it shouldn’t be locked up for 10-15 years or more and it should be relatively easy to invest in.
Building a portfolio of loans on Prosper.com is easy and while it does tie up the money for 3 years, the returns are almost three times larger than on a 3 year CD.
Bidding on loans on Prosper.com is a form of asset allocation. You can’t always predict which asset class will do well so you spread your investments over various classes as a way of lowering your risk and boosting your yield.
While bidding on loans on Prosper.com is not without risk, my overall experience (and investment returns) have been quite positive. I’ve been investing for nearly 18 months and I’m receiving over 13% annualized returns. That sure beats any 3 year CDs on the market! I love investments where I can get 5% more than I get in a savings account, and without too much risk.
As an investing buff, I’m also a big fan of compound interest. I think it was Albert Einstein who said that one of the greatest mathematical discoveries was compound interest. One of the greatest proponents of this belief are the credit card companies. They charge you 20%+ interest on your balance, but you don’t usually have to pay more than a fourth of the interest accrued every month. This results in you having to pay interest on the accrued interest from the very next month.
I like my investments to have the potential for compounded returns. The interest on your savings automatically gets compounded. But most people stop there. They don’t try to compound the returns of their other investments. By re-investing a stock dividend back into the stock, you can essentially compound your stock returns too. Even Prosper loans have the potential for compounded returns by re-bidding the interest payments back into more loans.
So far, I’m quite happy with lending on Prosper.com. It fulfills most of my investment criteria and at tax time they even streamline your accounting by providing you with a statement detailing your interest income and expenses. If you haven’t already given it a shot, now’s a great time to do so.
Nirav is the author of Living Off Dividends, a blog about investing. He’s currently lives in San Diego, California but has lived in England and India. He is an active lender on Prosper.