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That is a serious commitment ! I can see that given the high returns you have achieved with seemingly no downsides you are well invested in the company.
Good luck to you..
Alternatives to Term Deposit?
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That is a serious commitment ! I can see that given the high returns you have achieved with seemingly no downsides you are well invested in the company.
Good luck to you..
Value Collector
Have courage, and be kind.
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Yeah, I am really happy with Rate Setter.
As will most investments, it is technically possible to lose money, however it is very unlikely.
They have a provision fund the borrowers pay into as part of the repayments, that is designed to cover a longterm default rate of 3% and a short term spike of 6%, the currently actual default rate is 1.4%, and provision fund Contributions can be adjusted higher if needed.
On top of that, you have he higher return that protects you from capital loss.
This is the way I think through risk, Compare it to a Term Deposit that earns 2%.
If you are earning 8% in Rate Setter Loans, you would have to lose about 6% of your capital before you began to underperform the 2% Term deposit, because even if 6% of your loans default and you lost them completely, the remaining loans would continue to earn a high rate and would make up the shortfall.
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You can also make loans on solar panels, these should prove to be super safe loans, because they are loans for productive equipment that increase people’s disposable income.
Eg, people have to pay for electricity, but when they take on a loan for solar panels, they are freeing up cash they used to have to spend on their power bills, they are also home owners, used to making loan payments etc, so a good risks.
Value Collector
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Another great alternative to Term Deposits is the offset account.
If you have outstanding debt on your home, investment property or other investments storing your money in an offset account is a great way to save interest on those loans and pay the loan off quicker.
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Even if you don’t currently have any investment debt, taking on some debt to create your own synthetic high interest, inflation hedged on demand cash account can be a good thing.
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For example,
As you build up your investments overtime and your portfolio grows in size and sophistication, you will probably find you have to hold onto more short and medium term cash.
Naturally, you will be looking for a place to store this cash where you can earn a decent interest rate, but still access portions of it as the need arises
Eg, you have the following cash lying around.
$100,000 in living expense account
$ 50,000 future tax payments saved
$ 50,000 in options premiums
$ 30,000 emergency fund
$25,000 new car savings
Etc etc etc.
What you can do, to put these funds to work at a high rate, while protecting them from inflation and still having them at call is
1, take on an investment loan for a affordable little rental property, say for around $300,000.
2, open an offset account on that loan, and load all the short and medium cash holdings into it.
At this point you own a property paying weekly rent of 4% - 5% and will have next to no interest payments.
So the end result is your funds are at call, but are saving/earning you interest of 4% or so, while you also now control an asset that should at least grow in value with inflation overtime.
So you have created a synthetic cash account, with high interest and built in inflation hedge.
If you want to avoid property you could use the loan to buy a portfolio of dividend shares, or even just borrow at 4% to loan into rate setter at 8%
If you have outstanding debt on your home, investment property or other investments storing your money in an offset account is a great way to save interest on those loans and pay the loan off quicker.
————————
Even if you don’t currently have any investment debt, taking on some debt to create your own synthetic high interest, inflation hedged on demand cash account can be a good thing.
—————
For example,
As you build up your investments overtime and your portfolio grows in size and sophistication, you will probably find you have to hold onto more short and medium term cash.
Naturally, you will be looking for a place to store this cash where you can earn a decent interest rate, but still access portions of it as the need arises
Eg, you have the following cash lying around.
$100,000 in living expense account
$ 50,000 future tax payments saved
$ 50,000 in options premiums
$ 30,000 emergency fund
$25,000 new car savings
Etc etc etc.
What you can do, to put these funds to work at a high rate, while protecting them from inflation and still having them at call is
1, take on an investment loan for a affordable little rental property, say for around $300,000.
2, open an offset account on that loan, and load all the short and medium cash holdings into it.
At this point you own a property paying weekly rent of 4% - 5% and will have next to no interest payments.
So the end result is your funds are at call, but are saving/earning you interest of 4% or so, while you also now control an asset that should at least grow in value with inflation overtime.
So you have created a synthetic cash account, with high interest and built in inflation hedge.
If you want to avoid property you could use the loan to buy a portfolio of dividend shares, or even just borrow at 4% to loan into rate setter at 8%
So_Cynical
The Contrarian Averager
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All very interesting.
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1. Credit loss must be one of the leading losses of capital in the history of man.
2. The provision fund, is a fund contributed into by the debtors via their repayments.
If defaults rise due to an economic downturn, what is the correlation of the loans. You have no idea. Therefore, those contributions may keep capital losses low, or they may not.
Incidentally, that was the exact same reasoning with MBS in the recent past. The quality of the loans are the end-all and be-all of this type of investment.
3. Surely you jest. Fixed income investing is a negative art. You turn down 90% of the opportunities to accept only the highest quality credits. Lien is no protection. Contractual guarantees are no protection. The only protection worth a damn, is the ability to pay. Hence the total emphasis on the strength of the debtor. Ideally, you lend only to those who do not need to borrow.
So here are your coverage ratios:
That is LOW.
They also disclose who/what constitutes their underwriting team. That is a major risk.
4. So essentially you are saying this is a good investment because: you would have to lose 6% of your capital before underperforming the 2% bank return.
Losing 6% of your capital could occur in a heartbeat in poor conditions. That is a sliver of capital. Therefore, the risk of underperformance is actually very high. This simply underlines the fact that fixed income investing is a far trickier proposition than shares.
jog on
duc
Value Collector
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I noticed the numbers you are looking at are in British pounds, I think you have been looking at the rate setter UK website, which is a different company.
I didn’t say RS is Zero risk, I said i believe it is low risk compared to the additional return it generates.
