The two reasons you failed at LendingClub, and how I made money

1) You didnt screen the loans
2) You put all your money in

This article is in response to all the negative articles and videos out there from people who claim to be financial (Passive Income) "experts". These "experts" who have tried LendingClub and now recommend not using it, usually in a video with a tile like this "LendingClub Exposed...". Pretty much all of them clearly made the same two mistakes.

If your thinking of investing I hope this article will be helpful in protecting your investment. In general vet any information you get including mine so you can make educated decisions with your money, a lot of people in this space are just doing this for the traffic/ad revenue. There a lot of reasons to not invest in LendingClub, maybe to risky for you, your investing short term, you don't like the tax treatment, you have better plans, etc... But these are two common problems "experts" complain about and how to avoid if you choose to invest. I have made money with LendingClub but I would never put all my money LendingClub or all my money in a single asset class. Don't expect that reading this means you will make money in LendingClub, you will still need to do a lot of learning before you invest a penny.

1) You didnt screen the loans

I watched these "experts" videos and some of them talked about "screening the loans" but it's clear they didn't do it, or didn't do it right. These "experts" need to research. I recommend using a 3rd party site like https://www.nsrplatform.com/ you can automate buying your loans for free and use details criteria to filter out the loans you want, and back test your filters on existing loans. Within minutes of using it you will start to notice what makes a loan good or bad, but if you need a more structured lessons there is a lot of information if you google it.
"experts" have said:
- The loan data is self reported by the borrower so it could be false (a lie to fraudulently get a loan) FALSE
- LendingClub doesn't do credit checks FALSE
- These people have bad credit so of course they will default FALSE
- Banks won't lend to them FALSE

Here is one example that these statements are FALSE. You can use a loan buying strategy to only invest in loans where the credit score is above 740 and there are <=1 credit inquiries in the past 12 months. The loans in this list would have borrowers considered to be either "Very Good" or "Exceptional" and banks would give similar loans to these borrowers.

How I screen: If your going to do this, you need to do the research. I like loans where the barrow has
- a good credit score: this shows they have a good history with paying bills
- owns a home: a great responsibility not easy to achieve
- is dual income: multiple earners in a household, less likely to default if one is laid off
- the longer its been from last derogatory on credit report
- not a lot of new credit accounts open recently
But those are just a few of the ways I pick loans, they are not the only and not necessarily the best, and they are not used all together. I currently use 6 strategies for buying loans, each strategy may have one or more of these criteria.

2) You put all your money in
First, never put all your money in anything, you need an emergency fund before you invest in anything and then don't forget to diversify in multiple asset classes.

Next problem, if you have $6k to invest and you invest all $6k on day one, all your money will be at a single vintage of that specific day. Loans return most interest in the first 1/3 of the loan term and are not as likely to default in same time period, so you will notice higher return rates at first, maybe 14% or higher. But then at about the 1-2 year mark those loans will experience higher rates of defaults. You may even experience months or negative returns in this example. Loans tend not to default in the beginning or the end or the of the term of the loan. There is a higher rate of default around the 1-2 years into the term. I have seen a lot of people bragging they got 14% plus returns in year one and they are so upset because in year two they are getting 7% or worst returns. Last I looked LendingClub said there platform average return 4-7%.

Solution, had you spaced out your $6k investment instead, let's say you invested $500 per month for 12 months, there would be 12, one month vintages and let's say you reinvested the repaid principal and interest. This way of spreading your risk across vintages has multiple advantages, but let's look at how it effect defaults. When your in month 12 of this plan, the oldest vintage is about to start experiencing a higher rates of defaults while the youngest vintage is getting it highest rates of returns. This will averages out those ups and downs that caused the "experts" to get so emotional in the videos after 1-2 years of investing in LendingClub (strangely when defaults should hitting hardest).

