However, assuming that you're holding P2P notes a taxable account, beware of the spread between the tax rate on interest (ordinary income, IIRC), and the tax on defaulted notes (capital losses).

You can turn about 3K of these capital losses into ordinary losses to offset income, but beyond that, your returns may not reflect the after-tax reality.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27416553)

i've always felt that my realized cap gains from stock dividends would fuck with my LC returns

at some point i'd love to sit down and create a model that optimizes LC returns for taxable accounts rather than for IRAs. presumably this would tilt toward more lower risk loans w/lower default rates at the cost of lower pre-tax yield.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27416841)

To take an extreme example, suppose you invest a total of $100 in an IRA -- $10 in 10 one-year loans, each bearing an interest rate of 50% (none of these are realistic to LC or prosper, but this is just to make the numbers easy).

3 notes default and you never get payment. So you lose $30. You get $70 back in principal from the remaining notes, plus $35 in interest from those notes.

In an IRA (let's assume Roth for convenience), your return would be a gain of $5 (5%).

In a taxable account, assuming 30% tax bracket, your interest return would be .7*35 = $24.5 in after-tax interest, plus a capital loss of $30, that you can use or carry to later years -- let's suppose you can use it all to immediately offset cap gains at a recovery rate of 20%, or $6. Your after tax return is $24.5+6-30+70 = 70.5, i.e. a negative return.

Now let's say that you do the same thing, but you diversify among 10 lower risk, lower interest loans. None of the loans default but they each only pay 2%.

The IRA would yield 2%, which is << the high-yield/high-risk scenario of 5%. The taxable account would yield 1.4%, which is >> the negative return in the high-yield/high risk portfolio.

This ignores the 3K shelter that we discussed before and my head is totally foggy right now but it is not clear to me that a taxable account should use the same assumptions as an IRA.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27417304)

I actually the same idea as you regarding credit card leverage and am slowly trickling in money to LC through a 0% APR credit card. I am using LendingRobot so I'm taking a slight hit in yield but it seems to pick loans that fill up and originate much more quickly, so I'm hoping it will largely be a wash. Am going to sit down and run some calcs to try to find what is the optimal default rate/interest rate balance a few weeks later, will report back.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27417641)

BTW, you can extract money from a 0% APR card without incurring cash advance fees while also getting a small % cashback, but it's unclear whether this arbitrage is useful because it's such a slow process.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27423600)

I just use Amex Serve to extract small amounts of cash without fees. But, it only allows you to do $200 per day, for a max of $1K per month. This process can be largely automated. The downside is that rolling in only 1K a month results in a much smaller yield vs 15K up front. But, this is part of my small-scale experiment in buying FolioFN notes with <=14 months on a rolling basis, so I figure I'll take a bit less risk at first before I try the cash advance method.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27441372)

I am going to test the new FolioFN feature from the Robot. One nice thing about buying secondary market notes is that there is no need to wait for them to be issued so they start paying right away.

Amex Serve is very useful for extracting money without fees from 0% APR cards. I've never used Bluebird, but I gather that they're similar. The nice thing about Serve is that you can coordinate everything online. Unfortunately it's not scalable since you're limited to 1K per month. If only it were more than that . . .

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27450795)

Plus closing out the lending club account at the end of the year to fully pay off the cc was a bitch. You're having to sell at a loss to move the notes quickly and totally to fully pay off your credit card, otherwise for each month you don't you're paying a pretty high interest rate on whatever the card balance was. Maybe you have a better system for selling off everything at the end.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27631857)

i have largely automated the process but this is really just an intro experiment to do this on a large scale w/margin loans at IB

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27631854)

i'm looking into interactive brokers' rates, which are under 2%. granted, there is a risk of margin call that must be considered, which perhaps can be appropriately managed by using broad-based indices. i plan on using my whole life policy as a cash reservoir paired with a bridge loan of sorts (perhaps a HELOC) as protection as well. there is also a threat of interest-rate increase, but i think this isn't a huge issue.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27633395)

they are one of the "go to" places for traders, especially for options.

as i understand it, portfolio margin on certain ETFs may allow for tremendous leverage. i would not use anywhere near max leverage because i am wary of margin call. but, large leeway in maintenance margin substantially reduces the risk of margin call.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27633452)

Since the margin loan is secured by collateral in the margin account, it is not really that risky for IB to loan out at under 2% (though not riskfree, as the recent currency flashcrash shows) and IB can still make a substantial amount doing so.

IB is very highly automated so one potential trade-off is that they will liquidate your account automatically upon a margin call. I.e. when the call comes you must in fact immediately deposit money instead of puttering around for a week like in the old days. But frankly I am not sure that other institutions would give you any more flexibility.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27633766)

still?

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#33215748)

1. apply for credit card

2. get check, push a few buttons to fund an LC account

3. set credit card to autopay

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27632005)

i was terrible at that stuff anyway, but now personalcapital/mint/whatever aggregator keeps tracks of all your credit card accounts so it gets bundled into the same interface that i check anyway when i invest.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27633335)

i have decent credit but my credit score has been temporarily driven down by opening a bunch of credit cards recently. in general, i treat all funds as fungible, so whether i just use 0% APR cards for my daily expenses or actually balance transfer, is pretty much the same since i barely hold any cash at any given time.

btw, this is getting somewhat off topic but since you have an interest in leveraged investments, i thought i would mention that the cornerstone of my strategy is to use blended whole life insurance as a cash equivalent to cover my debts in case something goes awry and i don't have enough cash to pay off my credit card debt (which is around 20K now). i've found that holding cash within the whole life policy is quite effective as the IRR over a long period of time should be around 5% (nontaxable) and that accessing the cash is easy and only accrues a penalty of around 50 basis points.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27758734)

Investment balance: $15,588. I've now exceeded the $15,450 cost of the $15,000 loan, so it's profit from here on out. All the payments are being reinvested as soon as possible when they come in (I'm now focusing on stub-length notes on the secondary market for reinvestment, which are less plentiful).

Currently the average interest rate on the notes I'm holding is still 17.8%. I'll be happy with 10-11% returns overall after defaults.

Of 658 notes I've bought, 28 were paid off early, 18 are currently late (1-30 days) and 612 are current. I've still yet to have one move past the second stage of lateness before recovering.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#28237791)

lol @ counting losses from your investment as part of your profit

but man if it makes you happy, keep on keeping on

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#30397482)

as :D said above i value my time far more than either of the amounts you are talking about, but again, to each his own

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#30397526)

thats how you make real money bro

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#30397545)

i've continued this experiment indirectly in the sense that i have only 1K in free cash in my checking account, and everything else spread out over roughly 1M exposure to S&P through equity+ 200K margin loan, about 30K in lending club/prosper, and some other assets.

returns have tanked recently but have been acceptable so i will keep autoinvest on.

(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#32732434)