Peer-to-Peer Lending at Free Press Release

A press release regarding the latest blog post dealing with peer-to-peer lending.

Alternative to Money Market

Alternative to Paltry Money Market Yields

Admit it. You hate bankers. It’s ok – I admit it. Banks assume a massive amount of risk yielding enormous profits. When the risks implode, the banks get a bailout. How do they repay us? They give us sub-1% yields on our money. I am not saying all banks are bad. I love credit unions and community banks that avoided the dangerous tactics undertaken by the To Big to Fail Banks (TBTF). Over the next couple weeks, I am going to examine a few ways to kick those bankers to the curb without taking on loads of additional risk. If you are tired of earning pennies on your balances, these might be better ideas.

The first idea is peer-to-peer lending. Why would you want to look at peer-to-peer lending? Let’s face it. Banks are nothing more than glorified middlemen. They take your money and pay you a whopping sub-1% return. The banks take your money and loan it as mortgages, business loans, auto loans, and credit cards at substantially higher rates. You get 1% while the banks get 5% or more. Peer-to-peer lending cuts out the banks. You get a higher return while the borrower pays a lower rate than the banks charge.

I focus on two premier peer-to-peer lenders, Lending Club and Prosper, which have both been around for five years or more. These two companies have loaned over a billion dollars since inception through 112,000 loans. Essentially, these companies created a platform that brings lenders and borrowers together. The beauty is Lending Club and Prosper do a credit analysis on the borrowers using FICO scores and other proprietary methods. Borrowers deemed a solid credit risk can usually borrow from 5% to 8% while the riskiest borrowers get high double digit rates. These two companies review thousands of borrowers and turn down those they estimate are unlikely to repay. As a lender, you can review the borrower’s profile and decide to invest (or not) with that borrower. You can invest as little as $25 for each borrower. With $1,000, you can diversify into 40 loans. For those who would rather not go through numerous borrower applications, Prosper and Lending Club have a tool that lets you set initial criteria such as desired credit risk or interest rates then they invest the money for you.



Lending money to people you don’t know or taking money with an FDIC backing to an alternative without this guarantee may scare you – and rightfully so. However, the companies have years of data to give investors a solid understanding of the default rates. At both organizations, the most creditworthy borrowers default less than 2% of the time while the riskiest borrowers default about 13% of the time.

Let’s assume you invest $1,000 into 40 loans at $25 per loan evenly across the highest to medium creditworthiness. If the numbers provided by the companies is true, you could expect a 5% default, meaning you only receive $950 of your initial principal back upon maturity. However, over the course of the loan (the options are usually 12 or 60 months), you would earn approximately $78 per year on that $950, which is an 8.2% return. That sure beats the 1% you receive from the bank.
One downside is the liquidity of the loans. You can sell them, but you have to use the Folio Trading platform. No guarantee is made that you will find a buyer or that you will get the full value of the loan. Also, the companies are not registered yet in every state. You need to determine if your state is registered. Even with no FDIC, a default risk, and lack of liquidity, peer-to-peer lending is an excellent alternative to money markets and CDs.

For full disclosure, I have a Prosper ad on this site so I can receive compensation from Prosper if you click on my link and sign up. If you think peer-to-peer lending is right for you, I would love for you to click on that link. My kids are getting close to needing braces. LOL

Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does  this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions.  Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).

All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.

Press Release on Estate Planning Webinar

Here is the recent press release regarding the recent estate planning webinar featuring Dax Nelson, J.D. LL.M, of Dax Nelson law.

http://www.free-press-release.com/news-five-common-estate-planning-mistakes-1347761529.html

Common Estate Planning Mistakes

In a recent podcast, which can be found here, Dax Nelson, J.D. LL.M, discusses the five most common estate planning mistakes he sees people make. Among the routine errors, misunderstanding the asset protection provided by revocable trust is the most common. Other errors are choosing the wrong people to administer your estate, not updating your estate plan, and issues with medical issues.

Dax Nelson practices law in Tampa, Florida. His website is http://www.daxnelsonlaw.com.

Picket Fence Financial saves people from Wall Street with its fee-only approach, use of Exchange Traded Funds (ETF), education of clients, and flexible service options for clients.

Press Release on Picket Fence Financial

Kirk Kinder, CFP of Picket Fence Financial was featured in an article by ETFdb, an organization that teaches individuals and financial advisors how to use ETFs. A press release for the article can be found here.

ETFdb Features Picket Fence Financial

A recent ETF Insights by ETF Database featured a Q&A with me. I talked about my experiences with Exchange Traded Funds (ETF) as well as where I think the industry is heading. You can view the article here.

ETFs have found their way into countless portfolios as investors of all walks have embraced these vehicles as the preferred means for achieving low-cost, diversified exposure to virtually any asset class. While the product lineup continues to grow every week, with the total number of ETPs now approaching the 1,500 mark, many still feel hesitant to jump aboard or are perhaps intimidated by the sheer variety of offerings available at their fingertips. Kirk Kinder, founder and President of Picket Fence Financial, recently took time out of his schedule to discuss what he feels remains a roadblock to ETF adoption rates as well as his personal experiences and observations regarding the development of the industry as a whole.

