Peer to peer lending ( p2p lending) is gaining traction as a legitimate investing vehicle. All of my favorite investing books break investing down into stocks, bonds, CDs, mutual funds, etc. P2p lending is carving a niche for itself. P2p lending allows individual investors to borrow and lend money without the help of a financial institution.

Instead of the bank taking my money and lending it out while I earn a small interest rate, I can lend my money directly to another individual. P2p lending does involve more risk to the individual. The two major p2p lending sites are Lending Club and Prosper.

Prosper

Prosper claims investors can earn between a 7% and 13% return on invested money. Similarly, as a borrower, Prosper claims you can secure a fixed rate loan for as low as 7.5% APR.

As a borrower, you can list a loan for an amount between $1,000 and $25,000. The borrower then sets the maximum rate they are willing to pay and writes a story about why they want a loan.

As a lender, you decide the amount of money you want to lend and the minimum interest rate they want as a return. The lender then uses criteria like credit history (minimum 640 credit score), combined with the borrowers personal story to pick loans to bid on.

Prosper takes the bids with the lowest rates, does some sort of combinatorial magic and lumps all of the loans into one easy rate for the borrower. Notes are then awarded to the winning bidders. Because Prosper uses an auction system, the borrower ideally gets to watch the interest rate decrease as more people bid on the loan.

Prosper services all of the collections from borrowers and makes payments to the lenders. Prosper charges a lump sum fee up front on the borrower and a servicing fee of 1% to lenders.

Sign Up to Prosper

It really is as simple as that. It took me 10 minutes to set up my account. They ask for all of the standard account opening information and even assign you a random screen name (mine was liberty squirrel). If you sign up now, for a limited time, Prosper will give you $50 to start.

My Experiences

So far I have two bids that are waiting for the auction to end. The process for finding loans was extremely easy. I used the advanced search to find AA borrowers (borrowers with the best credit score) with a low debt/income ratio. I then looked for a rate around 10.00% with an interesting story.

Currently, I bid on a loan to somebody who is raising money to pay for a medical procedure for his wife. He is setting aside $2,500 a month as it is to fund this surgery, and requires the loan to have the surgery earlier. They should be able to easily afford the monthly payments if they were putting away $2,500 a month.

Also, I bid on a loan for a budding web entrepreneur who wants to hire a web publisher. They are already making enough money through Adsense to cover the monthly payment. They believe the addition of a publisher will help the web site grow exponentially.

The bottom line is I bid on two loans that could earn me 10.00% when both of the borrowers appear to be able to easily cover the monthly payments.

I highly recommend p2p lending as a part of your investment profile. I’ve mentioned adding $25 a month to my Lending Club account and may decide to do the same to my new Prosper account.

Post from: Personal Finance Start-Up Blog

• End of July Financial Status
• The Anatomy of My Credit Score
• My Mortgage Closing and Effects of the Credit Crisis
• High Interest Rate Checking Accounts
• The Basics of a Mortgage

• Lending Club Review: Our Review of Lending Club’s Peer-to-Peer Lending Service
• Prosper Discontinues Group Payment Rewards
• Zopa Launches in United States
• NetBanker: Person-to-Person Lending 2.0
• Lending Club vs Prosper -- The First 100 Days Take 3

Now that I’ve purchased my condo, I’ve been able to catch up on my retirement contributions. Last month I fully invested in my solo 401k and this month I fully contributed to my Roth IRA. My investment assets are getting large enough where I can begin to use asset allocation without worrying about meeting index fund minimums. While doing some research about investing and asset allocation, I stumbled upon the correct way to calculate my investment return, which is important for comparing your portfolio to appropriate bench marks.

Beardstown Ladies

The Beardstown Ladies were a famous investing club that claimed to have compounded returns nearly 10% higher than the S&P 500. After a few years of receiving national acclaim, it was discovered that they were including account deposits as investment gains. After adjusting for these account deposits, the Beardstown Ladies’ return was actually 6% below the S&P 500. Most people won’t be embarrassed nationally by not knowing how to calculate your investment return, but it is essential for managing your own portfolio.