Spacing out your vintages has other advantages but it solves one problem universally complained about by the "experts". The "experts" all complained that "I cant get my money back". So many "experts" complained about this and it's just ridiculous. If you think you need your money in the short term, don't invest it in anything like: stocks, real estate, lendingclub, etc... None of these are short term investments, and all have very real risks of short term liquidity. Every one of these "experts" mislead people into thinking LendingClub has zero liquidity but that is false, Lending club has some liquidity, each loan repays each month principle and interest generating you a positive cash flow. You have access to a portion of your principal each month, and that provides real value that the "experts" have covered up with the lie that "I can't get your money back".
The common example from these "Experts", "what if I need that money for an emergency, I'll have to wait 3 years" my answer: don't invest a single dollar until you have an emergency fund. That's just common sense, and common advise, I have no idea why these people market themselves as "experts" and don't know this already. Additionally let's say you spend your entire emergency fund and its gone, you can rely on the principal and interest payments from LendingClub to be there for you each month, that cash flow might help you make rent if your job is downsized or pay for gas to get to job interviews. Keep in mind that a $6k investment has really good monthly cash flow, more than some people make in a week.

In summary these experts made so many mistakes it's entirely possible they aren't really experts at investing at all, they might just be people marketing to you to generate passive income in the form of ad revenue. Oh there god, I think they are: EXPOSED!

Look there is no reliable way to get rich quick and easy, but if you want to get rich slow and hard keep reading and check out my videos.

7 ways to increase your monthly income by $100

It's the last day of 2019 so my present to you is 7 I mean 6 ways to increase your monthly income by $100

To make $100 more per month, you need to invest $1,200,000 in a saving account, I recommend you don't do this!  Obviously hit up you loans with high interest rates, then pick your favorite poison

In 2020 I will be focusing on:

First paying my car loan for a guaranteed return of 5.9%, and for every $20,339 witch is a little less than my balance I'll free up $100. Well not exactly, that not how trem loans usually work. The money is only free if/when you full pay the loan, but you should be able to do the maths on you situation.

Second increasing my dividend portfolio in small measured steps. I'm not sure what rate the increase will be, but I want to cap it, I have been hovering around 3-5% weekly increase for deposits and will try to maintain that for the year of 2020.

Third all extra cash will be put in to Peerstreet, mostly 30 day notes.

Fourth hopeful buy a house

Anyway here are the details on how much would be needed to get an extra $100 monthly, and why I estimate my returns would be after taxes.

				Short Term Taxes		.	Long Term Taxes
Investment	Rate of Return	Investment Needed	Return Per Month	Taxes	After Tax Return		Taxes	After Tax Return
Car Loan (payoff)	-5.90%	(20,339)	100	0	5.9%		0	5.9%
Savings Account	0.10%	1,200,000	100	24	0.1%		24	0.1%
Dividends Returns	4.26%	28,176	100	24	3.2%		15	3.6%
Lendingclub	5.50%	21,818	100	24	4.2%		24	4.2%
Peerstreet	6.50%	18,462	100	24	4.9%		24	4.9%
S&P 500	10.00%	12,000	100	24	7.6%		15	8.5%
GroundFloor	10.50%	11,429	100	24	8.0%		24	8.0%

The tax rates above are for me my income in my state, you may/will be different

PS, if you wondering why the pay off car loan is a negative investment, it because it's a liability not an asset. Another thing about paying off a loan verses say an investment, the loan is for a small period of time while the investment could yield for generations to come. Your great grand kids might be yielding the benefit of a dividend stock you buy, but will they care about you BMW?

Study, research, look for investments. How to get started...

It's tough to teach people how to study, most people have never learned how to do research or think The majority of people know how to prepare for tests and exams. Preparing for tests and exams are key skills to have if you want to get good grades and for some specific careers. But investing is not a 10 question exam that you only take once in life, it's a marathon of critical thinking and research that never ends till your dead or homeless. Sure lots of people claim: you should buy once and hold forever, and some have done that and succeeded but there is a smarter way.  If you understand the companies and industries you invest in and keep up with new opportunities you can plan for both good and bad times. That's a simple sentence but if you break it out its a ton of work.
independently.  Critical thinking is not skilly easily learned or taught. 

