Taking out a prosper loan to buy stocks

[captZEEbo]

It looks like you realize this is a -EV play (getting the loan), however you like the idea of forced savings. Can you explain to us why you can't use a vanguard or fidelity automatic monthly payment system?

[captZEEbo]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Prop bet. I will not accept any bets without being offered odds. Just because I am confident in my ability does not mean I think a 1:1 bet is smart.

[/ QUOTE ]
The claim that was the basis for this entire idea, and you're putting $25k in borrowed money behind, isn't a 1:1 shot?

[/ QUOTE ]

Not at all. Do you honestly believe I am either going to have $50k or $0 at the end of 1 year? Personally, instead of betting 1k I'd rather turn that into 1.2 - 1.5k over the course of a year and not have to worry about if I will get paid or not.

Also, I am not the one who initially brought up betting, not to imply the other guy(s) weren't serious. Just saying that it wasn't my idea to begin with.

[/ QUOTE ]
I honestly have no idea what you're talking about.

[/ QUOTE ]I think he's referring to if he just took all his money and escrowed it and bet 2+2 he could get 20-30% returns on his money. He would end up with 0k or 50k if he did that. He doesn't want all or nothing, and wants a more steady gaining system (ie investing).

[Evan]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Prop bet. I will not accept any bets without being offered odds. Just because I am confident in my ability does not mean I think a 1:1 bet is smart.

[/ QUOTE ]
The claim that was the basis for this entire idea, and you're putting $25k in borrowed money behind, isn't a 1:1 shot?

[/ QUOTE ]

Not at all. Do you honestly believe I am either going to have $50k or $0 at the end of 1 year? Personally, instead of betting 1k I'd rather turn that into 1.2 - 1.5k over the course of a year and not have to worry about if I will get paid or not.

Also, I am not the one who initially brought up betting, not to imply the other guy(s) weren't serious. Just saying that it wasn't my idea to begin with.

[/ QUOTE ]
I honestly have no idea what you're talking about.

[/ QUOTE ]I think he's referring to if he just took all his money and escrowed it and bet 2+2 he could get 20-30% returns on his money. He would end up with 0k or 50k if he did that. He doesn't want all or nothing, and once a more steady gaining system (ie investing).

[/ QUOTE ]
Oh, well I assume it's clear to you, as it is to me, that that's got nothing to do with anything. Likewise, I'll assume shoe thinks the exact opposite of anything I can make sense of.

[AbreuTime]

Shoe, please keep us updated, as I am eager to hear about your results. This could be informative for a number of us.

[Belok]

[ QUOTE ]
Link to my loan request.

I don't want to get in a huge debate here if I can get better returns on my stocks vs. the interest charged on the loan (i have dealt with enough of those questions at prosper). I have done my own analysis and decided that I am more than willing to take that risk. I understand I could potentially lose a good chunk of change here. But I won't lose everything, as I will buy atleast 5 differnt stocks with a market cap over 1 billion. They aren't going to all go bankrupt, and if that 1 in a billion chance hits, then so be it.

Here is the basis of the calculations I did to take on this loan request:

Assuming a $25k, 3 year loan at 12%, my total amount paid would be: $29,893.32.

Assuming the following average annual returns, I would end up with this much money:

6%: 29,917.01
10%: 33,704.14
15%: 39,098.60
20%: 45,328.80
25%: 52,518.68
30%: 60,813.38
35%: 70,376.25

I don't want to get too cocky, so I am capping myself at a maximum annual return of 35%, which I actually think is achievable based on my opinion of my stock-picking ability. That is up for debate, not doubt, but I am not going to get in a pissing war here about stock picking ability. My main question is this, if you only achieve average stock market returns (8 - 10%) (and I am only 28 so have time in my favor), is this loan worth taking?

I understand the stock market could crash in the next 3 years or the dollar could crash or whatever else, but what are your thoughts assuming a normal market? Thanks in advance!

[/ QUOTE ]

Alright man - here's my advice to you.

Part of making an intelligent, informed decision on an issue is accepting that you DONT know as much as you think you do.


You think you can regularly return higher than Vanguard mutuals? You think you can make 20%+ on a long term basis? If this were true, you would not need to take out a 25k prosper loan at 12% for maybe a CHANCE at making a a few K over a few years.

If you really were that good, you would either:
1) Be able to get a job with some investment company - and be paid much MUCH more than this little idea could make you.
or 2) Wouldn't need to take a loan for **12%** (you realize how high this rate is, right? It is really REALLY high)

There are people who have been investing and analyzing the market for DECADES. There are teams of these people who work together and cant consistently beat the market for the numbers you claim you can.
You have to at least accept the POSSIBILITY that you really aren't as much of an expert as you think you are. Is that possibility worth risking 25k worth of 12% debt on?

Quite frankly, in poker terms, you sound like someone who has beaten 50$NL over a 20k sample and is taking out a loan to play the 5k games. You really need to concede (to yourself) that you aren't some genius investor who can pull 20%+.

I see your loan hasn't been completely funded or finalized yet, and if you can still back out I suggest you do it.

Just my 2 cents...


Oh - and P.S.
Why don't you try to do this on a smaller, lower-risk level?
One idea is to open a few credit cards with those "Balance transfers and cash advances - 0% for 1 year".
Open those, set aside a few K to invest with, don't pay any interest, and pocket all of your earnings. After the year is up, pay off all of the balances and keep all of your % instead of giving up 12.

