Category Archives: foundry mailbag

Peer-to-Peer Investing 101

One of my previous posts was about how any investing can be socially responsible, provided that it’s a means to an end: one no longer needs paid employment and can choose from a variety of unpaid socially responsible activities such as volunteering or tutoring.

I sort of feel like that’s a cop-out answer, so let’s look at one area of investing that I think is very socially responsible: Peer-to-Peer Lending, or lending money to others, without traditional financial institutions (i.e. banks) acting as middleman.

I’ve had, and currently have, P2P investments in a few different organizations. I’ll explain the pros and cons of each:

The first one is Microplace. It’s very similar to the more-popular Kiva, where your money is loaned to small businesses in developing nations. The main difference is that investments at Microplace earn interest, currently around 1%. That’s about the same rate you’ll get from a CD so it’s not going to let you retire or even keep pace with inflation. However, it can be a small part of a well-diversified portfolio since it’s probably not tightly correlated with investments in the US stock market*.

Furthermore, I’d argue that money otherwise earmarked for charitable giving in one’s budget could instead be invested here. Since the money invested at Microplace earns interest, it will begin to compound, enabling you to invest more and more, increasing your ability to do good in the world.

The other P2P institution I have experience with is called LendingClub**. It’s a similar to Microplace, though the borrowers are here in the USA. They’re frequently looking to do debt consolidation, or for starting money for a business. Since the loan amounts are typically in the $10k – $20k range, investors pool together their money in $25 chunks to fund a loan. That way, a single investor can buy dozens of loans to ensure that if one loan defaults, you don’t lose all your money.

Borrowers get lower rates than they’d otherwise get from banks, which has two benefits: immediately, the borrower can free him/herself from the high rates charged by banks and credit card companies. And in the long run, this will cause competition among lenders which will lower rates for everyone.

LendingClub is a powerful but dangerous tool in the investing portfolio. The company brags about returns in the 10 – 14% range, which of course is unheard of in the stock and bond markets. But no return of that level is without risks. I’ve had one loan default on me so far, which is money down the drain. Even so, my average rate of return with LendingClub is over 9%. I don’t ever plan on having more than 2% of my total investment money in a risky product like P2P lending.

Before you put any money into LendingClub, you should research the complex filtering tools and develop an investment strategy. Since I’m lazy, I copied the strategies of folks who have demonstrated success tweaking and scientifically re-checking their own returns. For example, here’s one from a blogger named Brave New Life.

Anyone else have investments they feel are socially responsible?

* In other words, means ups and downs in the domestic stock market probably have little impact on the ability of Microplace loan recipients to repay their loans.

** The link to LendingClub is referral link, that gives you $100 for signing up and making an investment. I don’t get anything.

Any investing can be Socially Responsible Investing [foundry mailbag]

Last week was Gold Week here at the Foundry, and the past few weeks are turning into Investing Week, a topic that I’m still learning a lot about and totally fascinated by.

Foundry Friend and reader Betsy commented with a great suggestion for a topic, so-called “socially responsible investing” or simply “social investing.” She writes:

I would be interested to hear your thoughts on having one’s investments match their values, even if it means lessening returns.

In fact, Venessa recently asked “Exactly which companies are these index funds investing in?” And we both had an “ew” moment when we read down the list. Most were companies we dislike or distrust, and a few are brands we actively boycot!

So what’s going on here? Is there a way to reconcile the wisdom of diversified index fund investing with one’s personal values? Or does the conscientious investor just need to hold one’s nose while building wealth?

For most people, investing is really going to be a little of both. Apparently there is a way to attain an acceptable level of diversification while limiting investments to “socially responsible” funds, at least according to this academic paper. Maybe this is callous of me, but I don’t really have time to read academic papers, and to pick and choose funds. I have a “set it and forget it” method to investing.

However, there is a bright side. I’m here to argue that one’s level of social responsibility is determined less by the investments themselves, and more by what you do with your life once you’re living off those investments.

If someone lives the Foundry lifestyle and becomes financially independent at age 40, they have the opportunity to spend the majority of their adult life doing whatever moves them. Personally, I plan on spending much of my time volunteering and that’s what lets me sleep at night, regardless of what’s in my portfolio. I know that I have a finite number of years until I reach this goal, and that my investments are a means to a very socially responsible end.

In my next post, I’ll discuss a method of investing that I feel is very socially responsible that won’t replace the traditional index fund investing style, but is a good way to complement it.

Follow-up on Personal Health Advocates

I got a follow-up email from Hayley regarding Personal Health Advocates, just thought I’d share what she wrote:

  1. The service is designed for residents of Washington, however we have helped those outside of the state. Our expertise is centered in the Washington market, so our ability to adequately assist out of state clients is more limited, unfortunately. Your readers could always call in and based on where they call from, we could attempt to refer them to services in their area.
  2. There are no qualifications necessary! The service is specifically set up to help freelancers, independent workers, and contract workers navigate complex health care decisions. We also focus on students transitioning into the workforce, elderly transitioning into medicare and retirement, and workers transitioning from employment to unemployment.
  3. We are funded through a variety of sources, including grants, our own historical reserves, and revenue which we generate from providing health insurance navigation services.

