Prosper lending strategies can be viewed from a number of perspectives, based on the lender’s financial and personal objectives. These objectives may include financial gain, social altruism and personal entertainment, among many others. Most lenders will have a variety of objectives working simultaneously. Consequently, the following lending strategies should not be thought of as financial advice, but simply information for your consideration. All investment decisions are up to you.
Prosper Lending in the Context of a Comprehensive Savings / Investment Ladder
Based on risk and liquidity, Prosper would be one of the very last investment vehicles in anyone's portfolio. Prosper is an illiquid 3-year investment. You would be unable to even borrow against it at a bank.
A typical ladder of savings/investments may be as follows: (Most important first)
- 3-6 months after tax salary in a money-market account
- 401(k) at least to level of employer match
- Roth IRA to max level
- 401(k) to max level
- A diversified stock mutual fund (e.g., Vanguard has retirement 20nn) funds, where nn is for the year of planned retirement. As year nn nears, the fund automatically shifts allocation to become more conservative bonds, international mutual funds
- CD ladder, Zopa (person-to Zopa-to person lending)
- Individual stocks, ADRs, ETFs, Prosper, Kiva (person-to-person charitable microlending)
- Art, antiques, collectibles
Prosper Bidding Strategies
Bidding strategies will vary based on factors such as your objectives, risk tolerance, investment experience and funds available in your Prosper account. A number of bidding strategies are beginning to emerge. You can read about many of them at the Prosper Discussion Fourms. A common example for the new lender is below:
- Start lending with $50 manual bids. This is the "ante" to play in Prosper. It gives the new lender a chance to suss out the lay of the land without taking substantial losses. Often recommended for newcomers so mistakes can be made relatively cheaply, and lessons can be learned as a personal lending strategy is developed.
From there, many lenders evolve their own strategies.
- Maximally diversify via standing orders (SO). Set up an SO that bids on the numbers, strict numbers that you devised from an introductory process of playing with manual bids. This way you get a whole bunch of small bids spread over the range of Prosper loans. Your returns can be expected to track the overall performance of loans in that range (You can use the Prosper Performance tab to see what that currently is). PrivateLender is a strong advocate of this method.
- Use the insight you gained from manual bids to place large, individual bids on listings that you select. If the listing looks good, perhaps if you contacted the borrower and had a dialog and verified some information, then you can feel more reassured to dump a large bid on the listing. That way you stand a chance to outperform the average Prosper market. The biggest lender on here, pensioner, follows this strategy.
- Laddered Bidding. Multiple bids are placed at different interest rates on a single loan. As the interest rate drops on the listing, the laddered bidder may lose some of the higher interest bids, decreasing their dollar exposure on the listing. Using this method, the lender's position will be larger on the loan if the resulting interest rate is high, and smaller if the resulting interest rate is low.
Listing Picker Tools
Here are some tools that may help you develop, test and/or implement various Prosper lending strategies.
- Prosper - Advanced Listings Search: Advanced search is available from the "Lend" tab. Just click the "Advanced" link next to the search button. You will be required to sign in before you can conduct an advanced search. You can specify and save the search criteria related to the items found in the active listings.
- Prosper - Marketplace Performance Page: The marketplace performance page includes performance data for Prosper marketplace loans. Using this data, lenders can gain a better understanding of the dynamics of the Prosper marketplace, and use that knowledge to influence your lending strategy. For example, when you have adjusted all of the listing criteria to your liking, you can click "View matching listings" to view active listings that match those criteria or click "Create a standing order" to create a standing order which automatically bids on listings that match those criteria.
- LendingStats - Listing Picker (Beta): The listing picker attempts to rank Prosper listings based on the Estimated ROI of the lenders who have bid on the listing so far. It assumes lenders who have picked well in the past will pick well in the future. Use this tool to quickly identify interesting listings.
"Good" Groups List
Subjective judgments, alphabetical by group leader name. See also: Groups.
- !AlexBey (TexasProsperers): Is a good guy with a good group. Focuses on borrowers in Texas. He appears to be a huge supporter of the whole Prosper concept in general.
- !BigGulp (The-Group): Is very well-respected in these forums, and he seems to have a nose for good borrowers/loans.
- BMay2 (NuBeginnings, group_NuBeginnings): Seems also to work very hard for her borrowers. She's a borrower herself, so she knows all the ins and outs.
