Taking out a prosper loan to buy stocks

[polkaface]

I read the first 3 pages of this thread and glanced over the rest. Here are some things that I think people are missing.

To the person who said "I feel bad for those that lend you money on Prosper". The person on the hook is the OP, the loan is a valid loan with credit rating at stake. Unless he files bankruptcy, there will be collectors after him to get the money for the lenders.

If he is using this as a savings plan, I don't see that much risk for the lenders.

Also, the Prosper loan is a Principal Paydown loan. He's not paying $3000 interest each year. So if he can get the money into the market and leave it there, he will be using compounding in his favor as compared to the alternative of investing the monthly payment each month. What was it like a 6% compounded return he would have to achieve to make money on this?

Many borrowers on Prosper use the funds to reinvest on Prosper to make the difference on their money. My current Prosper portfolio is getting over 20% on its money. Again it's principal paydown, so unless I reinvest it, my actual return will be lower. (but for OP since he is leaving his money untouched in the market, he doesn't have that to contend with).

That said, I am not saying it is a foolproof lock, but I wouldn't be surprised at all if he can make money on it.

[RicoTubbs]

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What was it like a 6% compounded return he would have to achieve to make money on this?

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Don't be ridiculous. How can you think that borrowing money at 13% and using the funds to earn 6% could possibly make money?

OP, did you ever work for First Citiwide Change Bank ?
"All the time our customers ask us, 'How do you make money doing this?' The answer is simple: Volume."

[Gildwulf]

This is the stupidest idea I've ever heard on these boards.

[jba]

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I am positive i can get at 20-30% annual return on my money by investing in individual stocks.

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PROP BET??? I'll bet up to 1k or so that you can't get 20% in the next year.

peace

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I'd bet NTDOY alone goes up more than 20% in the next year. What type of odds are you offering?

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I just want to make it clear right now that offering prop bets and then backing down will not be taken lightly in this forum. I'm not saying this has happened or will happen.

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wouldn't have offered it if I wasn't 100% serious.

I wasn't offering odds - I was scoffing at the "I am positive I can get 20-30%" statement. I did go as far as offer the prop on the low end of the range. the offer stands and if OP is serious we'll work out terms and we'll do this thing. escrow is required for 1k.

[polkaface]

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What was it like a 6% compounded return he would have to achieve to make money on this?

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Don't be ridiculous. How can you think that borrowing money at 13% and using the funds to earn 6% could possibly make money?

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It's a PRINCIPAL PAYDOWN loan. He is paying 30k over 3 years to borrow 25k now. That's only 5k that he has to make over 3 years on the stock market to make money.

If he puts the 25k into the market now and doesn't touch it, then yes after a 6% to 7% return he has more than 30k after 3 years.

26750 after year 1.
28622.5 after year 2.
30626.08 after year 3.

As I have already stated, I am not saying it is foolproof, but it isn't a HORRIBLE idea. Many people are already doing the float thing (taking loans just to use the money to make them) on prosper already.

[polkaface]

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This is the stupidest idea I've ever heard on these boards.

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Would you also say this if he changed "Stock market" to reinvest at higher interest rates on Prosper?

Just curious, if it is a stock market risk aversion or an "any vehicle" risk aversion.

[wdcbooks]

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This is the stupidest idea I've ever heard on these boards.

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Would you also say this if he changed "Stock market" to reinvest at higher interest rates on Prosper?

Just curious, if it is a stock market risk aversion or an "any vehicle" risk aversion.

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I am going to answer for Gild. Of course not. If he was borrowing at 12% to lend at 18% we would call it arbitrage and I would consider it to be pretty clever.

The issue isn't risk aversion per se, it is the almost willful throwing away of money. Let's imagine an alternate universe where the historical return of the type of equity he is investing in was 20%. So he borrows at 12% and invests in an index fund. That would carry risk, but it would also be +EV. This is just a bad gamble and a bad risk

[captZEEbo]

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What was it like a 6% compounded return he would have to achieve to make money on this?

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Don't be ridiculous. How can you think that borrowing money at 13% and using the funds to earn 6% could possibly make money?

