Looking for loans or advice

[lee1988]

I want to start an investment fund. I am 25 with total net worth of roughly $100k of which $55k is liquid. I also have a job as a software engineer making $100k salary and expecting a raise to $120k in the next 6 months. I'm looking for people to loan me money to start this fund. I can pay excellent rates (6-8%) which I thought would be very good for retirees who don't want the volatility exposure of the stock market. I have excellent credit and income, and the chance I won't be able to pay is roughly 0%. The investment strategy will be slightly leveraged low volatility dividend paying low beta stocks with a target ROI of 12-15%.

Is this something that any members of ERE would be interested in? If not, does anyone here have any advice for how I may find wealthy people willing to loan me money at 6-8% interest?

[Dragline]

I agree with Toska. If you also have excellent credit, you could probably get a loan at those rates on Lending Club or Prosper. Or higher with less than excellent credit.

You are unlikely to find any wealthy investors to take you up on it otherwise, because (a) the loan is unsecured and (b) you don't have a track record of success yet. But good luck with it!

[steveo73]

Why do you need money to start you own fund ? Seriously it makes no sense to me.

Next - why would anyone give you money when you have no history of making a decent return ?

My advice is to invest your own money, use leverage wisely and just invest for yourself.

[bibacula]

Bernie Madoff promised regular 9% annual returns, which was impossible with inflation under 4%.

You're promising 6-8% returns with inflation under 2%?

[Chad]

Why do you need money to start you own fund ? Seriously it makes no sense to me.

Next - why would anyone give you money when you have no history of making a decent return ?

My advice is to invest your own money, use leverage wisely and just invest for yourself.

This isn't a helpful comment, as it doesn't answer any of his questions and is just an opinion based on nothing.

[Chad]

Bernie Madoff promised regular 9% annual returns, which was impossible with inflation under 4%.

You're promising 6-8% returns with inflation under 2%?

First, it's not impossible.

Second, he isn't starting a hedge fund. He is asking for loans from people where he pays a flat interest rate. The people offering the loan don't get any upside, it's just a regular loan based on the limited description.

[steveo73]

Why do you need money to start you own fund ? Seriously it makes no sense to me.

Next - why would anyone give you money when you have no history of making a decent return ?

My advice is to invest your own money, use leverage wisely and just invest for yourself.

This isn't a helpful comment, as it doesn't answer any of his questions and is just an opinion based on nothing.

I think my comment is extremely helpful. What sort of a moron would give some 25 year old kid money to invest based on a promised 6-8% return.

As for my opinion being based on nothing - I disagree completely. My FIL was in the business and I have money that I could lend out if I felt it made sense. I think my answer was pretty spot on - if the kid is as good as he says he is that 55 grand leveraged or not will quickly make him rich. I think your comment is a little ripe in the context of the OP.

[steveo73]

First, it's not impossible.

Yes its possible. So is winning the lottery. The question is it likely ?

Second, he isn't starting a hedge fund. He is asking for loans from people where he pays a flat interest rate. The people offering the loan don't get any upside, it's just a regular loan based on the limited description.

Yes but if his 12-15% return doesn't come off what happens to your money ?

I have a little thing called a BS detector. The OP hits that detector pretty hard.

[bibacula]

First, it's not impossible.

A 5% real return doesn't happen year after year. One year of down markets (remember those?) wrecks havoc with levered assets.

Second, he isn't starting a hedge fund. He is asking for loans from people where he pays a flat interest rate. The people offering the loan don't get any upside, it's just a regular loan based on the limited description.

Exactly. No upside, no downside protection.

[jacob]

Let's not have another futile discussion as to whether this is possible or not. We don't even know what the strategy is other than the instruments (low beta dividend payers). We don't know if it's a long, short, long-short, option based, ...

I think the question has more or less been answered in the first two responses: Use margin or look into P2P lending.

[lee1988]

Thanks for all the responses. I suppose I should better explain my strategy. I read a paper called Buffet's Alpha, find it here: http://www.econ.yale.edu/~af227/pdf/Buf ... dersen.pdf

I am already using margin, about 1.5 to 1. Low volatility stocks on average without leverage have slightly beaten the market historically --- returning about 11% before inflation compared to 10% for the S&P 500 as a whole. However, the remarkable thing is that they've done it with a much lower standard deviation making a diversified enough portfolio of them safe to leverage up to 1.6 (historically at least, even through 2008 like recession) without the risk of margin call. Anything above 1.6 and you could have gotten a margin call in a once in a decade downturn.

I'm using 1.5x, using margin at 1.6% interest. Historically this should give me 11*1.5 - 1.6 = 14.9% pre-inflation, pre-tax returns and means I should be able to easily pay 6-8% interest on any further borrowed money. As I've noted, I don't believe it's safe to use any higher margin, but borrowing money from other people doesn't raise my risk of margin call (as long as the notes have provisions that the loaner is to be paid back at a fixed rate over a long time period and can't demand all money at once). The other nice thing about these securities as they have high dividend rates---around 3.8% as a group. That means that I'd be collecting 3.8*1.5 = 5.7% dividends which could go straight to my loaners--I would only have to sell a small fraction of actual stock to pay the interest even at 8%. I wouldn't want to pay higher than 8% however as that risks having to sell too much during a major downturn in the market. I'll give peer-to-peer lending a shot, but my understanding was that the interest rates are typically higher than 8%?