Time-Weighted Return (TWR)

TWR is the industry standard for calculating your investment return. A TWR measures your performance over a specific period of time. There are three simple steps for being able to correctly calculate your TWR. If there are no contributions or withdrawals you simply subtract your final balance from your initial balance, divide by your initial balance and multiply by 100.

(Fina l- Initial)/(Initial)*100 = TWR

Contributions and Withdrawals

The simple calculation above gets slightly more complicated when you have to account for contributions and withdrawals. To calculate the TWR with contributions and withdrawals, you divide your final balance less half of your contributions plus half of your withdrawals with your initial balance plus half of your contributions less half of your withdrawals. Subtracting 1 from that calculation nets you your TWR for that time period.

[(Final - 0.5*C + 0.5*W)/(Initial + 0.5*C - 0.5*W) - 1 ] = TWR

Stringing Together Time Periods

The idea behind the TWR is to calculate smaller time periods like monthly or quarterly and then string them together to get larger time periods like yearly. This final step is pretty simple. Consider the example where you have 4 quarterly returns and are calculating the yearly return. Add 1 to your quarterly returns, multiply these values together, and subtract 1 from this final value.

Final Thoughts

It is very important to be able to correctly calculate your investment returns. If you can’t calculate your investment returns, you may think you’re beating the market when you’re severely under performing the market. Asset allocation is all about understanding the risk and return trade off. It’s important to know that you’re getting the returns needed to justify the risk that you’re taking. Don’t be like the Beardstown Ladies!

Happy Easter everybody

Post from: Personal Finance Start-Up Blog

• 8 Rules for Selecting Actively Managed Mutual Funds
• 2009 IRA Contribution Limits
• Using History to Understand the Stock Market and my Investing Plan
• 15-Year Fixed Mortgage Amortization Schedule
• Overview of Online Savings Accounts

• Why Index Funds are Bad Investments
• Vanguard Star Fund (VGSTX): The Ultimate Investment For Beginners?
• Compounding and the Rule of 72
• Do You Go For the Gold Financially?
• The Most Powerful Force In The Universe: Compound Interest

For awhile, I had been thinking about opening a DollarSavingsDirect savings account for the 4.0% interest rate. Now that the DSD online savings account interest rate has dropped to 2.05%, I’ve been forced to look at other alternatives. All online savings accounts have taken a beating this year. ING is down to 1.50% and HSBC is down to 1.65%, neither of which is very enticing. I decided to take a look into high interest rate checking accounts.

What are high interest checking accounts?

High interest checking accounts are exactly what they sound like, checking accounts that offer a high interest rate. Some of these checking accounts offer interest rates as high as 5.25%. A checking account that offers an interest rate above 5%? I know what you’re thinking, “what’s the catch?” There are a few rules to follow. As long as you follow the rules though, you’ll be earning 5.0% on an account with check writing ability.

Rules for high interest checking accounts

There are some general rules or qualifications for high interest checking accounts. Not every high interest checking account has all of the following rules, but they all have at least one.

• Make a minimum number of debit card transactions per month
• Make at least one ACH direct deposit or ACH auto debit per month
• Receive your statements electronically

If you meet all of the qualifications, you will earn the high interest rate for that month. If you don’t meet all of the qualifications, you will earn some bare bones interest rate, which can be as low as 0.15%. Finally, each high interest checking account has a maximum dollar value that the interest rate applies. For instance, if the limit is $10,000, only the first $10,000 will earn the high interest rate.

How do the banks make money?

This was the first question that I asked when I heard about high interest checking accounts. How can these banks offer rates above 5.0% when other banks are all below 2.0%? The key for these banks is the minimum number of debit card transactions per month. The merchant you buy from will pay several percentage points in fees to the bank. These banks also save money by not mailing out statements, which is pretty standard these days.

Final Thoughts

I will be opening a high interest checking account in the near future. I’m not in a rush to open this account because I won’t have a whole ton of cash to earn interest on for the next month. I have a large number of payments in April and I’m transferring $5,000 into my Roth IRA. I have no problems receiving statements electronically or making a monthly direct deposit. The hardest qualification to meet is the minimum number of debit card transactions, but I go out to eat for lunch at work, so I should be able to make 10 debit card transactions per month. I’ll keep you all updated as I open my high interest checking account.