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It's a PRINCIPAL PAYDOWN loan. He is paying 30k over 3 years to borrow 25k now. That's only 5k that he has to make over 3 years on the stock market to make money.

If he puts the 25k into the market now and doesn't touch it, then yes after a 6% to 7% return he has more than 30k after 3 years.

26750 after year 1.
28622.5 after year 2.
30626.08 after year 3.

As I have already stated, I am not saying it is foolproof, but it isn't a HORRIBLE idea. Many people are already doing the float thing (taking loans just to use the money to make them) on prosper already.

[/ QUOTE ]We already went over this. You are ignoring opportunity cost.






For OP, I'd bet up to 10k that you don't get 20-30% a year over 3 years. Remember, you said you were CONFIDENT you can get over 20-30% per year. So I assume CONFIDENT means > 50%. This bet is very +EV for you, so you'd be a fool not to take my offer. Either that, or you don't actually believe in your plan and want to gamboooool.

Let me put it this way: If a forum of investors (some professional and in the business for decades, some merely studious and still learning) all look at your plan and say this is a horrible horrible plan, and not one person says this plan makes ANY sense....why do you think that is? To be blunt, you remind me of people that think the Holocaust is a myth.

It's not as if people on this forum are being pessimistic and saying your plan probably won't work, we are telling, you based on the numbers you have NO CHANCE other than getting ungodly lucky.

This isn't even one of those situations where you hear stories like little business man went up against all odds, and risked his steady job to try his own business despite all his friends and family nay-saying and baffled everyone when it worked. This is like, you are playing a mathematical game and are just ignoring the numbers for no reason.

P.S. This thread puts me on hyper tilt.

[RicoTubbs]

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Read my post just above yours. It's a principal paydown loan, he is not paying 12% on 25k each year. So if he invests the full 25k and doesn't touch it, then as he gets paid (not from stocks, from work) and he uses that non-invested money to pay back the loan, he will only need to achieve 6% or so to make money.

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This doesn't make any sense. You are, in effect, claiming that using "non-invested money" to pay back the loan is costless. Ignoring risk, you have to evaluate the merits of an investment by looking at the return on the investment and compare it to the cost of funds required to fund the investment. When the return is lower than the cost, you can't just wave your hands and say that there is some external source of (costless) funds that will be used to pay down the loan while keeping the investment intact.

Opportunity cost FTW.

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it isn't a HORRIBLE idea.

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Yes, yes it is.

[polkaface]

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Read my post just above yours. It's a principal paydown loan, he is not paying 12% on 25k each year. So if he invests the full 25k and doesn't touch it, then as he gets paid (not from stocks, from work) and he uses that non-invested money to pay back the loan, he will only need to achieve 6% or so to make money.

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This doesn't make any sense. You are, in effect, claiming that using "non-invested money" to pay back the loan is costless. Ignoring risk, you have to evaluate the merits of an investment by looking at the return on the investment and compare it to the cost of funds required to fund the investment. When the return is lower than the cost, you can't just wave your hands and say that there is some external source of (costless) funds that will be used to pay down the loan while keeping the investment intact.

Opportunity cost FTW.

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it isn't a HORRIBLE idea.

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Yes, yes it is.



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To Capt Zeebo - I am NOT the OP, I make no claims on stock picking ability.

To you Rico - OP mentioned using this as a savings scheme. So his non-invested money that he is using to pay off this loan is the money that he would be investing on a monthly basis (had he not taken the loan). So essentially he is trading a 25k lump sum to invest now in lieu of saving/investing 830.36 a month for the next 3 years and hoping that after 36 months his stock account is over $29,892.89 (cost of borrowing at 12% on Prosper). Any tax consequences of his investments are not of importance because OP states he would be using the money saved (monthly payment if he didn't take the loan) to invest anyway. The only way taxes might come into play is if OP is making tons of trades. But if he buys the stocks and lets it sit, he is actually saving a lot in commissions versus buying $800 in stocks each month.

Of course the issues are this:
Stock Market returning historical averages
Not needing the money for any emergencies

I am not waving my hands saying money will appear to pay back the loan. The OP himself STATED he would be saving the money in any event, but wants to invest the money now and not wait each month.