Number one thing is to pick something that you like if you like real estate, research real estate. If you start today you have easier than anyone in history.  Information is so easy to get these days. When I started researching real estate you had to have a small fortune to get started at the lowest levels (It took me 10 years to buy my first house), now you can buy a share of a fix and flip loan for $10, or buy a fractional share in a REIT for $10.

I spent months researching p2p lending before I chose to invest in LendingClub, then I only started with a small test investment. Once I started I knew I was picking loans using good credit criteria I stayed away from risky high return loans and favored borrowers with double incomes and a home. My returns have always been higher than average, I don't wonder why because I did the research. i see a ton of videos youtubers trying to explain why LendingClub is a bad investment, but in each case it's obvious they had no idea of how to invest when they started.

I spent more than a year researching real estate crowdfunding (p2p lending), then I did a small test investment. In fact you could call my current investment a test investment, I'm still trying to see if this will be a a small, medium, or large balance in my portfolio going forward.

I can't teach you how to "study, research, look for investments" but I can tell you it's important and I hope my content about the things I have done in the past is helpful. In fact this entire blog and the youtube content are basically examples of, or the results of: studying, researching, looking for investments I have done or thought about doing. Example when I write about Groundfloor or Peerstreet. I still haven't fully decided if they deserve my money, I'm constantly looking for reason to decrease, keep even, or increase my allocation. The things I look for aren't just someone writing an article or blog shitting on crowdfunding or problems in the industries. I do research in everything I can think of: consumer confidence, credit models, and judicial foreclosure states, etc.   

Bottom line you gotta do the work if you want to see the results. You can make money with or without studying investments. But I would rather do the work.

If you liked this article check out the "How to get started" series for more.

Ok Boomer

Facts

- Boomers have been the largest spending generation in history.
- Boomers have pushed back retirement in record numbers
- We have already hit a tipping point in Social Security where it can not sustain it self without major increased taxes or decreased benefits.
- Pensions are at record levels of stock to bonds, adding enormous risk to the equity markets
- The average Boomers assets are over allocated in equities with little to no real estate or bonds
- Increased life expectancy not only increases the total number of years to plan for in retirement but also increased health care expenses
- This is the most overvalued stock market in history
- Behaviorally most investors will sell off equities during a crash
- In retirement consumption will decrease at least 30%

Theory
We are poised for a "Boomer Retirement" driven crash.
Entering retirement Boomers will begin to draw on pensions forcing the sale of equities pusing down values. At the same time these Boomers sell stocks from retirement accounts to pay for other retirement expenses, further pushing equity values down. In retirement Boomers consumption will go down more than 30% adding additional pressure pushing down equity values.
Ironically fear of not having enough money in retirement is causing Boomers to stay in there jobs and contributing to 401k's while keeping them off their pensions. This fear is actually the one reason we don't slip into recession. But if we were to enter into recession for other reasons things could be even worse when combined with "Boomer Retirement".
Right now the average age of a retiree is 65 and the average of Boomers is 65, interesting. Leaving the rest of us just 2 short years to invest in guns and ammo. Last recession many Boomer pushed back there retirement but this recession many will qualify for full Social Security benefits and they will likely retire weather they are prepared or not.  In a finial F-you the Boomers will likely drive down values so low it will take an entire generation just to recover.

Actions
Boomers aging bodys can't be repaired, and they lack the ability to heal themselves, they will require the blood of the young and expensive medical treatments. I predict the biggest returns will be in what I call the "Silver Rush". The "Silver Rush" will be any business poised to explode the aging Boomer. Businesses like; health care, senior living and other age related business. The "Silver Rush" will likely be bigger than the gold rush, the tech bubble and the tulip mania combined. 