You would have to lose 6% of your capital every year, just to equal the low rate you get in a Term Deposit.
However, before you lose anything the provision fund has to have lost all its capital, the loan book in general could double its losses and it would be business as usual, it could then double it again for 12 months and it would still be business as usual, it would have to double it again for you to just match he regular Term deposit rate, from there you would start underperforming, but that’s a massive loss.
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Think about it, the banks make billions of dollars making personal loans, they aren’t regularly going to the government and tapping he government guarantee.
So they are taking your term deposit at 2%, and lending it at 14% and making a huge profit.
RS just allows smaller invests to get a piece of that action by accepting a bit of that risk, and so far over the passed 4 years, their loss rate has been lower than the big banks.
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Of course loans rely on a person’s ability to pay, hence my whole paragraph on the solar panel loans, where I discussed solar panels being safer because they increase people’s disposable income by eliminating or reducing a significant bill
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It depends how they are assessed. We took out a Solar Panel loan from the government, through the Vic Govn't loan scheme. They don't do a credit check or look at your financials. They just assess whether power bill savings will cover loan payments. This is a pretty crude measure, as you will end up with some borrowers who were already financially stressed before they took on the loan. Saving $500 a year on your power bill won't have much impact for a family who is already underwater.
Value Collector
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They still have to go through all the rate setter credit checks, as I pointed out before rate setters historical loss ratio is lower than the banks personal loans losses.
Value Collector
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You can get a bonus $75 at the moment if you join Rate Setter using this link and invest $2000 in the 3 year or 5 year market.
https://mbsy.co/ratesetter/49795346
( I just got this in the email this morning, so thought I would share it)
I will also get a bonus $75 of some one uses this link, but I can assure you this is not the reason for my positive comments, I didn’t get this email until about 15 mins ago.
But yeah about once a year they do this referral promotion.
https://mbsy.co/ratesetter/49795346
( I just got this in the email this morning, so thought I would share it)
I will also get a bonus $75 of some one uses this link, but I can assure you this is not the reason for my positive comments, I didn’t get this email until about 15 mins ago.
But yeah about once a year they do this referral promotion.
Garpal Gumnut
Ross Island Hotel
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I very much enjoy and value reading your posts on ASF @Value Collector.
However in relation to Ratesetter I feel a little bit uneasy.
If something sounds too good to be true, should not one be wary.
And this has nothing to do with you gaining $75 for referrals, it is very common practice.
Just saying.
gg
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Agree with gg. Really enjoy and appreciate the research you have done here. However, I feel that cash and term deposits are the only truly defensive investments, due to the Government Guarantee.
With RateSetter, I can feel that in a GFC-like environment or some kind of serious credit crunch, you could see the Provision Fund evaporate very quickly.
With RateSetter, I can feel that in a GFC-like environment or some kind of serious credit crunch, you could see the Provision Fund evaporate very quickly.
Garpal Gumnut
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Knobby22
Mmmmmm 2nd breakfast
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I agree with Value Collector.
It's like Uber. It's a disruption to banking.
I am with gg in that you are at the mercy of the people running the operation but it's not Storm Financial who were basically clueless.
I don't believe the risk is that high however banks have gone broke in the past and this is essentially another form of bank or building society. A major recession would test it.
It's like Uber. It's a disruption to banking.
I am with gg in that you are at the mercy of the people running the operation but it's not Storm Financial who were basically clueless.
I don't believe the risk is that high however banks have gone broke in the past and this is essentially another form of bank or building society. A major recession would test it.
Value Collector
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As I said, it is just random chance that this morning the referral thing popped up in my emails, I have been talking about Rate Setter for weeks.
I went through all the questions, queries and doubts people have here, but have realized its a great platform, and you can start with $10, so it’s not a big risk.
I don’t think it is “to good to be true” at all, there is additional risk involved, but as I said profiting from this additional risk is how the banks generate most of their profits, Rate Setter just allows you to take a step up in he capital structure and be paid for it.
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At the end of the day the more people I convince to join Rate Setter as lenders, the lower the interest rates for me will be, so It’s actually against my own interests to convince people to join.
I was just trying to spread some good strategy, what you do is up to you.
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Value Collector
Have courage, and be kind.
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Here is a screen shot of my account summary that shows how much I have in each loan category, as you can see I eat my own cooking.And $75 will not move the needle for me, I am earning nearly $50k a year in interest so a $75 referral is not the reason I have been talking about it, though I will never knock back free money.
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Value Collector
Have courage, and be kind.
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As I said, the provision fund would have to be wiped out, and you would then have to sustain further losses of over 6% of you capital in the first year just to equal a Term Deposit.
I have been loaning money through rate setter for 2 years now, so I am way ahead of where I would be with a Term desposit.
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If you want absolute security, and don’t mind getting 0% real return, then use term deposits,
But if don’t mind taking a slightly higher risk, but in return greatly increase your return, then there are options out there which include rate setter.
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as investors taking on risks to earn a return is what we do.
Don’t be gun shy just because it’s a new type of concept.
" btw When NAB goes bust NABHA are ahead of all others in the wind-up queue."
pretty sure that this just means that u r close enough to see the big padlock on that closed NAB door ..... but still not getting inside i reckon.
cheers
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If NAB goes broke we are all in deep manure.
After the Great Franking credit debate you think something like this will get any legs here
Jesus spare me
Value Collector
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Not sure what you mean, did I offend you some how? Most of my investments are dividend paying shares.
P2P lending doesn’t haven’t to be a replacement for investing in shares or earning dividends, it’s just another tool to have in your investor tool belt to use how you see fit.
As I said previously, I use Rate Setter to store the portion of my dividends I set aside for living expenses, so the money earns a high rate and is paid out to me weekly.