Thanks, Hayley! Does anyone have experience getting help from a PHA? Please let me know, and I’ll share your story anonymously.

Lost my first post to the angry internet gods

Sorry about the lack of posts. As you can see from the photo to the left (taken by the talented Mrs. Foundry), our family was on vacation the past few days.

I guess it’s bound to happen. I had a great post all written, and then I must have done the internet dance incorrectly, because now it’s gone. It was about a letter I got regarding the post on dealing with medical expenses. I’ll just post the letter and call it a night.  Sorry.

Name: Hayley J.
Comment: Hi Joe,

I’m interning at the Washington Health Foundation and a co-worker forwarded me Cathleen’s inquiry on dealing with medical expenses. If you would like, I believe it would be to Cathleen’s benefit to learn of our Personal Health Advocates, as this is a service we provide which assists those precisely in Cathleen’s situation.

The Personal Health Advocates is a phone service where advocates work with callers to provide personalized health advising; they answer questions on insurance coverage, help callers with any issues they may experience in receiving health care, and work with callers to find the best health coverage available to them, among other things. As we are a non-profit, not an insurance company, the Personal Health Advocates have no ulterior motives, so clients really can trust that they are receiving honest advice and guidance- working with an advocate that is purely on their side in the complex world of health care.

Cathleen also mentioned that she’s struggle with covering expenses because of the small size of her work, to which I would like to point out that this is one of the main reasons why our Personal Health Advocates exist- to help those who don’t already have someone navigating the world of insurance for them.

I hope this information is sufficient if you choose to relay it to Cathleen. If you would like to learn more, please feel free to contact me at [email address removed. Contact me if you’d like to get in touch with Hayley]. Thank you for setting up this blog, I’ve been browsing around and already find many of the past posts quite useful! Thanks for doing what you do!

-Hayley J
Intern at the Washington Health Foundation

Personal Health Advocates: (855)-WA-HEALTH

I sent Hayley a few follow-up questions on whether the service is offered to those outside Washington state, and if there are any qualifying criteria. I’ll let you know when I get an answer.

Foundry Mailbag: Dealing With Medical Expenses

Here’s the first edition of a regular column I’d like to do, called Foundry Mailbag, where I write about topics or answer questions that people have sent in. Today’s Foundry Mail comes from Cathleen, who writes:

I love your blog and would love to see a post about dealing with medical expenses. Personally that is my biggest challenge, trying to work expenses in if you have a chronic condition can be difficult to budget. (I’m not even going to go into what it’s like if you have an employer like mine that is too small to offer health insurance) I figure with all the hubbub about the recent Supreme Court ruling, it’s on many other peoples minds as well.

Keep up the good work!

First off, thank you for the kind words.

Medical expenses are like a horrible lottery that everyone has to play. Not only do you get sick or injured, but you sometimes have to pay huge amounts of money in doctor bills. Here are a few tips for dealing with them:

  1. Set up an emergency fund – This is the single biggest piece of advice I can give to anyone who’s getting their financial life in order. The size of the fund is up to you, but as a rule of thumb it should be a minimum of $1000, if you’re in debt or have other emergency spending needs. A healthy-sized emergency fund for someone with no debt is 3 – 6 months of living expenses. Store the fund in cash. Even though you’ll be getting a crummy return on investment, this is not money you want tied up in illiquid or volatile investments
  2. Expect the unexpected – I have a savings account named Doctor Bills into which I stash some money each month. When medical expenses do arise, I can tap into that account before draining my emergency fund. Think of this as being your own health insurance company. You’re paying yourself a monthly premium, and when something goes wrong, you get your bills covered by your own capitol. But unlike a real insurance company, you’re in control of the size of the premium, when you pay out, etc.
  3. Stay healthy – They say prevention is the best medicine, and I couldn’t agree more. Money spent on eating well, and time spent exercising and getting enough sleep will pay huge dividends down the line in the form of a healthy body, which means fewer doctor visits and reduced medical expenses. This also includes keeping a healthy attitude and eliminating stress from your life. A bike ride is my favorite way to stay healthy and de-stress.
  4. Negotiate your bills – None of the above tips will help Cathleen, or anyone else already saddled with large medical bills. But this tip might. Bills can be negotiated on two fronts: the medical provider and your health insurance company. I admit I’ve never done this myself, but I know it’s possible. Ramit from I Will Teach You To Be Rich is an amazing negotiator, and while he doesn’t discuss medical bills specifically, his general negotiation tips have saved me some money.
  5. Optimize for insurance – Now that the Supreme Court upheld Obamacare, people with pre-existing conditions can’t be denied insurance. That means you can shop around for a new job and make your decision of where to work based on the insurance plans that various would-be employers offer. Easier said than done, but it’s one extra tool in the financial tool box.

Hope I was able to help Cathleen, and maybe some other readers as well. Feel free to contact me if you have any questions.