Does anybody else use a high interest checking account? If so, do you have a problem meeting the qualifications?

Random Thought

Did anybody catch my boy Night Train Lowe absolutely dominate the Phillies? 8 innings, 2 hits and 0 walks. Talk about domination. If Frenchy turns it around and Schafer plays up to his considerable talent level, it will be a fun season. I can’t wait to see the rest of the revamped starting rotation. PLAY BALL!

Post from: Personal Finance Start-Up Blog

• My Favorite Blog Articles of the Week
• A Second Attempt at Refinancing my Mortgage
• The Personal Finance Start-Up Blog Begins
• My Mortgage Closing and Effects of the Credit Crisis
• Pursuing A New High Interest Checking Account

• New Chase $100 Checking Account Bonus
• The Tri-Level Emergency Fund
• Earn Higher Interest with a Rewards Checking Account
• Collecting Debt "Snowflakes" in Second Checking Account
• Eliminate Credit Card Debt Without Bankruptcy

I previously blogged about how to open a Lending Club account with a $25 sign-up bonus. Working on a product launch, blogging, drafting my fantasy baseball teams and dominating some rock band, I just never got around to investing my $25 sign-up bonus at Lending Club. I had a pretty mild weekend for the first time in weeks, which allowed me to catch up on some personal finance tasks. I finally invested my $25 sign-up bonus and will detail the investing process below.

There are two methods for purchasing brand new notes. Both methods start the same way. Either sign-up for a Lending Club account (with a $25 bonus) or sign-in if you have already signed up for one. Next, select the invest tab.

LendingMatch Method

Click the “Get Started” button.

The page that comes up will show you how much available money you have in your account. In the box labeled investment amount, input the total amount that you want to invest and select the “Run LendingMatch” button.

Under investment distribution use the slide bar to select your desired average interest rate. The desired average interest rate will be acquired by mixing the number of loans funded with the riskiness of the loans. After you have selected the desired rate, click on the “Next” button.

At this point, all you have to do is either click on “Buy Notes”, “Add Notes” or “Start Over”. You are also able to click on the title to get more information about the loan. Finally, you can take a look at the connections in case you would feel more comfortable lending to someone in a particular line of work, or who resides in a certain area of the country.

Browse Notes (Do-It-Yourself) Method

To use the browse notes method, select the “browse notes” link under the invest tab.

The browse notes method is very intuitive and a great option if you want total control of who you loan your money to. Once you arrive at the browse notes page, the first step is to select or de-select the categories for your search criteria.

I used the following search categories. I only selected the “A” category for average rate. The interest rates look nice for the other categories, but I’d much rather not lose my investment and 8.40% is good enough for me.

I wanted the credit score to be 714+, since someone with a higher credit score is less likely to become delinquent on repayments.

For DTI (debt-to-income) ratio, I wanted to keep it below 20%. It is important to note that the DTI ratio is prior to borrowing this money.

After average rate, delinquencies in the last 2 years was the most important category for me. I don’t want to lend my money to anybody who has already been delinquent in the past two years.

Finally, I selected 75% and higher for funding status, because I wanted my loan to start earning me interest as soon as possible.

After inputting all of these search criteria, I was left with 5 notes. I made my ultimate decision based on the background information. Two of the borrowers sounded unintelligent. One borrower’s farm was foreclosing. A profession of farming was just too risky for me.

In the end, I settled on a borrower who had an income of $6,000/month and was only taking out a $7,000 loan. Seems pretty safe to me. This note will net me an interest of 9.32%, not too shabby.

To finalize the loan, I clicked on the box next to the desired borrower and clicked on “invest”. Click on “View Order”. On the next screen click on “Buy Notes”. Finally, click on “Submit Order”.

Restrictions for Certain States

Notes are only available if you live in the following states:

The Notes are presently being offered and sold solely to residents of the states of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Minnesota, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming, and are not presently being offered or sold to residents of any other state, the District of Columbia, any other territory or possession of the United States, or any foreign country.