Build a small emergency fund, How to get started...

An emergency fund should be 3 month expenses, FALSE

Use your emergency fund during an emergency, FALSE (Never use it, unless you have no other choice)

You can have more than one emergency fund, TRUE

Before you start, pay off your debt, check this article on paying off debt for more info

To Start you need a small emergency fund, if you don't have one, start a small one, nothing big, this is for real emergencies, like car repairs and we hope we never have to use it. You can have it in quarters in a jar, or put it in a saving account. Personally I would prefer a high yield saving account so it keeps pace with inflation so your not losing money.  Only you know what this number should be, but be realistic and start saving it today. 

If you complete this step it's no excuse to waste money, please dont think once you have $400 in a saving account, you can now buy lots of tequila, and get jet ski (with loan), and other bad decisions. 

As you go through life you need to look at your responsibilities, each new responsibility will require planning for new emergencies. When you start out this might be you: single, renter, 10 year old car. If your car gets older you'll be more likely to need repair. If you have an life event like a new child, marriage, other life events your exposure changes and you must plan accordingly. People who drink tequila and ride jet skis have more emergencies than people who go to libraries and read. 

Don't use your emergency fund, try to find a better way.  A lot of people are not willing to change, if you're reading this I hope your open to changing. When I lost my job in the last recession I didn't run to my emergency fund. I made huge changes in my life and my expectations of life. I reduced all spending to ecentials. I found a 3 month contract doing work I didn't like with a long commute being paid less than I was "worth". I worked hard and didn't complain, they extended the contract 30 days. I took the train and walked long distances to save money. I repeated this at another company and eventually found a full time job I didn't really want, paying less than I was worth. I never had to touch the emergency fund because I changed to fit the situation. If I had waited for a good job or If I had not reduced my spending, I probably would have been in serious trouble. I found a better way, I went out in the world and said I will do work i'm over qualified for, and I'll do it less money than everyone else. That is survival. So just leave your emergency fund until you have no other options, because when it is gone what will you do? and will it be enough?  

Congratulations you can now plan for a large emergency fund!  I would start with 3-6 month "Survival" expenses. For now just jam it in a high yield saving account, we can talk more about this later just make sure to start.

Questions:

• What happens if I lose my job, what can I do before I dip into my emergency fund?
• I would try a lot of things before ever touching an emergency fund, the emergency fund is not there to provide you with champagne and caviar while you "search for a job" that has a cool work life balance. 
• If you lose your job you should try the following
• find a job
• If you can't find a job, your wrong, try again
• go to temp agencies and say I will do anything (I find a lot people I know don't even try this)
• go to neighbors and offer to mow lawns, shovel snow, baby sit, painting, etc...
• get rid of all bills you can (like canceling cable or netflix)
• find cheaper living arrangements
• sell any assets not needed for future employment
• dip into any investments you have any
• dip into your emergency funds
• What happens if I have a big expense like roof replacement?
• If you have responsibility like a house that could require large amounts of money in an emergency, you should plan ahead and save for those emergencies.
• if you buy a house with a roof that needs repair or is in a bad state, start saving for a new roof. That money needs to be highly liquid and should be put in something like an emergency fund! 

If you liked this article check out the "How to get started" series 

Pay off all debt, How to get started...

You have to pay off all debt, FALSE
Everyone agrees there is not such things as good debt, FALSE.

You have to pay off all debt before investing, FALSE

Paying off debt is a guaranteed return on investment, TRUE

In general if you have debt where the interest rate is over 5-6%, pay it off. Stop buying Lakers tickets and imported beer and focus on paying off that bad debt. If your not sure whether it is good debt or bad debt, its bad debt so just pay it off. 

