Early last year I decided to take out a $1,000 peer to peer loan using Prosper. At the time, I was an active lender with several loans in my portfolio in my Prosper account. Why did I decide I wanted to take out a loan? I wanted to use my good credit to my advantage by taking out a loan under 6% (5.98% to be exact). The plan was to use the capital from the loan to generate passive income that earned over 6%. If I could earn more per month in passive income than I paid out to my lenders – then I would have built a successful income stream. I decided to use the capital from the loan to invest in a high yielding stock that paid a quarterly or monthly dividend.
Initially, I invested the capital into a company called Frontline LTD – FRO and made a decent return as the stock took off soon after my purchase. I sold out of my position and used the funds to invest in a Canadian Natural Gas company called – HTE (Harvest Energy Trust). Harvest Energy Trust is a CanRoy (Canadian Royalty Trusts) which are known for their high yielding dividends.
Since the time when I first took out my loan last year, I am down by almost 50%! Obviously it was not my intention to lose money – but one that I am trying to recover from. While I am down around $500 in my investment which I am not happy about, I believe things could have been worse. I wanted to point out a few rules that I put in place when I decided to take out this loan. By sticking with these rules, I have at least managed to keep the loss on this investment under control.
- Don’t Overextend – My goal was take out a loan that was manageable to pay back. I pay out around $30 per month for 36-months on the loan. I wanted something that I could have no problem paying for – even if the investments went to $0. I made room for it in our monthly budget and had a plan not to overextend our expenses. This is something that many people are regretting right now with the housing market.
- Maximize Return – I also had a plan in place to maximize my return whenever possible. One way of doing this on stock investments is to sell covered call option contracts to hedge against my position. While things have been a little rough in the market lately, I have been able to generate almost $60 in cash from selling these contracts (see details below). This doesn’t always work, but is something you can have in your arsenal to generate extra income in certain situations.
- Patience – It is important to have a plan and stick to it. Don’t let the craziness of the market get to you. Be ready to react to certain situations – but don’t overreact!
Monthly Prosper Loan Recap
Each month, I provide a status on my Prosper loan that I took out last year. When I last posted the status of my investments using this $1,000 Prosper loan, I had accumulated the following assets -
- Stock – I purchased 46 shares of HTE (Harvest Energy Trust).
- Cash Generated – As a result of selling Covered Call Options against my HTE position, I have generated $58.68 in positive cash flow. It is important to note that selling a Covered Call Option contract requires 100 shares. I have combined my $1,000 Prosper loan with additional funds to meet the 100 share requirement.
- Remaining Cash – I had $14.55 remaining in leftover cash after making the purchase of HTE.
- Dividend Shares – I have received 4.995 shares of HTE stock through dividend DRIP payments. The total number of shares owned as of November (2008) was 50.995.
Current Status
Last week, I received the December monthly dividend payment, which was reinvested back into the stock using DRIP (Dividend Reinvestment Plan) -
- December Dividend Payment – I received approximately 1.242 shares of HTE as a result of the December (2008) DRIP payment. This brings the total number of shares owned up to 52.237.
As of the close of the market yesterday (January 22, 2008), I estimate that value of the assets listed above at -
- Shares – 52.237 @ $8.41 per share = ~$439.31
- Cash – $73.23
- GRAND TOTAL – ~$512.54
The value of my assets from my loan has decreased by (4%) compared with last month. The total payments required over the course of the 36-month (3-year) loan are $1,095.07, so I am now ($582.53) in the hole. There are 26 months remaining on my loan, so I will need to make up an average of ~ 22.41 per month over the course of the remaining months to break even.
Related posts:
- Peer to Peer Loan Status – February (2009)
- Peer Loan Status – March (2009)
- Peer to Peer Loan Status – November (2008)
- Peer to Peer Loan Status – December (2008)
- Peer to Peer Loan Status – October (2008)
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ur still into stock market ? investing money in shares is not a good idea these days … but still investing now on big and trusted companies for long term can get u huge in future but after long years …. the only thing u need is to invest now and wait several long years to get it doubled
I am glad that you did not overextend yourself, and that the monthly payments you must make are relatively small.
Have you considered re-lending the money? I know propser is not accepting new commitments but lendingclub is.
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