Final Thoughts

If you’re looking for a quick, easy, get a target average rate, I recommend using the Lending Match method. If you want to personalize and remove risk according to a variety of criteria, I recommend the browse notes method. I used the browse notes method and would recommend that method over the Lending Match method. Either method is extremely easy. I have been very pleased with my Lending Club experience so far. I will keep you informed with regards to payments, delinquencies or future note purchases.

Has anybody else invested with Lending Club? What are your thoughts and experiences?

Post from: Personal Finance Start-Up Blog

• Quicken Online Review
• Taking on the Evil CFO
• Effect of Credit Scores on Mortgage Rates
• Book Review: Common Sense On Mutual Funds
• Goals Update for End of July 2009

• Peer to Peer Lending Sites: Companies Which Operate P2P Lending Websites
• Prosper Released the Market Survey Results for March 2008
• Has Online Checking Hit The Prime Time? ING Direct's Electric Orange Checking Account Review
• How to Get a Signature Loan Online through Peer to Peer Lending Marketplaces
• Damn usary laws

When I was growing up my parents instilled in me a work ethic that has benefited me in athletics, academics and my career. I try to work hard at everything I do so that I can be as far above average as possible, and to provide for myself and future family. Investing goes against everything that I’ve ever learned. Investing in the stock market might be the only activity that you benefit from by being lazy and average. Here are 11 reasons why it pays to be lazy and average.

(Note: I’m defining lazy and average as investing in index funds and accepting that you will only earn the market average. I’m defining working hard and trying to beat the market as investing in actively managed mutual funds or buying individual stocks.)

1. When you’re lazy and invest in index funds, you don’t have to worry about the volatility of the stock market and the ulcers that come with them. Bear markets are only paper losses. You don’t have to keep an eye on the market. Just sit back and let your hard-earned money grow until you’re nearing retirement.
2. Index funds offer the broadest possible form of diversification, which reduces risk. Diversifying takes individual stock risk, style risk and manager risk out of the equation. All that remains is market risk, which is necessary to produce your returns.
3. Since somebody has to sell the stocks you are purchasing, and vice versa, the market is a zero sum game. When you factor in costs, the market is a loser’s game.
4. Index funds have significantly lower expense ratios than actively managed funds. Expense ratios are derived from management fees and operating expenses, both of which are nearly non-existent for index funds.
5. Index funds don’t have sales charges.
6. Portfolio turnover is minimized and some index funds (like those that track the S&P 500) have almost zero turnover. The average actively managed fund has a portfolio turnover of 100% per year. Higher portfolio turnover leads to higher costs through brokerage commissions and bid-ask spreads.
7. Index funds allow nearly all earnings to fall into the long-term capital gains tax rate, which minimizes tax costs.
8. Lazy investing takes human nature out of the equation. You won’t lose money trying to beat the market through market timing, which is almost certainly a losing strategy. Humans are prone to pouring money into the market when it’s high and selling when it’s low.
9. Similarly, you won’t lose money by trying to pick the next hot sector or fund (reversion to the mean is brutal).
10. Even if you find a good manager for a fund, manager turnover is so high that on average, within three years, you will be searching for a new fund or dealing with a new manager that might not have the same investing tactics.
11. Inflation is every investors enemy, however, your average investor fears inflation less. Let’s say your average market return is 10%. On average, actively invested mutual funds will lose you 3.5% in costs, leaving you with a 6.5% return. If inflation is say 3%, the average investor experiences a diminished return of only 30%, however, the active investor experiences a diminished return of 46.2%.

In summary, stay away from the ulcers, don’t pay out some of your returns to managers, diversify away risk, don’t let human nature postpone your retirement and take part in the winner’s game, being average. Charles Schwab puts it best, “(with index funds) the predictability is so high… For 10, 15, 20 years you’ll be in the 85th percentile of performance. Why would you screw it up?” Don’t screw it up, be lazy and average!