ETF Database (ETFdb): Why do you think many financial advisors have generally been slow to embrace ETFs in their practice?
Kirk Kinder (KK): I think a couple reasons exist as to why advisors haven’t embraced ETFs in their practice. The first is education. It requires the advisor to become educated on how ETFs function, the landscape of the industry, and how the underlying benchmarks are created. It also requires educating clients, which is quite a task. Clients know mutual funds. Making the move to ETFs can raise the concern flag with clients. I made the move to ETFs in 2003 and 2004. The ETF universe was really getting started then so it was an undertaking teaching clients about ETFs. In fact, a client with about $2 million with our firm scheduled a meeting to essentially fire us due to our move to ETFs. He didn’t feel comfortable with them compared to mutual funds. He had other advisors who weren’t using ETFs and apparently frowned upon them. The day before the meeting, he read an article in an AARP publication about how ETFs were an institutional tool and the future of investing. We went from the firing line to being seen as cutting edge and sophisticated.
 The second reason the move is slow is commissions. A large percentage of advisors are still paid with commissions, and ETFs don’t offer that 5% upfront payday for advisors. Hopefully, these advisors will become fewer and fewer over the years. Let’s also not forget that the mutual fund industry is going to put up a fight to keep their gravy train running. Not many ETFs would survive with the expense ratios of mutual funds. So I expect the fund universe to keep bad mouthing ETFs.
ETFdb: ETFs have received some bad press over the past few years. Have you had any bad experiences with ETFs that turned you off?
KK: I haven’t had a bad experience. Even the flash crash of May 2010 had no effect since it corrected itself. I don’t use limit orders so that kind of event shouldn’t affect my clients. One big complaint I hear from advisors is low volume in certain ETFs. Even in this situation, advisors can work with specialists that help market makers create or redeem the shares. It is the liquidity of the underlying holdings that is important, not the ETFs. This is one area of ETFs advisors are still ignorant.
ETFdb: Are there additional ETFs that you’d like to see launched? Or is the current lineup sufficient for your clients’ needs?
KK: I would like to see more precise bond ETFs. We are starting to see it already as iShares launched bond funds focusing on industrials, utilities, and other sectors. I would like to see the ability to buy a segment of the bond market such as short term utility company bonds or Australian long dated government bonds. I know this is difficult with liquidity of the bonds, but I am hoping that we continue to see the bond market(s) parsed in ETFs. On the equity side, I have enough ETFs on the market to satisfy the needs of my firm.
ETFdb: How long have you been using ETFs for? Do you see this product structure as the preferred means for building diversified, low-cost, long-term portfolios?
KK: Absolutely! I have been using ETFs almost exclusively since 2003. These vehicles are the best option for diversification, low-costs and tax efficiency. After 2008, I showed several prospects who were in mutual funds how they coughed up hundreds or thousands of dollars in capital gains even though their mutual funds were down 30% or more. It is eye opening for clients and prospects when they see this happen.
ETFdb: Aside from the well-known benefits offered through the ETF wrapper, what do you personally embrace about this product structure?
KK: I think transparency is the best trait of ETFs beyond the known low cost, diversification, and tax-efficient characteristics. People don’t trust Wall Street today. Having a product that is completely transparent as to how it operates, is valued, and its holdings is critical. People want to know a defined system exists for its operation, not activity behind a curtain.
ETFdb: What do you expect in terms of ETF adoption going forward? What types of investors have been slow to adopt or are potentially major beneficiaries of embracing ETFs?
KK: I expect ETF adoption to continue to explode. As the RIA community continues to take assets from the traditional brokerage world, ETFs will see an increase in assets under management. I also expect advisors to continue adopting ETFs. Numerous avenues exist to learn about ETFs that an advisor almost has to have his or her head in the sand not to pick up information on ETFs. One area that has been slow to adopt ETFs, in my opinion, is retirement plans. While tax efficiency wouldn’t apply in a 401(k) or 403(b) plan, the low cost and diversification benefits will appeal to these plans.  With the new Department of Labor rulings requiring disclosure of fees starting this fall, I expect fees to take center stage in the retirement plan world, and companies offering ETFs will see a considerable uptick in business.
ETFdb: What are your thoughts on how the industry has evolved in the last few years? Going forward, what do you see as the potential growth areas for ETFs?
KK: The industry seemed to start as a boutique then grew into an experimental phase. By that, I mean ETFs started out with very broad based index products with only a few providers. Once assets accumulated, the experimental phase began with several ETF providers coming on scene with a multitude of ETFs. It felt like providers were throwing ETFs into the marketplace just to see which ones stick. While I think ETFs will still have some growing pains as each provider creates an identity, it seems like niches have been identified for providers. Product launches are also better thought out. I have had a few ETF providers talk to me about what I am looking for in ETFs and bouncing product ideas off of me.
We could still see another explosive experimental period if actively managed ETFs start to garner assets. That is an area for potential growth. From the consumer perspective, I think we will see more ready-made portfolio companies like Betterment that attract assets to ETFs. Also, the retirement plan arena will be another growth area for ETFs.
Bottom Line: The exchange-traded product structure will continue to attract self-directed investors and professional money managers who have been hesitant to change their ways as the ongoing education effort picks up steam and makes the cost, diversification, transparency, and tax efficiency benefits more well-known and better understood.

  Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does  this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions.  Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
 
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.