Prosper sent out a marketing e-mail last night pitching the improved Prosper returns compared to the S&P500. Their blurb is below if you were somehow unlucky enough to miss out on it.
ZCommodore was all over their disclaimers:
First, they are comparing a year of returns on Prosper with 2 years on the S&P 500. The dates are different as well. I don't know what the returns looked like for the most recent year of the S&P 500 but I suspect they'd be different if they chose the same year.
Ok, fair's fair. Lets get the S&P 500 vs Prosper for the same dates. To be extremely fair, we'll use Prosper's dates.
Rate of return shown is the average net annual return on Prosper loans originated between 7/22/06 and 7/22/07 to borrowers with AA credit grades who have 0 delinquencies and 0 to 2 credit inquiries on the their credit record, as of 8/23/07. For more information, go to http://www.prosper.com/lend/performance.aspx.
The S&P 500 index was 1240.49 on 7/21/06 (as close as Google will get me), and close at 1462.50 on 8/23/07. That's a 17.9% return over 13 months, pretty respectable and corresponding to an approximately 16.5% annualized return. Oops.
And then there's those darn taxes. If I had invested in the S&P 500 via an ETF or Spider and sold on the 23rd, I'd be paying capital gains tax rates of 15% this year versus Prosper which requires me to pay my regular going tax rate of 25% every year that I receive interest income. So, lets run the numbers, shall we.
|Value After 13 Months||$11,789||$10,997|
|After Tax Returns||14.04%||6.9%|