Post from: Personal Finance Start-Up Blog

• How Does the Stock Market Compare to Fantasy Baseball?
• Solo 401k Retirement Account for Self-Employed Income
• Book Review: Common Sense On Mutual Funds
• Asset Allocation Series - Part 1 - What is Asset Allocation?
• Links

• Real Estate Investments - Good Idea or Bad Idea?
• How to Get Actively Managed Funds for Free
• Vanguard CEO Discusses Poor Performance of Index Funds During Last Decade
• Recent News You Can Use on Municipal Bond Funds and Managed Equity Funds
• Socially Responsible Investing - Ways Your Money Can Fight Climate Change

That’s right, I’m going to compare the stock market to fantasy baseball. In a week pitchers and catchers will report to spring training, which signifies the beginning of the baseball season. The beginning of the baseball season means it’s time for fantasy baseball. Over the past week I’ve been reading up on mock drafts, sleepers and potential late round closers. As I was doing this, I realized that fantasy baseball is very similar to the stock market.

Buy Low, Sell High

One way to “win” at the stock market is to buy stocks when the value is low and sell stocks when the value is high. Trading for players when they’re about to get hot and trading away players when they’re about to slump is a sure fire way to win your fantasy baseball league. Unfortunately, this task is just as hard in fantasy baseball as it is in the stock market.

For example, if I were to trade for Manny Ramirez right before he was traded to the Dodgers and went CRAZY, I would have been buying low. If I had traded away Edinson Volquez at the All-Start break, because I thought Dusty Baker had abused his starting pitcher (what else is new?) early in the season, I would have been selling high.

Market Timing

Another method of beating the stock market is through market timing. Often investors try to dump cash into the stock market when they think the market is in a valley and sell stock positions when the market is at a peak. In fantasy baseball this is the equivalent of trying to bench a player before he slumps and insert a slumping player into the starting lineup hoping that he gets hot.

The problem with this strategy is that you can never time the valleys or peaks just right and you end up missing out on the days with the largest market gains and are still invested on the days with the largest market losses.

For example, over the past few seasons, Carlos Zambrano has been an unusually streaky player. He is capable of going 2 straight months with an ERA around 1.00 and then following it up by getting lit up for an entire month. By the time you bench him until he gets everything straightened out, Big Z has already turned things around. Since you won’t start him until he has a good outing or two, you end up starting him for most of the slump and miss his first couple of good outings.

Future Performance, not Past Performance

Fantasy baseball and the stock market are perfect comparisons with regards to using the past to predict future performance. You spend so much time researching the past performance of a stock or a baseball player to help you predict the future performance. The problem with this strategy is that you get no benefit from past performance, you only benefit from the future performance. Your best bet is to look at which stocks/players are producing well below their expected value and acquire them.

Cheaters

Just like in the stock market, there are cheaters in baseball and fantasy baseball. For every Enron, there is a matching Barry Bonds or Roger Clemens in baseball. Where there is money to be made, you will most likely find people trying to cheat. In fantasy baseball, I routinely get trade offers from people who are trying to trade someone who had just hurt himself hoping that I didn’t know. I don’t like cheaters or people who misremember.

IPO’s

Rookies are incredibly unpredictable, just like IPO’s. There are rookies who burst onto the scene with great expectations and completely fulfill those expectations like Evan Longoria and Ryan Braun.

There are also those rookies who are high draft picks out of high school only to languish in the minors. Some of these players finally emerge like Josh Hamilton. He was drafted with the first overall pick by the Tampa Bay Rays, but struggled with drug addictions. In his second full season after breaking his addiction to drugs, Hamilton belted 33 HRs and drove in 130 runs (not to mention his home run derby performance).

Another class of players, known as quadruple-A players, dominate the minor leagues at every level, but just can’t put it together in the majors. A few recent examples are Homer Bailey of the Reds and Felix Pie of the Orioles (formerly of the Cubs).

In fantasy baseball I stay away from rookies for the most part. I might take a flier on a promising player, but I will never go all in on a rookie. This is great advice for investing in IPOs as well.

Steady Performers

Just like with investing, in fantasy baseball I like to draft somebody who can be a rock in the middle of my lineup. Somebody who you know exactly what you’re going to get on a year to year basis. The best example of this is Albert Pujols. Even last year when he was supposed to have a down year due to injury problems, he homered 37 times and hit for a .357 average. An all-US stock market index fund can be that rock to carry your portfolio towards financial independence.

