On Sunday, 18 September 2016 at 16:13:55 UTC, Andrei Alexandrescu
On 9/18/16 11:44 AM, jmh530 wrote:
On Sunday, 18 September 2016 at 12:39:25 UTC, Andrei
Thanks all for answering! Well there is a relatively low-risk
to make some 5%-7% annually by investing in marketplace
https://lendingclub.com/. (Individuals may do the same, too,
look into it!) I've been using them since 2013 with moderate
Right now the portfolio's return rate is 5.06% - not to
sneeze at. The
issue is liquidity, i.e. your principal and interest are
returned on a
monthly basis over 3-5 years. The monthly schedule is
for the Foundation because it matches the way operations are
I would advise against investing the whole sum with the
(some smaller amount, say 5-25%, I have less of an issue
with). 5-7% is
what people earn investing in dollar-denominated sovereign
Emerging Markets. That's the kind of risk your taking on.
Wouldn't that be risk from the unsecured personal lending
business, which although numerically similar has a different
You think it's
low risk because you don't see the risk: unemployment is low
been falling since 2013, so there are few defaults. What
there is a recession? There will be higher defaults, slower
And you can't exit the position because you've locked up the
for 3-5 years.
I've been looking at their historical numbers. Their accounts
didn't lose money even during the trough of the recession. At
that time they were one of the best places to invest out there.
There are challenges in the world of marketplace lending, but
as far as I understand it sure is a solid choice.
Regarding the stock market, IB is quite attractive, and has an
incredibly low margin rate.
Frankly, this comment makes me cringe.
s/cringe/curious to know more/
The basic idea here is to have a buffer for short-term
borrowing. For example, for DConf we'd need to plop down some
money for renting a conference hall until proceeds from
registration roll in. The notion of being able to take a 1.60%
APY for that is quite attractive. Sadly, I've looked at IB
since and they don't offer any checking or general banking. I'm
not 100% sure, but I assume they'd lend money only for
investing; they wouldn't allow you to transfer cash on margin
into your bank. Does anyone know exactly what the case is?
IB offer a trading account only. You can wire money to your
organisation's bank account, and that's it.
I think the suggestion from others to be cautious about asset
allocation is a sensible one. Keynes did quite well in the end
for King's College, and more recently Dave Mittelman and Maurice
Samuels did rather well for Harvard. But those were established
bodies that had plenty of cushion financially and prestige to
carry them through the downs that come with the ups. Nobody was
going to refuse to donate to Harvard because they disagreed with
its investment policy.
If tech and the corporate sector keep doing well, that should be
pretty good for being able to raise funds in coming months and
years. If things are more difficult, then it's going to be
harder to raise money, and at the same time there will be more
opportunities to spend money to further the aims of the
foundation (since you can actually hire good people to help you
in a downturn). So at least the needs of the foundation are more
pro than counter cyclical.
I don't think there is a good case for having a margin account at
all. First there may be increased credit risk because of
different custody treatment (I forget,and the rules have changed
in any case). Secondly to be a hundred percent fully invested is
already taking an awful lot of risk, and cash needs ahead of a
conference are something you can plan for when setting maturity
of your investments. Yes, you can borrow against stocks and
wire money to the organisation account, but should you?
Re lending club, if you invest a little, then it's not enough
to matter, and if you invest a lot, then you do have credit
risk on the whole notional. The nature of credit risk is that
you're short convexity - you can only gain the coupon, but
defaults can often surprise. And short term historical data
doesn't tell you what you need to know, because the really major
events aren't ergodic. (you obviously don't have long term data
for lending club, but you can look at data for past two
centuries for a much better idea). It's not the probability,
but the magnitude and consequences of loss.
Theres a whole set of expectations and lore regarding what one
should do as a fiduciary. Not my area, and others will know
It's a very strange time - when rates are low people tend to pile
into anything to get a return. Understandable, to be sure,
but not always prudent. That's how the credit bubble began post
2001, and episodes like the present don't necessarily end well.
Cash isn't without risk either, particularly if inflation should
start to pick up in coming years. (something that's not
necessarily good for all asset prices). But on shorter horizons
capital gains and losses dominate inflation surprises, and my
guess is that for the time being you will spend capital raised in
the course of a few years.
So there's no easy option, and I am also not able to give
investment advice. But definitely worry about the return of
your capital first, and the return on it next rather than the
other way around.