Sunday, September 9, 2007

Timeless Money Tips

Money magazine highlighted 20 top money tips (hat tip to Free Money Finance), and there's good wisdom in here for Prosper lenders. It's all worth a read, but here are a few that are most relevant:

#1 Be Humble
Money cites Confucius, "When you do not know a thing, to allow that you do not know it--this is knowledge.", as a reminder that you should accept that you don't know everything and to keep questioning when things are unknown. One proven way to find out what you don't know about Prosper is to post on the Prosper forums or the Prospers.org forums.

#2 Take Calculated Risks
To potentially get higher returns, you have to take on more risk. That is not advocating chasing the highest risk item you can find. Make sure that you understand the risks involved. The Prosper lenders who jumped into HR loans without understanding the risks got burned the hardest.

#4 Mix It Up
As in diversify. Don't put all your eggs in one basket, or, in the Prosper case, don't put all your cash in one loan. Even AA loans go bad, so to insulate your loan portfolio from the inevitabilities of owning loans, make more loans with smaller amounts to prevent one bad loan from parting you and your cash.

#7 Practice Patience
It's very tempting to want to bid even if the listings aren't up to your usual standards. Resist that temptation. Be patient and wait for listings that meet your standards before bidding.

2 comments:

Minimum Wage said...

Except for #1, these rules seem to require money. It's hard to diversity if you have nothing to invest.

Mike said...

You got me there. Since I focus on Prosper lenders, I go ahead and assume that if you're a Prosper lender you have some money that you're lending.

Genius Types did a good post on what he referred to as financial gravity. It covers the idea that once you have some money, it's a whole lot easier to get more (aka "The rich get richer").