If you were not aware there is such a thing as good debt, you probably don't have any good debt. One example of good debt: a mortgage on one of my rentals, is 4.75%, with a 30 year term. The mortgage is fully paid each month by my renters, the interest expense is deductible, inflations has recently been >2% and it averages about 3% rent increase per year. In this situation I like this debt, so I don't chose repay it early. I could make extra payments on this debt with the income from this property or income from another passive source, but then than money would be gone and I couldn't invest that money and make ~11% probably making right now.

Examples debt:
Buy a rental with debt: GOOD
Credit cards > 6%: BAD
Buying your home: (It depends on your: home, market, economy, timing, etc...)
Buying your home and you rent out spare rooms: GOOD
Buying your home, it a fixer upper, you do all the work, while living there, and you rent out rooms: GOOD
Buying stocks on margin: (It depends)
College loans < 5%: GOOD
College loans > 6%: BAD

If you want to keep going, the next step is building a small emergency fund.  If you liked this article check out the "How to get started" series for more.

Investing, How to get started...

This is how I would get started, knowing everything I know now.

Stage 1 - Prepare
1) Pay off all debt you have where the interest rate is over 5-6%. If we assume your going to invest and get a 8% return annually after inflation you be getting 6% return, so you should start investing in paying down debt because it's the highest guaranteed return you get. For more, check out this article on debt.
2) Build a small emergency fund. Nothing to big, just think of all the real emergencies you had in life so far: car break downs, bailing mom out of jail and tickets to see the Detroit Lions play the 49ers. All these things are usually between $400-$900 so start there. For more, check out this article on planning for emergencies.
3) Study, research, look for investments. Try to find something that interests you, but be open to the idea that you might need to learn stuff you think isn't fun. I'm, not say you need to know how to calculate a company's EBITDA, but you should understand concepts like debt, inflation, etc... Pick more than two different investments types to research, this is important we don't want to just do one thing (eggs & baskets). For More, check out this article.

Stage 2 - Invest
1) Select multiple investments. If I was starting now I would pick Groundfloor and M1 Finance and I would put 50% in each
2) Build an opportunity fund. The opportunity is yours, maybe you want to buy a house, if you don't have an opportunity your planning for but it's best to act as if you do, so just pretend your saving for a house and you can fill in the blank later.


Stage 3 - Rotate
1) When an economic crisis or down turn arrives be ready. All that money you save for a new house in your opportunity fund, sorry your going to need that now. You thought you like some stock before, well the economy is crap so you can buy that stock at big discount.

Stage 4 - Retire
1) Your going to retire early. If you do all this you might be able to retire in your 20's lots of people in FIRE have already, only you can answer the big questions like is having Starbucks worth adding 5 years to your retirement date? can I mountain bike to work 15 miles in the snow?
2) Now that you're retired find a job you love and keep working. Wait I thought I was retired, ya but don't you want to buy an island? Also what if taxes go up or we have bad inflation, etc.. You don't have to make a lot of money the focus here is to have fun and work on something you love, the money will be a bonus.

How to Generate Quick Passive Income

How do you Generate quick passive investment income? Real Estate Crowdfunding can quickly and
easily double digit yields. Other passive income options have the following problems.

• Dividends, investing in stocks
• 1) Returns are too low about 4% 
• 2) Tax treatment on nonqualified dividends
• Rentals, being a landlord
• 3) Upfront costs are very high
• 4) Inconsistent income in first two years.
• Unsecured P2P lending, Lending Club, Prosper (other Crowdfunding)
• 5) Defaults rates, loan charge offs, losses 

Above you can see an image of my simple COC returns quarterly this is one of the calculations I used to compare investment types and there is a clear winner here. Hit its in green not red.