As far as why I want to borrow and not just be satisfied with 12-15% returns? Well first and many of you will look down on me for this, but I'm targeting $3 million before I retire, even though I live on about 15k a year excluding mortgage principal right now. The reason is that although the middle class lifestyle doesn't interest me at all, money is power and influence, and those are two things that I want. If I were wealthy I could help solve the world's problems, have more people listen to me and look up to me, etc. Those intangibles of wealth can surely be reached in other ways, but there's no denying that it helps. Of course I'll hit 3 million either way by the time I'm 40, but if I received a some loans at these rates, I could meet my goal by 35 or sooner.

[lee1988]

Also, did that math carelessly and forgot to divide the margin rate by 2 since I'm only using 1.5x margin

[lee1988]

No thanks. Im saving my money to avoid people who think they can assert their dominance by having money.

I don't wish to exert dominance upon anyone. What I mean by power and influence is being able to afford to start companies or non-profits with visions such as sustainable energy, curing diseases, fighting ageing, fighting poverty. Money is simply claims over society--what you choose to do with yours is completely up to you. But it is indistinguishable from power by definition. You can use money to do useless things (build luxury yachts), evil things (start a drug empire), or good things (see B&MGF for example)

[steveo73]

If I were wealthy I could help solve the world's problems, have more people listen to me and look up to me, etc. Those intangibles of wealth can surely be reached in other ways, but there's no denying that it helps. Of course I'll hit 3 million either way by the time I'm 40, but if I received a some loans at these rates, I could meet my goal by 35 or sooner.

If you are honestly after advice I think you should do some work on your emotional maturity. I doubt money will get you what you are after and I think focussing on the things that you are interested in won't lead you towards happiness or contentment.

I think you should take a step back and think through what you really want out of life without reference to other people's opinions.

[Chad]

Pot calling the kettle black.

[jacob]

@steveo73 - I dunno about that. If I had $1M and burned an additional $20000 per year, I bet many people would take me more seriously than my current networth and budget. I can certainly point towards a number of people who "reason" that my budget and net are too low for them to take me and what I say seriously---simply because they only look at the numbers.

Jeremy Grantham of GMO has also mentioned that politicians/business/... people pay more attention to what he says about sustainability simply because he's made a lot of money.

It's just a fact of some (many?) people that they pay more attention to you if you have more money.

[arebelspy]

I have been investing in real estate too much, when I see returns like this and go "meh.". 6-8%? Most of us don't get out of bed without double digit returns at least. Giving a 10-12% return to private money and friends/family is not uncommon at all. I was talking to a hard money lender at a REIA meeting ths morning that charges 18%. (And, of course, all those loans are secured by the property, they aren't unsecured loans.)

P2P, personal line of credit, margin, and FFF round of funding (friends, family, and fools - you seem to be going for the latter, no offense) are the ways to start for you, it seems like.

Show a reliable record and the money will find you. Your first investor is the hardest to get - under promise and over deliver and more will come.

Good luck!

[steveo73]

@steveo73 - I dunno about that. If I had $1M and burned an additional $20000 per year, I bet many people would take me more seriously than my current networth and budget. I can certainly point towards a number of people who "reason" that my budget and net are too low for them to take me and what I say seriously---simply because they only look at the numbers.

Jeremy Grantham of GMO has also mentioned that politicians/business/... people pay more attention to what he says about sustainability simply because he's made a lot of money.

It's just a fact of some (many?) people that they pay more attention to you if you have more money.

I'm not sure that I agree with you here but this is from my perspective. You are more extreme than myself but I can relate because the logic rings true and you doing it on much less than me basically reaffirms that it can be done.

I really think trying to get rich in order to get some respect or whatever is just arse over backwards. I mean the OP seems to want to prove himself or gain respect by getting a lot of money. I figure that this is doomed to failure. You are basically tying your self-worth to how much money you have. Personally I hate this notion and even if it is sometimes true it isn't true for me.

The second point is that if you can make a consistent return with a base start-up of 55k with leverage that markets give out fairly easily now why you would need to borrow more.

[steveo73]

fools - you seem to be going for the latter, no offense

The thing is I don't even think he has too. He has a good base for starting an investment fund. If he adds to that some leverage he will do great assuming he can continually deliver those returns.

I'm also not meaning to be offensive but I wonder what sort of a person would lend out that money with no track record. One of my friends lent money to another friend who had a system. He showed my friend the system and stated how it was going to work. His returns were fantastic - a 100% loss. My FIL has traded for other people and lost the money - he paid them back out of his own money and will not try to borrow from others like that again.

[lee1988]

I'm not trying to prove my self-worth through money, and I'm not unhappy because I'm not rich yet. Actually, I wake up every day extremely happy and energized and find my rejection of materialism to be a large source of that contentment. However, I also have some long term goals of what I'd like to accomplish with my life, and being wealthy will definitely assist with some of them (not all by any means). Here's a sample:

1. Run a marathon under 2:30 (money only helps in providing financial independence to have the time to train)
2. Achieve biological immortality & help others achieve it as well (loads of money needed)
3. Contribute to development of strong AI (money definitely would help, this is a very capital-intense venture)
4. Help the third world escape genocide, poverty, disease and other human rights abuses (though you can volunteer time with no money, having money can magnify your impact just like with anything else)