After you've done that a few years, you will have a better idea of what your long-term earn can be.

[vilemerchant]

[ QUOTE ]
Why don't you try to do this on a smaller, lower-risk level?
One idea is to open a few credit cards with those "Balance transfers and cash advances - 0% for 1 year".
Open those, set aside a few K to invest with, don't pay any interest, and pocket all of your earnings. After the year is up, pay off all of the balances and keep all of your % instead of giving up 12.


[/ QUOTE ]

This is exactly what I said but I guess noone noticed. For me this is a complete no-brainer. They hand out credit cards to any idiot (OP definitely a candidate there), why the hell would he want to pay 12% unless his credit is absolutely screwed.

[Shoe]

[ QUOTE ]
[ QUOTE ]
Why don't you try to do this on a smaller, lower-risk level?
One idea is to open a few credit cards with those "Balance transfers and cash advances - 0% for 1 year".
Open those, set aside a few K to invest with, don't pay any interest, and pocket all of your earnings. After the year is up, pay off all of the balances and keep all of your % instead of giving up 12.


[/ QUOTE ]

This is exactly what I said but I guess noone noticed. For me this is a complete no-brainer. They hand out credit cards to any idiot (OP definitely a candidate there), why the hell would he want to pay 12% unless his credit is absolutely screwed.

[/ QUOTE ]

I think the credit card idea is great, however there are a few drawbacks to it:

Many cards charge a fee (as a percent of the balance) so I would need to take that into account. I would also have to go through the process of applying for and then managing several cards. But I agree that would definitely get the most bang for my buck that way. I also would need to be able to do this as a cash advance as opposed to a balance transfer as I do not carry balances on any of my cards.

I ended up cancelling my prosper loan request because I was unhappy at how it was funding. I'm sure it would have ended up funding at 13%, but it does not appear the interest rate was going to get bid down much, if it all. All of the other AA loans i have seen on that site usually end up around 8% interest. I knew my loan was bigger so it probably wouldn't get that low but I was surprised that it was not already dropping in rate.

In the mean time, I am going to keep investing about $1k per month into the market (do you guys think that is a bad idea with my apparent lack of knowledge, or just the borrowing to invest part?).

I am probably going to start using margin with the limited balance I do have. I only think using margin is marginally better than taking out a loan though. For the most part, margin is just a fancy term for what I was doing but seems to be a socially acceptable way of putting it. Although I can deduct the margin interest from my gains, I also would not have full control over those funds (margin calls).

I'm going to seriously look into that credit card thing. I think it is a great idea if you are willing to put in the time. I'm just not sure if I will end up determining it is worth the hassle, depending on how many different cards I would need to apply for, what the initial fees are, etc...

Thanks again to everyone for the advice in this thread. If anyone is interested I'll keep you updated on what I end up doing and how my stocks perform.

[vilemerchant]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Why don't you try to do this on a smaller, lower-risk level?
One idea is to open a few credit cards with those "Balance transfers and cash advances - 0% for 1 year".
Open those, set aside a few K to invest with, don't pay any interest, and pocket all of your earnings. After the year is up, pay off all of the balances and keep all of your % instead of giving up 12.


[/ QUOTE ]

This is exactly what I said but I guess noone noticed. For me this is a complete no-brainer. They hand out credit cards to any idiot (OP definitely a candidate there), why the hell would he want to pay 12% unless his credit is absolutely screwed.

[/ QUOTE ]

I think the credit card idea is great, however there are a few drawbacks to it:

Many cards charge a fee (as a percent of the balance) so I would need to take that into account. I would also have to go through the process of applying for and then managing several cards. But I agree that would definitely get the most bang for my buck that way. I also would need to be able to do this as a cash advance as opposed to a balance transfer as I do not carry balances on any of my cards.

[/ QUOTE ]

Many places will offer you a balance transfer as 'convenience checks' that you can have written out to yourself as a free (or cheap) way to transfer a large sum, often at the 0% rate or 2.9% or whatever their promotion is at. Some cards you can even balance transfer from even if you have a zero balance, putting your account into credit - so they have to send you a check. Citibank is your best bet.

[RicoTubbs]

[ QUOTE ]
I am probably going to start using margin with the limited balance I do have. I only think using margin is marginally better than taking out a loan though. For the most part, margin is just a fancy term for what I was doing but seems to be a socially acceptable way of putting it. Although I can deduct the margin interest from my gains, I also would not have full control over those funds (margin calls).

[/ QUOTE ]

Two points based on my reading of IRS publication 550 (pages 32-38) LINK :
1. For federal income tax purposes, you can only deduct margin interest from your gains if you itemize your deductions.

2. The source of the borrowings doesn't matter. If you borrow money for investment purposes, the interest may be deductible. It doesn't appear to matter whether you're borrowing from your broker or from others (e.g., your proposed prosper.com loan.)

Saving is a good idea. Investing in a good idea. Borrowing to invest can be a good idea, but nothing in this thread has suggested that borrowing to invest is a good idea for you.

[captZEEbo]

[ QUOTE ]
In the mean time, I am going to keep investing about $1k per month into the market (do you guys think that is a bad idea with my apparent lack of knowledge, or just the borrowing to invest part?).

[/ QUOTE ] We're pro investing in the market, just not pro taking out a 12% loan to do it.