I received an email last night from Prosper claiming that “Prosper Beat the S&P 500″
Did you know that the average loan on Prosper is outperforming the 2-year return on the S&P 500? Smart lenders like you have already discovered that lending on Prosper is a great way to earn a market-beating return!
I am OK with the 9.2% average returns for AA with 0 current delinquencies and 0-2 inquiries int he last 6 months. BUT, this is the funny part….
Prosper loans haven’t been in existence for 2 years, let alone 2 years of loans that have completed their 3 year notes… How does one project the default rates into the future. So I read the fine print… Look at all these qualifications…
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[1] Rate of return shown is the average net annual return on Prosper loans originated between 7/22/06 and 7/22/07 to borrowers with AA credit grades who have 0 delinquencies and 0 to 2 credit inquiries on the their credit record, as of 8/23/07. For more information, go to [Marketplace Performance Page].
[2] Avg. annual return of the Standard & Poors 500 Stock Index from 8/16/05 to 8/16/07.
[3] APY on FDIC-insured Citibank, N.A. 1-year Certificates of Deposit as of 7/23/07.
[4] Annual Percentage Yield (APY) on FDIC-insured E*TRADE Money Market accounts as of 7/23/07. In the long run, the comparison is valid and Prosper return might be born out. In general, one should be able to compare average returns across investment vehicles, but if you ask me this comparison is precarious. Prosper loans need more time to age. And the S&P 500 data range was very specifically chosen.In the long run, the comparison is valid and Prosper return might be born out. In general, one should be able to compare average returns across investment vehicles, but if you ask me this comparison is precarious. Prosper loans need more time to age. And the S&P 500 data range was very specifically chosen.
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2 comments ↓
Even if you took their numbers at face value, the returns equalize when taxes are considered (15% capital gains vs, say, 25% personal income).
Not that cherry picking dates hurt their comparison.
Mike
Mike’s comment is the only thing I’ve found on this subject. Could P2P lending be considered Capital Gains if 1) its a 3 year loan, and 2) you reinvest (rollover) the loan payments (”dividends”) immediately into other loans? Or is there just no way to escape (eg delay) the taxman in P2P lending? A blog or article on this topic would be MUCH appreciated! Thanks!
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