review Archives - Live Debt Free

Lending Club Review [My Personal Experience]

01.29.2013 by Matt Jabs //

In this article I will review in detail the subject of borrowing from Lending Club and then provide perspective from several individuals who have experience investing with Lending Club. Enjoy.

Peer Lending with Lending Club

My personal experience with Lending Club…

Lending Club is a social lending network that brings together investors and credit-worthy borrowers to offer value beyond traditional banks.

Borrowers with good credit can get personal loans from $1,000 to $25,000 at interest rates that are often significantly better than rates from conventional sources.

For lenders, money invested goes immediately to Lending Club’s approved borrower members. Most lender members spread their investment across tens or hundreds of qualified borrowers. Notes (that correspond to specific borrower loans) are offered only by means of a prospectus.

Borrower Lending Club Review

Those of you who read DFA on a regular basis know I am on a purpose driven mission to free myself and my family from the bondage of debt. For the last 7 months I have been trimming excess fat from every part of our budget and after making many positive changes have recently shifted my focus on getting a few big wins. That’s when I stumbled upon Lending Club…

My debt consolidation broken down…

A while back I had the eye opening experience of calculating my interest amount paid, and ever since have been growing increasingly restless over the high interest rates on my auto loan and 3 remaining credit cards. The rates, already high enough to make a gangster blush… were recently pushed even higher by my big bank lenders. And that was the last straw for me… I was ready for a change.

My loans and their rates:

Auto Loan – Capital One @ 10.5%
Credit Card 1 – JP Morgan Chase @ 14% (rate recently increased due to “bad economy”)
Credit Card 2 – Capital One @ 16.25% (rate recently increased due to “bad economy”)
Credit Card 3 – Citigroup @ 19% (rate recently increased due to “bad economy”)

I am almost never a proponent of borrowing money, but this is one exception where it is actually quite wise to in more than one way. It did not take much deliberation between me and my wife before drawing the conclusion that it was clearly in our best interest to go ahead and borrow from Lending Club in order to consolidate our high interest debt into one loan at a MUCH LOWER RATE.

Why Borrow with Lending Club?

Let’s be honest… nobody wants to borrow money… period. In fact — as I mentioned above — if you have been following my Debt Free Adventure then you know full well how adamant I am about paying off my debt and reaching financial freedom.

So why did I borrow?

I had heard about peer to peer lending, aka social lending, aka p2p lending before but had never really paid much attention or explored if it could be an option for me. Why? Because I am not looking to borrow money!

My idea to consolidate with peer to peer lending…

Since I hate dealing with credit card companies and big banks in general I wondered… could I borrow from Lending Club to consolidate my high interest consumer debt and pay less interest in the process?

Once on the scent of a big win, some obvious questions racing through my head included:

Who is lending us the money and would we be repaying “regular Joe’s” instead of the Big Banks whose practices we have grown to abhor?
What kind of interest rate could we get?
Will they approve our loan?
How long will it take?
How much are the fees?
Is this a wise alternative to simple debt repayment of our numerous individual high interest debt accounts?
Can I prepay the loan early without penalty?

I studied peer to peer lending with Lending Club…

I started poking around on the Lending Club website… studying every inch of it, especially the fine print! All of my questions were answered rather quickly and directly. Here are the answers I found to the above questions:

Individual investors (regular Joe’s like you and me) were lending me the money. As a matter of fact, I ended up getting financed by many other personal finance bloggers I interact with on a daily basis.
With our credit score we were able to secure a rate of 9.32%.
Our loan was approved in just a matter of hours.
An $11,000 loan cost us only $85 in fees.
Even after adding the $85 fee into the calculation, we stand to save $500+ over the life of the loan.
There are no prepayment penalties… so I could pay the entire loan off tomorrow if I so desire (although that may not make my investors the happiest campers!)

It was an awesome feeling to think I would be saving over $500 because of a much better rate, then also paying the necessary interest to friends and business associates rather than huge corporate banks in whom I have nothing short of anti-confidence.

While this was the best decision for my situation, make sure you evaluate your own situation strategically before proceeding — every situation is different and each will require careful attention to detail.

