Everyone has heard that you should diversify your investment portfolio. This includes both types (for example stocks, bonds, cash, loans) and kinds ( for example Mid-cap, International, Tech, Municipal, and Credit Grades.) Diversifying your portfolio in Prosper is similar to your larger portfolio.
First you must ask and truthfully answer what is my risk tolerance? Personally my risk tolerance is quite low. I like to gamble (golf and poker), but hate to lose. For me the right mixture of loans is high credit grade heavy.
Once you have identified your risk tolerance it is important to adequately diversify. I find the standard investment advice of 2% to be helpful. That is no individual investment (in this case loan) should be more that 2% of your portfolio. In this case I fudge a little at the moment. My largest loan is $150, but my average investment is less than 2%. $3,200/51 = $62.75 per loan. 62.75/.02 = $3,137.50 and my account value is $3,441.44. I am hoping to beat the odds (I will add more money if I needed) and through growth come into line with the standard advice.
After both of the following are taken into account you need to identify quality loans within your risk tolerance credit grades. For this I use standing orders with preset, fairly strict credit guidelines and high interest rates.
Here is my current loan distribution graph…
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Prosper.com, Strategy
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1 comment so far ↓
Defaulted debt is packaged and sold to 3rd party default debt buyers for pennies on the dollar (actual amount depends of credit grade). Also, there is something called community payments (someone out of the goodness of their heart make someone else’s payment in full or partial.)
I have documents from each of my loans from the borrower not prosper.
Prosper is a pass through entity and are licensed in every state in which they broker loans.
For me Prosper is an experiment. I have been receiving tremendous rates and thus far have dodged the defaults. Keep checking I will keep you up to date.
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