If Only It Was This Fun to Actually Clean the House!
Roth IRA Portfolio Change VWO
As I mentioned in an earlier post, I have been sitting on the sidelines as this market seems to go from bad to worse. Well, today I got off the sideline and took a nibble. I added 20 shares of VWO at $97 to my Roth IRA. The coming weeks….err months…..I mean years….oh I mean 3 decades will tell me whether this was a better decision than sitting on my cash. What do you think? A 30 year time horizon. I think VWO will do quite well.
VWO is the Vanguard Emerging Markets ETF. It basically mirrors the MSCI Emerging Markets Index so it’s a well-diversified global play which should correlate poorly with my large cap holdings. Exactly what I’m looking for. It carries an expense ratio of 1.01%.
Prosper.com Time for Another Loan
I know I said I’d be back with a Prosper update in about a month once I received enough in payments to fund a new loan. Well, here I am 11 days later with enough cash to bid again thanks to some of my debtors paying down large chunks of their loan early (including an E rated borrower from my wild west days who has fully paid their loan – thank you SeattleEditor). I’m also happy to report that all of my other loans (22) are current except one I had written off months ago.
So, let’s take a look at the market and see what we can see:
- Perfect Credit, 2nd Propser Loan, Current Prosper Lender – This is a no-brainer. Hands down, if you are a low risk lender, then this loan is for you. The borrower has no delinquencies, no public records, 0% credit utilization, no revolving credit balance, and a perfect record of payments on a previous Prosper loan. But, I’m not bidding. Why? 2 reasons. First, this loan is already fully funded and has almost 3 days left to get its already low rate (11%) bid down even lower. Second, the borrower paid off the first loan after only 8 payments. I emailed to see how long he planned to keep this one, and he admitted it was another short-term loan for while he relocates. This is an issue because I prefer loans that go the full 36 months in order to maximize my interest gains. So, I pass.
- debt consolidation – I chose this loan because sometimes all you need to see are the numbers. This borrower chose to provide no information about the way the loan would be used or any information about who they are. The most I can tell you is their username is jsmith1450, they live in Florida, and claim to be a long-term employee of the construction industry with a high income. They’re also offering a set rate on this loan at 15.55%. Given the visible credit history, this looks like a solid bet. And, I thought about it. The answer is no. Prosper is a peer to peer lending site. Part of the reason I like peer to peer lending is I get to know where the borrower is going to use the money (or at least where they say they are going to use it). So, if when looking at Bob’s Kiddie Porn loan and Mark’s Meth Lab loan all things are equal, I can then decide who’s getting my bid. Sorry guys, I’m putting my money on Susan’s Seal Clubbing Trip to Alaska.
- Wedding Costs – Here’s our winner. A blend of risk and reliability. A C credit grade but a high salary, no delinquencies, and a new wife to keep him in line
The 7 on time payments for the other Prosper loan don’t hurt either. This loan has been bid down from 29.68% to 21.25%. My bid is in at 19.47%. With 3 days left, I may get bid out of the loan. That’s OK. I’m not totally in love with it. There’s plenty of fish in the sea.
This is my second review of my Prosper loan choices and both times now I’ve chosen someone with a prior Prosper loan as my winner. I don’t want to get sucked too far down this road, but I have to think it’s probably going to be a good predictor of default rate in the future.
Motley Fool Joins Forces with Mint.com
Mint.com which is already user-friendly but somewhat limited in scope is now partnering with the Motley Fool. This will surely boost Mint's user base given the multitude of loyal Fools. Good for them. I still prefer Yodlee for its comprehensiveness, and most know by now that Mint actually uses the Yodlee platform. I'm afraid Yodlee could go the way of the dinosaur if they don't really get their name out there soon. Who knows, maybe they're content with that. It's really just a selfish wish for me because I don't want to re-enter my countless accounts and passwords over at Mint. Geezeo and Wesabe better look out too. This is a powerful combo.
Gaming the NC SECU Bridge Account as a Boost for Declining Interest Rates
First let me describe what a bridge account is, and then I’ll go into how I’m gaming it. In mid 2007, my credit union began to offer what they call a bridge account. The account is set up with the intent of convincing the novice or reluctant investor to enter the stock market.
What happens is this. You open an account and deposit a minimum of $25. The interest rate on this account is variable and pays quarterly. It varies with the movement of the S&P 500 fund. If the S&P 500 is up for the quarter you receive that return (up to 3%). This may not seem like much, but it translates to a 12.00%APR/12.55%APY. Not bad given current money market and CD rates.
But Slug, what happens if the S&P 500 has another quarter like this last one where it fell almost 10%? Nothing happens. That’s right, your money just sits there and loses no value. You gain no interest, but in exchange you aren’t exposed to any downside in the market. Again not bad.
So how do I game it? Well, in the case where the market is clearly negative and conditions suggest that there will be no quick turnaround the opportunity exists to simply transfer your money out to a regular money market (currently at 3.4%) then switch it back into the bridge account at the start of the next quarter. I moved my money back into the bridge account last week just in time to see the S&P 500 jump over 3%. Even if we’re flat for the next 179 days, I’ll get the full 3% return. Nice. You can make these transfers at any point with no penalty.
The only downsides to this account is that you don’t get full exposure to the upside of the S&P 500 fluctuations and that the maximum you can keep in the account is $3,000 which also serves as a limiting factor on any return. I’m not sure whether you can have this account within a tradional or Roth IRA.
Anyone else out there with experience in this type of account? I’d love to hear your thoughts and feedback.
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