You can easily apply to see if you can get a rate that beats your other loans and credit cards balances… and if you can then consolidate your high interest debt through Lending Club is a solid idea.

Investor Lending Club Review

“Our investors join LC for the opportunity to make above-average returns and to diversify their current holdings in the stock market and other traditional investment vehicles. As the economy starts showing signs of recovery, many investors are also moving away from “defensive” assets like CDs and high-yield savings accounts.
With a 9.61% net annualized returns since we opened back in June 2007 (net of fees and defaults, across all credit grades) despite the tough credit market, LC certainly is an attractive option to benefit from a recovery in consumer credit.”
— Rob Garcia, Director of Product Strategy at Lending Club

~~Although I am not currently in a position to invest with Lending Club~~ (after paying off my Lending Club loan, I now invest with Lending Club) the system they have in place is fast becoming one of the best decisions to be made with investment dollars… especially in a down market. The alternatives available to the average investor pale in comparison to the several benefits offered when investing through LC.

Below I will list all the reasons to invest as found on the LC website, then deliver several testimonies from actual investors that I know personally. Several of which are my financial mentors, and all of which I trust.

On their website Lending Club gives us these 7 Lucrative Reasons to Become an Investor:

You can earn better returns – Since June 2007, LC investors have earned an average net annualized return of over 9%. Read the report by Javelin Research.
It’s straightforward – The money you invest funds loans made to creditworthy borrowers.
We’re selective – Many borrowers apply, but less than one in ten are accepted. LC approves only creditworthy borrowers as members.
It’s easy – We make it easy to build a portfolio based on your criteria. Most lending members spread their investment across tens or hundreds of qualified borrowers.
We set fair and fixed rates – Our rates are based on historical trends and the current economic climate. Borrowers pay a fixed rate for the 3-year life of the loan.
You get flexibility – You can reinvest any interest and principal payments each month or withdraw them like an annuity. You can also put your notes up for sale on the Note Trading Platform.
Do good while doing well – Many of our lender members find it rewarding to help others meet their financial goals. Especially in this economic environment, LC members come through when big banks do not.

Lending Club Investor Testimonials…

Each of the following testimonials are from individuals in my own personal contact list. They are not paid by Lending Club to share their opinion, rather they simply wanted to share their story in an effort to help other investors — seeking stable opportunities — to plug into the lucrative option they have found.

Another great part of LC is the ability to invest in those you trust. Both Nickel and Erica invested in us and helped fund our loan. I believe Pete tried, but our loan was funded so fast that he didn’t get the chance!

All of these investors agree that the returns they are making on Lending Club far exceed that which the could be making in a high yield savings account

– Nickel of FiveCentNickel.com

Over the past few months, I’ve become a fan of investing through Lending Club. Prior to actually trying it out, I’d been pretty skeptical of peer-to-peer lending. After all, the idea of lending money more or less directly to other people is pretty “out there” nowadays. I finally decided to give it whirl with a bit of “fun money,” and I haven’t look back since.
It’s too soon for me to make any grand claims regarding investment performance, but things have been going great so far. LC is very easy to use, and the interest rates are great. The fact that you can invest as little as $25 per loan also means that you can really reduce your risk by spreading your money around.
While we haven’t abandoned more traditional investment vehicles, we’ve been gradually increasing our LC investments as we’ve become more comfortable with the concept. On top of everything else, it’s kind of fun to know that your loans are directly helping real people.

– Erica Douglas of Erica.Biz

I’m a high net worth investor, and I chose to invest through Lending Club over many alternatives. Here’s why:
The stock market is risky and could plummet
It’s easy to get started with as little as $25
LC handles all the payments, so I don’t have to worry about collecting money directly from people
There aren’t any mammoth trading fees that would eat up an entire small investment like mutual funds/the stock market.
Besides, even a “high-yield” savings accounts is only paying 1% right now. 1% should be pretty easy to beat.
I use LC the way many people would use a CD ladder. I can liquidate my positions easily if needed via their Note Trading Platform. And it has far better returns than a CD ladder would.