Overvalued and Undervalued

In fantasy baseball and the stock market there are overvalued and undervalued players and stocks. Overvalued stocks will kill your portfolio and overvalued fantasy players will kill your team. Every year you have to spend a pretty high draft pick to nab Derek Jeter. He isn’t a terrible baseball player, but at this point in his career, he won’t steal you 30 bases and he’ll barely hit 10 balls out of the park.

If there are overvalued stocks and players, there must be undervalued stocks and players. These players, when drafted in the later rounds, will win you your fantasy league. Every year Mike Cameron is undervalued. He’s routinely selected towards the end of the draft and finds himself on the waiver wire a few times throughout the season. If you look up his stats at the end of the season, he always threatens to join the 25/25 club for HRs and steals.

Conclusion

I hope that I’ve managed to convince you that the stock market and fantasy baseball are very similar. I have two pieces of advice to offer with regards to the stock market and fantasy baseball. First, to succeed at both you have to research the trends of the long-term past, not the recent past. You will not win at either by chasing recent past performance. Second, to win at both you have to get a bit lucky. You can do everything right in order to win, but lose because somebody else picked up Carlos Quentin or Evan Longoria before you.

Do any of you play fantasy baseball? If so, what are you strategies for winning your leagues?

Post from: Personal Finance Start-Up Blog

• Guide to Frugally Purchasing a TV to Meet Your Needs
• End of February 2009 Financial Status
• 8 Rules for Selecting Actively Managed Mutual Funds
• End of May 2009 Financial Status
• Update On My Self Employed Income Projects

• Large Cap Stocks Poised for Growth? Is this 1983 All Over Again?
• 1/11 - ETF Trading - The 200 Day Moving Average
• Rafael Nadal Wins the Monte Carlo Masters
• Qualities Needed For Successful Forex Trader
• Network Marketing Is Not About Selling!

Since I’m less than three years removed from college, this is the first bear market that has affected my finances. I previously wrote that the one lesson I learned from this bear market is that I am not risk averse. I did some digging to further convince myself of this fact and to hopefully provide everybody with the information to determine their risk aversion. Here are a few facts and thoughts that I have stumbled across recently about long term investing.

• Humans are more prone to remember the immediate past and forget the long-term past. For this reason, we are more likely to continue on the same course as the immediate past and repeat the mistakes of our long-term past.
• Between 1901-1921, the real average annual return of the US stock market was 0.2%.
• Between 1929-1949 it was 0.4%.
• Between 1966-1986 it was 1.9%.
• The historically normal real average return is 6.75%.
• Dividends and earnings growth are relatively consistent over decades.
• Speculation in the stock market (P/E ratios) accounts for the wild fluctuations.
• Speculative forces have always reverted to the mean.
• John Bogle defines reversion to the mean as “the tendency for stock returns to return to their long-term norms over time — periods of exceptional returns tend to be followed by periods of below average performance, and vice versa”.
• The 20-year period between 1978-1998 produced returns of 13.3%.

From all of this information it is clear to me that the stock market is capable of producing below average returns for 20 year periods. Prior to 2000, the stock market returns were well above average. A reversion to the mean should not have been unexpected.

Why can I continue to not be risk averse after discovering that the stock market can provide 10 years of subpar returns? I choose to stay positive and take it as an opportunity to invest at a discount. If the returns stay subpar for the next 10-15 years, I will be investing at a discount for that period of time, fully aware that a reversion to the mean in the positive direction is just around the corner. I am looking forward to the upward reversion to the mean to carry my net worth and myself into an early retirement.

Ben Graham warns: “Long-term investors must be careful not to learn too much from recent experience.” I implore everybody to learn at least one lesson from recent experience and many lessons from your long-term past experience.

Post from: Personal Finance Start-Up Blog

• End of September Financial Status
• Asset Allocation Series - Part 1 - What is Asset Allocation?
• Asset Allocation Series - Part 2 - Asset Classes
• Book Review: A Random Walk Down Wall Street
• Adjusting Cost Basis to Reduce Taxes

• Successful Investing Tips and Techniques
• Mutual Funds Stuck In Between a Rock & a Hard Place
• Target Date Funds: Not One Size Fits All
• All Intelligent Investing Is Value Investing
• What Is Forex?

