Prosper.com?

A while ago, I heard about a website called Prosper.com. This is a marketplace for individual consumer loans. The concept is like eBay where you have borrowers asking for and lenders bidding on small personal loans. It works like this, a borrower requests a loan. Lenders then compete on some or all of the requested loan amount. The attractive part of this exchange is that potentially higher interest rates can be found than in a regular savings or CD account. For borrowers, it provides an opportunity to apply for loans that they would not usually qualify for using traditional avenues. In exchange for the higher interest rates, the lenders bear the risk that a borrower may default.

I have not signed up for a Prosper account, and probably won't do so in the near future. Since I'm not in the market to request a personal loan, I would be looking at this venture from the lender's prospective. I don't have a problem with the Prosper.com concept. However, it does take time to review and vet each of the loan requests. This is akin to the type of stock research that I do before I before I invest. With a typical loan bid running about $50-$250, this can quickly become a lot of research to do for even a small investment. Of course, one is welcome to offer larger loan amounts, but this also increases the risk in the event that one larger loan defaults.

I'm not saying that Prosper is a bad thing. Quite the contrary; I think that it may work out for a lot of lenders and borrowers. However, in order to invest the same amount that I would in a typical stock transaction, investing in Prosper loans would end up using a disproportionate amount of time for me. It is fair to say that Prosper is not necessarily right for everyone. My philosophy, when considering an investment, is to either invest a lot at once or not at all. Thus, small little loans are not consistent with my investment strategy.

All said, I invite others to share their experiences with Prosper.com. I guess that I'm interested in know if you've had any bad experiences, and whether or not you feel that the extra boost in interest rates is worth the extra effort (and risk).

PF Stock

Questions

I remember reading somewhere that one way to increase blog traffic and comments is to ask a lot of questions. So, here goes nothing:

1) Does anybody know of any youth savings accounts that are similar to Glendale Federal Savings's Squirrels Club?

2) Did anybody use my method to calculate the APY on their bank accounts? Curiously, this is one of my most popular posts, and I haven't figured out why. So far, there are no comments on this post.

3) Did anybody else say "Sayonara" to NetBank (Nasdaq: NTBK), after they ousted their CEO, and in light of their continuing decline? To be fair, NetBank did increase their interest rates slightly.

4) Can somebody answer my question about why online banks feel it is necessary to outwardly lie in order to attract new customers?

5) Has anyone gone through the IPO qualification process?

6) Did anyone else invest in Bare Escentuals (Nasdaq: BARE) stock?

7) Did anyone else attend The Money Show or Hard Assets Conferences?

8) Has anyone called up Ameritrade demanding to be switched to a higher rate money market fund as their Money Market Sweep vehicle? This is another very popular post.

9) Has anybody else read The Automatic Millionaire?

10) Anybody else want to exchange links for the blogroll? I have links to four very good blogs already:
Retiring Early
Growing Money
The Money Tortoise
Blunt Money
and I'm still looking for more...

PF Stock

TD Ameritrade Sent Me a Flashlight Toolkit

What is a flashlight tool kit? Well, TD Ameritrade sent me one the other day. It was a gift for me, as one of TD Ameritrade's most valued clients. A note inside said, "Here, all in one place, are the tools you need to achieve success, and the guidance to help light your way."

The flashlight tool kit itself is somewhat hard to describe. It is silver in color emblazoned with their green on white "TD" trademark, and resembles a small clothes iron. A flashlight is mounted in the front, and the tool kit opens up to reveal a set of tools. Inside, the tool set includes small screwdrivers, and a set of interchangeable screwdriver bits with ratchet sockets.

As one of TD Ameritrade's most valued clients, I wished that they would offer me access to APEX which I've been asking for. That would be more helpful than a flashlight tool kit.

PF Stock

Changes in Daylight Saving Time

Happy New Year! I was just recently looking at the list of optional updates at Microsoft Windows Update, and noticed a couple patches for Daylight Saving Time (DST). Curious, I clicked on one to find out more. It was then that I realized that the period when DST is in effect will be different starting in 2007. The new rules are:

DST will begin at 2 a.m. on the second Sunday in March and Standard Time will resume at 2 a.m. on the first Sunday in November.

That means that in 2007, these dates are March 11, 2007 and November 4, 2007. Note that DST (known as "summer time" in some places) actually begins in the last couple weeks of winter! So much for the expression "spring forward."