– Pete of BibleMoneyMatters.com

Over the past year or so I’ve heard a lot about the peer to peer lending market, and investing through Lending Club. For quite some time I’ve been pretty skeptical about the concept, and I just assumed that most of the people borrowing through Lending Club were big credit risks unable to get a loan elsewhere. I also didn’t want to be lending money to people for irresponsible reasons. After talking with other lenders and doing a bit of research I’ve found that while there certainly are some folks on there that are big credit risks, as a lender you’re able to choose who you loan your money to, and what you lend for. That allows me to be picky about who I’ll lend to, and how much risk I’m willing to take. Add to that the fact that LC registered with the SEC in 2008, and their credibility in my eyes has increased quite a bit. I’m finally taking the plunge because I believe my money can give help to others, and still make me a little bit of money in the process.

– Jacqui Pittenger of Twitter

I signed up in February 2009 through a free $25 referral link on one of my favorite blogs – Dual Income No Kids. I figured there’s nothing to lose when you invest free money. I enjoyed the experience so much, I soon added another $500 to my account.
While I would not consider peer to peer lending safe enough for an emergency fund, or even as a primary investment strategy, it’s a worthwhile addition to my investment portfolio. My mix of loans skews to the riskier side with rates ranging from 8% to 18%. My current Net Annualized Return is 13.55% and all payments are current (so far at least). Even a few defaults would still leave me with an acceptable return.
The promise of yields far in excess of a savings account or CD is very tempting. But my favorite feature is being able to fund loans to people I want to help – like those digging out of a mountain of medical debt, moving closer to their place of employment, or purchasing a motorcycle to reduce fuel consumption. If I have any doubt about person’s ability to repay the loan I move on. There are plenty of applications to choose from, so trust your instincts.
In the spring I signed up to automatically transfer $25 from my checking account to Lending Club each month, though I opted out of their automatic investment plan. I prefer to hand pick my loans each month. Soon I’ll reach the point where I can not only invest in a ‘new money’ loan each month, but will also have a ‘repayment reinvestment’ every month as well.

Closing Thoughts on Lending Club…

For a long time we have bestowed great confidence upon our financial institutions; but with all the recent bail out money — that seemingly grows on trees — a rapidly increasing number of people, myself included, are turning to social lending providers like Lending Club for simplistic and transparent borrowing and investing. A lot of people are hungry for change, for the power of choice, and for greater control over their own financial destiny! And in my experienced opinion… LC seems to be answering that call quite nicely.

Using Lending Club has indeed been a big win for me and my wife and I do not hesitate to recommend their service.

Is Lending Club and peer to peer lending right for you?

Have you recently borrowed through Lending Club and want to share your experience? Are you an seasoned LC investor with a testimonial of your own? Maybe you simply have an opinion that just has to be voiced. Whatever it is… let us hear it!

Betterment Review [Great Investment Option for Beginners]

01.16.2012 by Matt Jabs //

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements and no transaction fees. Simply open an account with at least $250 to claim your $25 bonus.

Betterment review for beginning investors

Betterment Founder and CEO Jon Stein shares his motives behind creating a smart investment account that’s easy to use.

“I created Betterment because after years working in financial services I was amazed that no one made saving and investing money as simple as it ought to be.” – Jon Stein

As a relatively new investor myself, I have spent the last few years scouring the online investing market for high return investments that are effective, easy to understand, and simple to maintain. While there are no shortage of options out there… many of us are either too busy to design and maintain our own portfolio or we’re simply unsure of how to best do it. Enter Betterment.com.

Betterment has found an awesome way to help us save and invest simply and effectively. They allow you to easily diversify your portfolio – and – save for your goals. They reinvest gains and rebalance your portfolio automatically based on your personal risk assessment, which you can set up and change with a few clicks of your mouse. You have the ability to save for the long term or short term which is handy, especially since our “high yield” savings accounts are currently paying averages of less than of 1%!

Let’s examine more of the technical details that make Betterment a secure and attractive option for new, existing, and busy investors alike.