My company completed an IPO in late 2007. I have a few stock options that have vested, however, the strike price is too high when compared to the stock’s current price. Due to the lack of recent news of any sort about my company, the stock is trading at what I think is a depressed price. For a long time I’ve been searching for a way to invest in my company at this depressed price.

The only problem was that for over a year my earnings went straight into a savings account for a condo down payment. Now that I’ve made my down payment, I’m trying to contribute to my 2008 and 2009 retirement accounts. I’ve been hoping to magically find an extra $2,500 to open a Zecco account for the free trades. When that didn’t happen and I found a $90 bonus offer for opening a ShareBuilder account through Costco, I decided this would be a good opportunity to invest in my company. The deal can be found here. The account opening process is as follows.

Step 1 – select whether you are a Costco executive, gold star or business member. Fortunately, I am an executive member.

Step 2 – select the account type. Since I already have a Roth IRA opened with Vanguard and I don’t have any children (at least I hope not), I opened an Individual Account.

Step 3 - enter your personal information.

Step 4 – enter your contact information.

Step 5 – verify your Costco member information, which can be obtained on the back of your membership card.

Step 6 – Create your username, password and security question answer.

Step 7 - answer some citizenship, employment status, anti-insider trading and backup withholding questions.

Step 8 – agree to the terms and conditions.

At this point your ShareBuilder account is completely created. You have the choice of selecting a pricing program or finishing the process. At the time I wasn’t ready to research the pricing programs (details can be found here). A few quick notes about ShareBuilder. There is no account minimum and there are no inactivity fees. I will do a complete review once I’ve used ShareBuilder a few times.

My Plan

To receive my account bonus I have until 03/08/09 to purchase a stock or ETF using the automatic investment plan or make a real-time purchase. I plan on buying one share of my company’s stock. The transaction fee is $9.95, which results in about a $15 upfront commitment. I should then receive my $90 bonus in 6-8 weeks, which I will use to buy as many shares of my company as possible. If everything goes as planned, and my company’s stock price increases, I will then have a nice little play account to test my ability to beat the market. If everything doesn’t go as planned, I will only have lost $15. At the very least, I will have some fun at the expense of ShareBuilder and the stock market.

If you’re interested in taking advantage of this Costco/ShareBuilder promotion, the deadline to create your account is 01/31/09. What would you do with a $90 account bonus at ShareBuilder?

Post from: Personal Finance Start-Up Blog

• End of September Financial Status
• Book Review: Common Sense On Mutual Funds
• End of August 2009 Financial Status
• National City Checking Account Deal
• End of October 2009 Financial Status

• 3 Easy Steps To Get Started With Investing.
• Diversifying Beyond Asset Allocation
• I Share My Asset Allocation (as do 7 other Money Writers)
• Did you forget your RMD this Year? All may not be Lost
• Common Sense Advice For Investing In The Stock Market

The bear market has taken a huge toll on everybody’s investments. I read numerous personal finance blogs, most of which write an end of year financial status round-up. Many of these bloggers are experiencing significant declines in stock market investments, so much that their net worth has decreased over the course of 2008. Fortunately, the majority of my savings was held in cash for a condo down payment. For this reason I didn’t experience too much of an effect from this bear market, however, I did learn a very valuable lesson from this bear market, know your risk aversion.

Risk Aversion

Risk aversion is how well you handle risk. A risk averse person will trade higher returns in order to lower risk. A less risk averse person will take on higher risk to gain higher returns. Risk aversion is not something that is consistent from person to person. Knowing the degree of your risk aversion is crucial to surviving the ups and downs of the stock market.

If you have never experienced a bear market, which was true for me up until now, you may think you aren’t risk averse, that is until you’ve lost 50% of your portfolio. Everybody can ride the market highs, but can your stomach handle the lows?

Not knowing your how risk averse you are can lead to making one of the largest mistakes of your investing career: buy high and sell low.

Past Bear Markets

Even though I didn’t have a lot of money in the stock market, I have learned that I have a high tolerance for risk. I know that I am just beginning my investment journey and I have over 30 years to recoup any early losses. Studying past bear markets has made me confident that the market will rebound and rebound in a big way.