But, what is really starting to concern me now is the clocks in my VCRs? They are supposed to automatically adjust the time on the first Sunday of April and again on the last Sunday in October. By contrast computers, telephones, and radio-controlled clocks (also erroneously called atomic clocks) all have software that should automatically adjust to the new DST rules. However, as far as I can tell, VCRs (made prior to 2005) are hardwired to adjust their clocks according the old rules, and VCRs don't have upgradeable firmware to update this change.

I even have a bunch of physical (paper) calendars that say DST will begin on April 1, 2007, and end on October 28, 2007. (These are the incorrect dates, by the way.) I refer to these as defective calendars, as they will tell you the wrong dates for DST. Do I foresee hoards of lawyers salivating over the prospect of a massive class action lawsuit against electronics manufacturers and calendar makers over "defective DST" products? This is like the Y2K problem all over again...

PF Stock

Who is Running Windows Vista?

I was going to write a post about the lack of blog visitors running Microsoft Windows Vista. But, now I have had my first visitor who is running Windows Vista. One of the statistics that the Site Meter for this blog keeps track of is operating system. Until this week, I hadn't noticed any blog visitors running Microsoft Windows Vista. I know that Windows Vista hasn't been widely released, since most versions of Vista won't be available until the end of this month. But I do know that many beta versions of Vista exist, and the business version of Windows Vista has already been released.

On a related note, I recently purchased a new desktop computer. I held off on my buying decision until the computer manufacturer (Hewlett-Packard) agreed to provide an upgrade to Microsoft Windows Vista. Currently, the computer runs Windows XP Media Center Edition 2005, and I'm supposed to receive Windows Vista Home Premium after the general release later this year. I only have to pay for the shipping charges.

PF Stock

The Millionaire's Rule of Thumb

In the landmark book, The Millionaire Next Door by Thomas J. Stanley and William D. Danko, the authors present a now well-known formula for one's expected net worth. Unfortunately, it seems that the result of the formula has been repeatedly misinterpreted as a hard limit, where if you are below this number, you are considered "poor", and if you are above it, you're "rich". But, there is not a single break point that divides Prodigious Accumulators of Wealth (PAWs, the "rich") and Under Accumulators of Wealth (UAWs, the "poor"). Instead there is a broad middle range that the authors call Average Accumulators of Wealth (AAW).

Admittedly, the way in which Stanley and Danko presented the formula for expected net worth in their book is perhaps the source of much of this confusion. (See Wealth According to The Millionaire Next Door.) To be a PAW one needs to have at least twice their expected net worth. Instead of repeating the often misinterpreted formula here, I will present a simplified version of what the authors tried to convey in their book.

Take your age, and divide by 5. Multiply the result by your annual income. If your net worth is at least that amount, then you are a PAW (i.e. wealthy).

Suppose that one is 40 years old and has an annual income of $75,000. In this case, 40/5=8. So, to be "rich" at 40, one needs to have 8X their annual income or $600,000 in this example.

But, you are not necessarily a UAW if you have less than $600,000. The converse formula is:

Take your age, and divide by 20. Multiply the result by your annual income. If your net worth is less than that amount, then you are a UAW (i.e. "poor").

Using the same example, 40/20 = 2. So, one is poor at age 40, if their net worth is less than 2X their annual income, or $150,000 in this case.

I think that blog posts that discuss The Millionaire Next Door often illicit responses like: "The formula is flawed," or "This is nonsense." Indeed, broad rules of thumb like this one can have their limitations. I think that the authors only intended this formula to be a rough measure of one's wealth. On the other hand, if you find yourself making excuses as to why you can't achieve at least the lower limit of AAW status, then you are exactly what the authors have profiled as a UAW. My definition of a UAW is one that fits the formula and has a dozen "reasons" why he or she is stuck there.

Another typical reaction to the Millionaire's formula is people who say the formula is nonsensical, and that they will then develop a new and improved formula. Presumably, this new formula will show that they aren't doing so badly after all. In any case, I won't hold my breath for a new and improved breakthrough formula to come out.

Regardless of whether or not you agree with the Millionaire's Rule of Thumb, I think that everyone can strive to do better. Let me offer these words of encouragement: If you are a UAW, you can strive to become an AAW; if you are an AAW, you can strive to become a PAW. I wish you good luck in this endeavor.

Further Reading:
Wealth According to The Millionaire Next Door.
As a Rule of Thumb.

PF Stock