Betterment is both a registered investment advisor and a registered broker dealer.
Accounts are SIPC protected (up to $500,000 per customer) against losses resulting from fraud or mismanagement.
Your Betterment account links to your bank account for easy transfers, and seamlessly invests your money in smart ETF stocks and Treasury bonds.
There is no minimum balance requirement.
Transfers and trades are always free.

Betterment invests in ETFs

Betterment blends your investments between ETF baskets of stocks and treasury bonds. The treasury bonds serve as the low risk investment and are backed by the full faith and credit of the U.S. Government. The Betterment stock market portfolio is a diversified basket of ETFs custom built to reflect the broad US market providing instant diversification among thousands of companies. The current mix of stock ETFs looks like this:

25% VTI: Vanguard Total Stock Market
25% IVE: iShares S&P 500 Value Index
25% VEA: Vanguard Europe Pacific
10% VWO: Vanguard Emerging Markets
8% IWS: iShares Russell Midcap Value Index
7% IWN: iShares Russell 2000 Value Index

The treasury bond basket consists of these ETFs:

50% TIP: iShares Barclays TIPS Bond Fund
50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Betterment recommends a diversified ETF stock portfolio because individual stocks are risky and expensive to trade. Betterment is not alone in seeing the wisdom of using ETFs as an investment vehicle… many smart and savvy investors build their entire portfolio with index funds, ETFs, and Treasury bonds. I’m one of them – not because I’m smart but because I’ve done the research!

Goals, allocation, and risk tolerance

Rather than make you read how Betterment helps investors allocate their portfolio based on their goals and risk tolerance… I can get the point across better by showing you how I did it with my own account.

Who should use Betterment?

Understanding who will benefit from investing with Betterment is best illustrated by an examination of the facts.

First it’s important to clarify that Betterment, like any investment account, will not be the best solution for everyone. Beyond the obvious, we primarily need to understand who they’re competing against, what benefits they offer over their competitors, and what demographic the company is looking to serve.

Betterment’s competition

Let’s analyze who they’re up against so we can more clearly see if Betterment offers any benefits over their competitors.

As I see it, they have three main sources of competition – some stronger than others.

Discount brokerage firms like Vanguard, Charles Schwab, Scottrade, eTrade, etc. who focus their efforts on individual DIY investors.
Certified financial planners (advisors) who manage investments for people that typically have a lot of assets but are either too busy, have limited market know-how, or have little desire to manage their own portfolio.
“High yield” savings accounts who offer investors a return on their highly liquid assets.

Let’s continue breaking this down to see if Betterment suits you.

Investing benefits Betterment offers

Key benefits that set Betterment apart from their competition include:

$25 bonus to sign up – A risk free $25 bonus simply for signing up with at least $250.
No minimum balance requirement – To receive comparably low fees with a financial advisor who offers complete portfolio management investors typically need to invest minimums of between $50,000 and $500,000. If they invest less they’ll likely face higher fees or even refusal to be taken on as a client. Betterment has no such requirement.
Free trades and transfers – You never pay any fee for trading securities or transferring money to or from Betterment. This is quite uncommon among their competition.
High liquidity of investment dollars – The accessibility Betterment offers makes their investment account behave more like a bank account, whereas investment accounts with other brokers have minimums, lock up your money for a certain amount of time, or may charge on both sides of every trade. Put another way… Betterment allows you easy access to your money when you need it without penalty or fee.
Potential for much higher returns than your savings account – “High yield” savings accounts earn the rate the bank pays (currently about 1%). Investing in stocks and bonds with Betterment delivers the possibility of earning much higher returns.
Low fees for complete portfolio management – Discount brokerage firms do not offer complete portfolio management, Betterment does.

A noteworthy part of Betterment’s active management includes automatically reinvesting your gains and rebalancing your portfolio. While it is easy to glaze over these steps and downplay their importance… reinvesting gains and staying in balance with your risk allocation are essential for investing success. For those unfamiliar, rebalancing is simply the process of realigning the weightings of your portfolio by periodically buying or selling assets to maintain your original desired allocation.

Fees to invest online with Betterment

Note: I recently reported on how Betterment fees were lowered, the new fees are represented below.