What about Real estate Crowdfunding:
1) Returns are 2-3 times higher than dividends
2) Taxed the same as nonqualified dividends
3) Can invest for as little as $10 per investment
4) A large quantity of loans leads to regular income
5) The debt is secured against assets in the case of default

The Haters Q&A
Q: "But I can get  RIET that has a 10% dividend, so you're wrong"
A: "I would argue that RIET won't pay that dividend in the future"
Q: "Dividends are taxed better, and that makes it better"
A: Would you rather do Real Estate Crowdfunding making $10k and be taxed at 30% or Invest in dividends making $4k and be taxed at 15%? You should alway want to make more money after taxes are paid! in this example you
Q: "Defaults!!!"
A: "If your not prepared for some portion of loans to go into default don't invest because it is a very real part of lending money so it will happen" I have had tenants that haven't paid rent for months but I still buy rentals, and I have had loans that were in default for months and evenly the matter get resolved. I have lost more money from evictions and rent loss from deadbeat tenants than from defaults.
Q: "I have to wait like forever to get my money out"
A: I hear this all the time and it wrong on so many levels
First, if you lend someone money for a 12 month loan, you shouldn't complain 6 month later when you can't get your money back, stop doing that! just wait for the loan to end
Second If your not sure when you might need your money back, don't put it into investments like real estate, stocks, P2P lending (even real estate crowdfunding) and cd's. This is because your money might be tied up when you need it. in fact you should have an emergency fund built up to cover 6-12 months of living expenses before you invest serious amounts of money.
Third, if you invest your money in Real Estate P2P, you can spread it equally over time, that way each month you not only receive just interest but a large amount of principal is accessible to be withdrawn.
Q: "why do you hate dividends so much"
A: "I don't, I use a dividend growth strategy, I expect that one day my yield on cost will over take my returns on Real Estate Crowdfunding, but if we are being honest dividends are not my best investment yield right now, and I don't expect them to be in the next 5 maybe 10 years.
Q: "If you like stupid P2P so much why bother with dividends?"
A: "I like to diversify, I currently have 8 passive income sources"
Q: "Bro if your not making money in Rentals your not smart!"
A: "Well I'm just working with averages, and in the first year the standard deviation is much larger than each year after. The standard deviation of monthly rental income vs any other source is bad. I make the highest returns on rentals but, some months are negative (do to repairs), I have never had a company give me a negative dividend, and as for P2P I have never had a negative month. In short there is still money being made but it's less consistent income and therefore dependable as other sources.




A famous guy I'm making up once said "The best way to generate passive income is with a time machine."
The seconde best way to generate passive income is to start now, each month invest every penny you have, cut your spending back to only what's required for  your survival.

But hey, I'll keep posting my returns and showing my progress and strategy as they change.  

Dividend investment ramp up

I have invested $40 a week in M1 Finance for 6 months and so far the returns have been small and the yield is low, especially when compared to the rest of my investments.
Last month:
0.13% of my passive income was from dividends.
My M1 portfolio total return is 0.91%.
So why would I would I ramp up? 
I'm not smart enough to know when to buy and sell stocks and get rich quickly. Instead I invest in dividend stocks slowly, this first round I invested around $1,200 of my hard earned money. The main goal was to investigate potential companies for investment as well as several ETF hedges and start investing at a small volume.  I have a bunch of companies that I'm comfortable with in varying time frames with mostly being 30 year time horizons, mostly. Here's a link to my portfolio please let me know if there is something you think I should sell, especially before it goes down! In the chart I have my return vs purchase of "SPY" on the same days, you can really see the volatility in the market as a whole vs a mostly dividend portfolio with bonds. Right now a deposit of $40 is only an increase of ~3% where as a deposit of $50 is an increase of ~4%.  My plan is to try to maintain a strong growth rate from deposits for as long as I can afford, then leveling off at a rate that can also be maintained over a long sustained period of time. I expect next increase to be sometime between 2-6 months from now.  Also if we enter correction territory I will double my deposits for the term of the correction. If we enter recession territory I will double my deposits again for the term of the recession.  This will allow me to cost average my bacis down during bad market conditions.

Here is a quick video where I make the change.