- Cellardoor (ourtopia, group_ourtopia): Is also well-known and respected, especially among Prosper members who have been here for a while. The group leader is very busy, and has not posted in the forums lately. He has some unofficial "co-group-leaders." (!DebinVenice is one.) NOTE: Ourtopia is currently "on membership hiatus."
- !MsAva (Money Talks): If you join her group, be sure to ask her to work with you-- to vet you (this means to look over your documents and vouch for you in the forums), and help you with budgeting and money management issues. If she believes in you, she will work extremely hard for you.
- !TheKurse (TzedakahGroup): Good, well-respected group.
- Thunderbucks (Virtual Lending Group): Very knowledgeable and effective when it comes to helping her borrowers get funded. Borrowers in her group always have good things to say about the group.
- Traveler505 (CBS): Is known and respected. Does thorough vetting, and is especially knowledgeable about business loans.
- Sophtommy00 (Prospering Against Cancer): Works extremely hard, has a great personality, and has good ideas. He has that rare ability to be both creative and practical. He bids on loans in his group, and is liked and respected on these boards. His group focuses on those whose lives have been impacted by cancer.
- StaciM (Everyday People): is a very well-respected presence here. She is well-versed in the whole Prosper system, and knowledgeable about credit information in general. She's smart, down-to-earth, and she knows how to get loans funded.
Things to be aware of:
1. There are some groups that many lenders dislike. Some lenders will even block groups they don't like, and refuse to bid on loans from those groups. This is not to say all lenders block such groups, but if your loan is on the edge and needs all the positive vibes it can get, being in an unpopular group can hurt your chances. Groups that are currently unpopular: Hi_Max's "More Loans Funded" Group, Utopia, !TwoMillionaires, and "Financial Assistance Network (FAN)" (which includes many other groups with the word "Assistance" in the name).
2. Group Leader Rewards. These are "rewards," in the form of interest, that Group Leaders collect from their Group Members, in return for helping them get funded. If your loan listing is good enough, you don't need a group at all. You certainly don't need a group that charges you extra interest in the form of Leader Rewards. If your loan listing need some help, and you find a Group Leader who can help you get funded, by giving you advice on your listing, vouching for you in the forums, etc., then by all means, that GL is earning the rewards. Look around, though, and make sure your GL isn't charging more rewards than other GLs who provide similar services.
3. The above list is a starting point. New Groups join Prosper all the time, and the list is rarely updated.
4. Prosper produces group ratings using a 5-star system. "A group's rating is a measurement of that group's performance in paying back its Prosper loans. Specifically, the group rating is an expression of a group's performance against expected (historical) default rates." Lenders throw in their two-cents worth about this at Rating the 5-star group rating system.
5. See also Prosper Group Ratings (dot com)
- Happy About People-to-People Lending With Prosper.com: How to Lend Money to Friends You've Never Met by Roger Steciak, aka PrivateLender
- Prosper Discussion Forums - Performance tab game, parameters for no lates: Using the performance tab data on Prosper (under the lend tab), come up with the parameters it would take to find the most possible loans on Prosper across all credit grades that have no lates or defaults.
- Prosper Discussion Forums - Performance Tab Game 2 - The Ugly, find the real gems.....to stay away from: Inspired by ZC's original "Performance Tab Game," Find the crappiest set of stats with a minimum of 500 loans that show truely horrible performance. Date ranges are flexible. Anything not current counts as late.
- New Perfomance Tab Game -- ROIs: See who can come up with the parameters that yield the best net ROIs. See if you can do better in each of the grades.
- Prosper Discussion Forums - Meet the Prospers, Finding borrower, lender & GL archetypes: ID some types related to the borrowing-lending process. For example, what types of borrowers are out there? As a group, are they a good risk...a bad risk? If you're a guru or a guru wannabe, can you point to some? If you're a number cruncher, can you sum them up? What about lenders? What are they thinking?! And those group leaders? Need I say more?
- Gavin Tools - Fantasy Lending: This is a friendly competition to see who is the best loan-picker. You can create a fantasy portfolio of loans, then see how they do over time.
- Prosper - Group Ratings
- Prospers Discussion Forums - Good Groups List
- Prospers Discussion Forums - Rating the 5-star group rating system
- Prospers Discussion Forums - Strategies for small-time lenders
- Prospers Discussion Forums - Why are people funding at 7-9%???