Based on the competition and benefits offered, let’s take a look at the fee structure Betterment charges investors and compares it to their competitors.

First let’s consider what you’ll pay to purchase a targeted retirement account with a discount broker. Vanguards targeted retirement funds currently have a really low expense ratio of around 0.2% while the industry average for this handy investment solution is closer to 0.6% – which is not much lower than Betterment’s fee – without offering full portfolio management like Betterment.

Second let’s consider the average cost to employ the services of a certified financial planner. Some CFPs charge commissions based on trades made – stay away from this. Others charge a flat fee similar to the way Betterment does. A typical asset management fee can range from 0.5% per year to 2.0% per year and is often lowered as you invest more assets with the advisor. Most “full service” advisors will charge a blend of commissions and fees, but generally don’t do much more than what Betterment does… they just charge more. Also, most of them have high minimum investment amounts making them less accessible to most Americans.

One other draw back to both discount brokers and financial advisors is that many times they have a limited amount of funds to choose from, whereas Betterment has the freedom to choose among many fund companies.

Now let’s look at the Betterment fee structure:

Balances under $10,000 = 0.35% annually
Balances between $10,001 and $99,999 = 0.25% annually
Balances over $100,000 = 0.15% annually

Fees are prorated across the entire year and charged at the end of each calendar quarter, meaning every 3 months Betterment charges 0.0375% to 0.0875% (.15 divided by 4 and .35 divided by 4 respectively) based on your average balance for the period. If you close your account and withdraw all your money before the end of a quarter you will be charged a prorated fee for only the days your money was in the account.

As an example, if you invested $10,000 today and earned a flat 10% all year you will pay just $27.50 in fees and have a final fund balance of $10,972.50 a year later. Would you consider the $27.50 annual expense a worthwhile cost for a fully managed, diversified, and secure 9.75% return on your money? Only you can answer that question.

If you cannot afford to invest $10,000 and do not automatically fund your account with at least $100 each month the 0.35% annual fee is replaced by a $3 monthly fee. To easily avoid that simply set up an automatic deposit of at least $100 each month. The automatic deposit is a no-brainer since you’re committed to growing your investments anyway, and there’s no point to investing if you don’t fund and grow the investments.

If this sounds like an investment solution you’d be happy with you can read more about Betterment, open an account, and claim the $25 bonus.

Open a Betterment account

If you can tie your shoes you can open a Betterment account. The procedure takes about 5 minutes and offers a $25 sign up bonus.

Once opened they walk you through connecting to your bank account so you can fund your initial investment. Then they help you set your invest allocation by walking you through you investment goals and risk tolerance. After a few days you’ll be reminded to verify the two small deposit amounts transferred between your bank and Betterment, which once verified trigger the transfer of the initial deposit.

How I’m using Betterment

Personally, I think Betterment’s fee is quite reasonable considering the the ease of use, accessibility, and automation they provide. I love that they have created a service that is accessible to everyone. It’s just as easy for an average Joe to invest as it is for the wealthy – Betterment has leveled the playing field.

Initially I’m using Betterment to house a portion of my Emergency Fund. I funded my account with $1,000 and am excited to see how my conservative allocation will perform against the 1% it was earning in my bank account. I’m guessing it will easily outperform that benchmark!

A smart way for busy people to invest

Basically Betterment is a great solution for busy people, for those just getting started, and even for long time investors who don’t want to bother with it themselves but also know they don’t need to hire a certified financial planner to gain access to a diversified and managed portfolio.

If this sounds like the investment solution you’ve been looking for you can read more about Betterment and open an account if it suits you.

From Betterment.com

“There are plenty of investment products out there for active traders, the super-wealthy, and institutions, but not anything built for the doctors, lawyers, teachers, and so on who we know in our everyday lives. Betterment is the first investment product built for people: it’s like wealth management for the rest of us.”

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements and no transaction fees. Simply open an account to claim your $25 bonus.