Investing at today’s discounted prices is the equivalent of investing in 1997, at least according to the S&P 500. Back in 1997, the S&P 500 was in the 800 range, the same as it is right now. That’s 11 years worth of stock investing that I hope to take advantage of when the market rebounds.

Also, a market similar to the current market existed between the years of 1963 to 1974. In 1963, the S&P 500 was in the 60’s. The S&P 500 peaked around 118 in 1972 before taking a nosedive back to the 60’s in 1974. If you had sold your position because you did not correctly know how risk averse you were, you would have missed out on the gains the next 11 years provided. Over the course of the next 11 years, the S&P 500 increased in value into the 250’s.

Conclusion

The stock market is not guaranteed to increase over the short-term. Over the long haul, however, the stock market will outpace inflation and help secure a happy and financially independent retirement. A bear market such as our current market, is the only time to really be able to determine how risk averse you are. Can you sleep at night knowing that up to 50% of your retirement savings have vanished over the past year? Can you sleep easily knowing the loss is only a paper loss and the market will rebound? Are you willing to pump extra money into the market during a bear market? Your answers to these questions will help you determine a suitable stock/bond ratio for your investment plan. I’m confident that the stock market will rebound and if you don’t believe me, check out the history of the S&P 500 for yourself.

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Post from: Personal Finance Start-Up Blog

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Lending Club is a social lending network that connects lenders and borrowers through investing in notes. You may loan as little as $25 or as much as you want. Lending Club makes money by charging a processing fee from the borrower and a servicing fee from the lender. The processing fee is a percentage between 0.75 and 3.00% of the loan amount. The service fee is 1% of each payment from the borrower.

The benefits of investing money through loans is that Lending Club allows you to earn between 6.69 and 19.37% depending on the rating of the borrower. Lending money does involve some risk as the borrowers may default on the loan. Another benefit is the $25 bonus for signing up through my referral. The following is a step-by-step guide on how to sign up for a Lending Club account and receive your $25 bonus.

Create Lending Club Member Account

Creating a Lending Club member account is super easy. If you are interested in a $25 referral bonus follow this LINK.

Creating a member account requires the following information: email address, password, security question, security answer, screen name and a human verification code. Also, you have to agree to the Terms of Use. After selecting next, all you have to do is wait for a confirmation email.

Enable Investing

Once you receive your confirmation e-mail and have followed it to Lending Club’s website, you can click on “My Account”. You are given two options: Invest or Get a Loan. Select Invest and you are taken to a 4 step set-up process.

The first page is your personal information and a few agreements. For personal information you have to enter the following: first name, last name, SSN, DOB, street address, city, state, zip code and home phone. Additionally, you have to agree to the note purchase agreement, no tax withholding and declaration of trust.

Step 2 deals with identity verification. Apparently, my identity has already been verified, moving right along…

Step 3 requires the necessary banking information to link to an external account. The required information is account holder’s first name, account holder’s last name, name of bank, routing number and account number. Also, a bank account verification and debit authorization agreement is required.

The final step is unique when compared to other investing account sign-ups. Lending Club claims that borrowers are less likely to default on a loan if they feel connected to you. The final step allows you to designate your geography, education, workplace and other associations, which will appear publicly next to your screen name.

Now you are ready to be a Lending Club lender. They use an interesting method of verifying your bank account. Most places send trial deposits into your bank account. Lending Club removes a value less than $1 from your account and puts it into your Lending Club account. You then verify this amount in your account section of Lending Club.

Security

Lending Club uses Secure Socket Layer (SSL) certificate technology to secure website connections. SSL also ensures that all data entered is appropriately encrypted. Lending Club ensures that all sensitive personal and financial data is stored in a highly secure environment.

Conclusion

Creating a Lending Club account is very easy and can be done in about 5 minutes. For more information about Lending Club, check out my step-by-step guide for investing with Lending Club. Again, if you are interested in giving Lending Club a shot and are interested in a $25 sign-up bonus follow this LINK.

If you like what you have read please consider signing up for automatic updates via RSS

Post from: Personal Finance Start-Up Blog

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