The New Retirement

I recently had the chance to chat with Todd Tresidder.  If you don’t know the name, don’t worry.  Up until about a year ago, I didn’t either.  But, the short of it is that the guy is retired.  In fact, he retired much earlier than most will.  At the ripe “old” age of 35, he retired.  Which must mean he’s off golfing around in the Arizona heat, right?  Or down, sipping OJ at some southern Florida retirement village?  Not likely.

Todd is retired in the sense that he doesn’t report to a boss.  He does what he wants, when he wants to.  One of the things that he wants to do is write books that help people like you and I become better financially.  He’s got several that he’s written so far, and I’m sure he’s working on more.  During that first meeting, Todd and I spoke for a while on retirement.  Speaking with another financially minded person, I usually expect to hear people talk about 401(k)s, IRAs, and stock purchasing.  I don’t discount those tools, but I just don’t feel that, like Social Security, you should be depending on them for your whole retirement.  Surprisingly, Todd agrees.  The longer we spoke, the more we found that we agreed on.  At the end of our conversations, Todd offered me a copy of his book on retirement. I accepted.

How Much Money do I need to retireLong story short, I finally read it.  It took me a while, but I’m glad I got around to it.

If there’s anything that stands out about the book, is that Todd knows what he’s talking about.  He’s got the experience behind him to talk about the subject in an informed and educational manner, and technically, probably knows more about some of his subject matter than I ever will.  He spends the first several chapters of the book dispelling a few myths about retirement, and about the way in which most people tend to think about it.  He then takes off on a few chapters of some of the math and logic behind the different ways of calculating your retirement needs, and calculating that mythical “number” that everyone seems to be seeking out that will indicate that they’ve saved all that they need to save for retirement.  Not only does that one perfect number not exist, he argues, but the calculations that we make to arrive at it are completely flawed.

The rest of the book is focused on what I like to call the New Retirement.  He goes into detail on the ways to properly estimate your income needs for the future, and then into ways that he believes (and I agree) that a properly diversified retirement “portfolio” should be structured.  I don’t want to spoil too much of the book so I won’t say much more.  What I will say is that the book isn’t terribly long.  It’s not a deeply structured manual on all the different retirement accounts.  And it’s not terribly expensive.  It’s $4.99 on the Kindle (free for Prime members), and about $10 in paperback.

Pick up a copy of How Much Money do I need to Retire at Amazon.  You can check out Todd’s site as well as the other books he’s written at FinancialMentor.com.

 

Lending Club Return Update 1Q13

If this is the first of my Lending Club return updates that you’ve read, let me catch you up a bit.  It all started with a little Lending Club / Sharebuilder experiment.  It’s moved on past that, to an ongoing series here at Beating Broke where I share, on a quarterly basis, how the account is doing, the things I’ve done with the account recently, and the things that I might be thinking about trying over the next quarter.

How I invest in Lending Club

Because of where I live (North Dakota), I’m not able to directly invest in fresh loans.  I’m forced to use the FolioFN trading platform to buy (and occasionally sell) the notes that I’m investing in.  But, based on my returns, I don’t think I’ll be complaining anytime soon.  If you’d like to read more about how I select my Lending Club notes, you can read my post on that subject here.

Beating Broke Lending Club UpdateLazy Lending Club Investing

While I consider investing in peer-to-peer investing to be a nearly passive income source, it isn’t a pure passive income source.  What I mean by that is that it does require some active management in order to keep the money invested in loans, and not just sitting fallow in your account.  Without meaning to, I put that to the test this last quarter.  In February, I don’t even know if I logged into the account.  I certainly didn’t buy any new notes.  What that means is that for the better part of February, the money that I had coming in just sat in the cash account not doing a darn thing.  By the end of February, the cash account was nearly 10% of my Lending Club portfolio.  I invested all of that back into notes in March, but it was a lesson in needing to log in and check the account once in a while.

Lending Club Loan Analysis

Analysis might be a bit too strong of a word.  At the end of the quarter, I had invested in a total of 62 notes.  Of those 62 notes, 19 had been paid off, and there have been no written off loans.  There is one that has slipped into the delinquent status column, however, and is showing signs of ending up in the written off column. The balance on principle of the loan is less than 1% of my total portfolio.  I might be able to sell it, but it’s far enough delinquent that I’d have to sell it at a significant discount.  Honestly, I haven’t decided if I’ll do that or not.  I’d rather it just came back around and was paid off, but I’m more of a realist than that.  Maybe we’ll be talking about the written off loan effect at the end of next quarter.

Lending Club Return

So this is the part that everyone’s been reading for, right?  If you look back at the 4Q12 update, you’ll see that my rate of return (displayed as NAR in the account dashboard) was 14.48%.  I screwed up a bit and didn’t record the NAR displayed at the end of March.  As of 4/24/2013, it’s being displayed as 14.63.  That still includes the one delinquent loan, so it’s likely to go down some if that loan is sold at a significant discount, or if it is written off.  The spreadsheet I use to keep track of the numbers shows a a return of 15.86% and 13.26% (adjusted with inflation, which may or may not be necessary).