Your Money Ratios – Review and Giveaway

01.08.2010 by Matt Jabs //

Book Review and Giveaway

Today you have the treat of reading a review of the new personal finance book, “Your Money Ratio’s: 8 Simple Tools for Financial Security“. Thanks to TLC Book Tours I am also facilitating a gracious giveaway of this book to one random DFA reader. Are you feeling lucky? 🙂

To win a copy of the book just leave a comment here. The winner will be chosen (using random.org) and will be announced on January 15th, 2010. This book is a heck of a read, so go ahead and enter to win.

While you’re at it, if you haven’t already why not subscribe to daily DFA article updates by RSS feed delivery or email delivery – and no subscription pitch would be complete without mentioning the option to follow via Twitter.

What is Your Money Ratios?

This book is self-dubbed, “A groundbreaking and simple approach to tackling personal finance by applying formulas used by the most successful businesses.”

The book aims to instruct us in the ways of financial security by helping us determine:

How much total savings we should have accumulated at our age.
How much we should be saving each year.
What tax and investment vehicles we should use to maximize our savings.
How much mortgage and education debt we should be carrying at our age.
How to manage our investments for prudent growth and principal protection.
How to purchase the disability, life, health, and long-term care insurance necessary to protect our income and assets.

The author also applies a very wise “Unifying Question” to each of his ratios – “Will this financial decision help move me from being a laborer to being a capitalist?”

Sounds good right? So what are these magical ratios, and just how simple are they to graft into the life of financial laymen?

What are theses simple money ratios?

The author is a total ratio/math nerd… which I love. The cool thing is that he presents the ratios (aka tools) in a simplistic manner so we don’t need a doctorate in mathematics to understand and use his strategy.

Here are the 8 simple tools (ratios):

The Capital to Income Ratio – How much capital (savings) you should have at your age if you plan to retire at sixty-five.
The Savings Ratio – How much of your income you should be saving each year to help you reach your Capital to Income Ratio.
The Mortgage to Income Ratio – The maximum mortgage debt you can carry while saving sufficient capital to retire comfortably.
The Education Debt to Average Earnings Ratio – The amount of education related debt you can safely incur, based on anticipated average earnings after obtaining your degree.
The Investment Ratio – The fundamental split between stocks and bonds that you should consider at different stages of your financial life cycle.
The Disability Insurance Ratio – Why you need it and how much you should consider getting.
The Life Insurance Ratio – You buy life insurance not for yourself, but for your spouse and children. How much you need to acquire at each stage of your life.
The Long-Term Care Insurance Ratio – How much of, and why you need this least loved, least understood, but very important form of insurance.

Should you buy this book?

If you are interested in a hands off, simple approach to preparing yourself for financial security… then buy and read this book. Some people may think it a bit dry, but I found it entirely captivating since it addresses all areas of personal financial concern and attempts to master them with a non-emotional and simple solution. You can pick it up on Amazon at a 34% discount off the regular price of $26 (at the time of writing.)

One sentence can sum up the philosophy of the book… the tortoise always wins. It is the same concept laid forth in countless personal finance books – those who want to win at money exercise strategic and consistent self-control and self-discipline… which makes perfect sense to me. This book helps you construct and implement your consistent and winning strategy using the simple ratios.

What could the author have improved upon?

The answer to this question is going to be different with every review you read, so take this with a grain of salt. I would have liked to see the author address God, faith, or the bible. Personally, I have a hard time fully trusting the advice of someone who can write an entire book and never even think to bring up the wisdom of the scriptures or the being who created all things. Call me crazy.

About the author

Charles J. Ferrell, an investment adviser, lives and works in Denver, CO. When he is not writing stellar personal finance books Charles enjoys writing the “Retirement Roadmap” column for the CBS Moneywatch site.

You can visit Charlies website at YourMoneyRatios.com. The website has some cool features that allows you to input your data and get a simple report in reference to the ratios laid out in the book. The ratios are only available to those who buy the book and use the secret code contained therein. 🙂

Don’t forget about the Giveaway!

To win a copy of the book just leave a comment. The winner will be announced on January 15th, 2010. This book is a heck of a read, so go ahead and enter to win.

While you’re at it, if you haven’t already… why not subscribe to daily DFA article updates by RSS feed delivery or email delivery – and follow me on Twitter.