I was rather dissappointed however due to the nature of bidding. Unfortunately, I had to get loans at a much lower rate than I would have liked and it too much too long (in my opinion) to monitor the bidding process and do bidding.

This time investment is taking some of the appeal of prosper away from me at this early stage.

As for the pass-through insurance, i believe that refers to the funds in your prosper account before they are loans.

Good luck and once I have some more experience with prosper, I will probably write a small bit on my blog as well.

I didn’t use the term “diversification” at all, and I disagree with you regarding whether buying multiple lots reduces my risk. What it does is reduce my change of losing everything if my one big loan were to fall through. Statistically, not a reduction, in practice, a big difference.

I appreciate your pointing out the default rate of 5%. I hadn’t yet read that particular number, which does throw off my spreadsheet a bit.

I could do without the snarky comment regarding the books I mentioned, however. Both books are excellent, and both talk about risk at length. Interestingly, one of Mr. Ekar’s book recommendations matches yours for Stanley’s “Millionaire Next Door”. Perhaps you were a bit quick to judge based on a title?

And remember that buying 11 small lots of a single risky investment class does NOT reduce risk, as you are not actually diversifying if you stick within a single asset class/sector. eg. if the economy tanks then ALL Prosper.com borrowers have an increased chance of defaulting.

Also, remember that they’re lots of investors looking over the Prosper.com opportunities, so to “win” a slice of debt you have to underbid the others- ie. you were willing to take the LEAST return for the estimated risk.

You may luck out and have 10x$100 invested at 11% and get it all back with interest. But, based on the current “riskless” rate of around 5%, it’s more likely that you’ll not get paid the full interest due on several of these parcels.

There’s also a risk that you might not get your $100 capital back either. Did you notice the following bits in the Prosper.com FAQs?

“There are no guarantees that your loan will be repaid”

and

“Prosper is not directly insured by the FDIC, but lenders’ deposits are covered up to $100,000 by FDIC pass-through insurance provided by our banking partner, Wells Fargo Bank.”

The bit about NOT being insured by the FDIC is clear. I’ve no idea what FDIC “pass-through” insurance is – it might just mean you’re insured against Wells Fargo losing your money during transit from your account to the borrowers! If you intend to invest in Proper you should know exactly what this means, and get confirmation from Wells Fargo in writing.

The first rule of investing is “if it looks too good to be true, it probably is”. I’m not sure if that’s covered in “Secrets [sic] of the Millionaire Mind” or “Millionaire Maker’s Guide…”

Regards
http://enoughwealth.blogspot.com