The cash flow in the account remains pretty good.  I had several loans paid off in the last quarter that was reinvested.  All told, the portfolio of active (principle remaining) loans grew by 2 over the first quarter.  The average amount of money churning back into the account each month is averaging well over $30 a month now allowing me to invest in one new note (at $25/each) each month and then another when the balance grows beyond $25 again.  Monthly interest received is teetering around the $10 a month line.  I think my next goal might be to get the interest income up to $25 a month.  That would be pretty sweet.  I’d be investing in a new note each month on just the interest along.  If I want to do that anytime soon, however, it means I’ll have to start putting money into the account again.  I haven’t put anything into it since November of last year, and I haven’t yet decided when I’ll start putting money into it again, but it will likely be soon.

Embracing Risk, and Increasing Returns

I suppose that somewhere along the way, here, I should mention risk.  The notes that I’m investing in all carry a risk of potential default.  If they all were to default, I’d lose every penny in my account.  The odds of that happening are pretty small.  But, the odds of having one or two loans default out of a couple hundred is significantly higher.  If you’re going to invest in Lending Club notes, or any investment, you need to know and understand the risks.  That’s your warning, and my disclaimer.

Now, take a minute and go look to see what your bank or credit union of choice pays on their savings account.  How about their best rate on a CD?  Now, even if I were to invest my portfolio into loans with a better credit rating (and, supposedly lesser risk), I could easily be making 6-9% if there weren’t any defaults.  It beats the heck out of the rates at my credit union.

One last disclaimer.  Please don’t put your liquid (or, emergency) savings into risky investments.  You need those readily available, and relatively risk free.  Even at a paltry 0.25% in a savings account, it’s in the best place.  Every other drop of savings is fair game though.  Your money needs to be working for you, not the bank.

If you think Lending Club (or Prosper) is something you want to give a look (maybe you’ll want to try an experiment like I have?) you can sign up at the following links: (Lending Club | Prosper)

Personal Finance Education with H&R Block

Let’s face it.  The current level of personal finance education is staggeringly poor.  Students in our public schools are receiving little, if any, education on how to properly handle their finances.  Most of the parents of those same students are so bad with finances that they are unable to teach their kids anything either.  One of the cool things that has happened in recent years is that many of the companies that depend on people’s finances to make money are starting to see the light.  They’re beginning to recognize that if the schools and parents aren’t going to teach the children the proper way to use their finances, someone has to do it.  And they’re taking the reins and developing programs that help to educate children and teens.

H&R Block is one of those companies.  They’ve created the Dollars & Sense program to help parents connect with their children on financial matters.  Through the H&R Block Dollars & Sense website, and Dollars & Sense facebook page, they’re providing helpful resources to parents to help educate teens on the best ways to use money, and to safely navigate the many different financial pitfalls.

Kids are going to make mistakes with money. It’s easier to help them through these mistakes when your teen is a minor and still lives at home. Teaching teens money management skills before they graduate can help them avoid costly mistakes as an adult,” said Susan Ehrlich, president of financial services for H&R Block, which provides financial education for teens through its H&R Block Dollars & Sense philanthropic program.

H&R Block GiveawayI think part of any program like this is getting people to participate.  H&R Block seems to get this too.  They’ve developed several programs and giveaways to help entice teens to participate. They’ve partnered with DoSomething.org to develop materials to lead teens in having open conversations about money.  The program is called Mind on My Money, and encourages teens to download workshop materials and lead other teens in a workshop.  Teens that lead a workshop are eligible for a chance to win a $10,000 scholarship, and teens that participate in a workshop are eligible for a chance to win a $1,000 scholarship.  The program runs through the end of April, 2013, which doesn’t leave much time to participate, but it’s a cool way to learn a little something about money, and get your friends involved.

Part of the Mind on My Money program is a companion scholarship chance that they’re calling The Craziest Thing I Did to Save Money which asks teens and young adults 25 and under to submit a picture and story about the craziest things they’ve done to save money.  A winner will be chosen, at random, from the participating entries to win a $4,000 scholarship.  This one also ends on the 30th of April 2013, so hurry and get your entries in.

Participating in the education of our children is important.  Having programs like the Dollars & Sense program can be very helpful in giving us a place to start and the topics and information to give them the financial education that they need.  Chances are, parents will learn a few things along the way.

H&R Block Dollars and Sense has partnered with Beating Broke to sponsor a giveaway as well!  From now until the end of the day on April 30th, 2013, tell us what the craziest thing you’ve done to save money is, or share a tip on how parents can engage kids in learning about personal finance.  Share it in the comments below.  Shortly after the 30th, we’ll select one of the comments via random.org to win a $50 Emerald Prepaid Debit Card from H&R Block.

UPDATE: A winner has been picked.  I’ve sent an email off to the winner, and as soon as the winner confirms, the Emerald card will be on it’s way!