Category Archives: FIRE

Financial Independence Retire Early

Who’s Down to Sign Up For Veganuary 2018?

Who’s with me for 31 days of abject vegan dining, starting Jan 1, 2018?  If you’re down, sign up at veganuary.com.

It’s only for a month – plus – there are so many reasons to try eating a vegan diet:

Health  . . .  Environment  . . .  Ethics  . . .  Comedy

Pick one motivation, or all four.  Whatever your reasons, sweeten the deal by promising to donate $ to my charity www.rohingyafund.com. You know, on the off-chance you fail to live up to your pledge.

Why you should  sign up for Veganuary with me:

Whole-food plant-based diet is HEALTHY

While making ‘FUD’ videos about food and my insane-frickin’ allergies, I learned how stupid-healthy it is to adopt a Whole Food Plant Based (WFPB) Diet.  Compelling info:

WFPB-Vegan: 3-10x more SUSTAINABLE

The CO2 ‘footprint’ of standard western diet (SWD) for a single adult in Silicon Valley California  is ~3x more damaging to the environment than that of a vegan diet:

  • SWD:  ~2.8 tons CO2/yr
  • Vegan: ~1 ton CO2/yr

In terms of land use, the difference is more like10x.

A UN report, Livestock’s Long Shadow, shares one particularly jaw-dropping finding: animal agriculture beats out the transportation sector as the largest contributor to human-caused global warming. Consider some stats:

  • Global livestock accounts for 14.5 % of all anthropogenic GHG emissions. (7.1 GT of Co2-equiv/yr)
  • Cattle (beef and dairy) = 65% of livestock sector emissions
  • About 44 % of livestock emissions are methane (CH4)

Yikes. I don’t mean to be a Debbie Downer, but if we don’t cut our GHG emissions, as in, pronto, we’re kinda cooked.

. . . You know, as a species.

. . . Like, I’m not kidding.

. . . Srsly, tho.

WFPB-Vegan is FUN – No, Seriously

WFPB-Vegan is ETHICAL

It wasn’t long ago that I believed “Happy cow farms” might be  the norm. At least I hoped that was the case. Turns out – Nope. While “Happy Family Farms” exist, they account for a tiny fraction of the animal products we consume.

Why everyone knows a nice little farm where things aren’t so bad, but eats factory farmed meat from vegan

In the US, upwards of 96% of meat and 86% of dairy come from factory farms (source: USDA).  If you’re buying milk in a grocery store, or gnawing a chicken wing in a restaurant, those animal products came from industrial factory farms.

Besides abusing antibiotics, polluting the environment,  and producing unhealthy meat, industrial livestock factories are brutal. Watch any documentary on the topic, and look at the equipment. Gestation cages, maceration machines, I could go on. But I’ll leave further investigation to you.  Here are some compelling sources:

Vegan dishes yummy, easy, delicious

Going vegan for a month can be an exploration new foods and recipes. There’s Indian, Ethiopian, Vietnamese, etc.

I hear the Thug Kitchen recipe book – kindle edition – is free for prime members on amazon. And there’s a ton of recipes online. Just last night, we made vegan butternut squash Mac-n-cheese casserole style:

Butternut Squash Mac ‘n Cheeze: Two Ways

 

There’s lots of vegan food to eat. Googulate it.

If you take this pledge with me:

I highly suggest you use either of these:

  • Daily Dozen‘ app : a check-list to make sure you’re getting the 12 daily foods needed to be healthy.
  • Cronometer‘: a food tracking app that shows you exactly the vitamins, minerals, proteins, carbohydrates, fats and various micronutrients you’re consuming.

Most people – carnists and vegans alike – can be deficient in both of the following vitamins. So you may want to supplement:

  • Vitamin B12 – A 5000 microgram pill 1x a week and you’re set. (B12 is made by bacteria).
  • Vitamin D – Especially if you live in the north in January (D is a hormone made by your skin when in direct sunlight).

SO – JOIN ME!

Let’s be vegan for a month this January: for our health, for the perpetuation of our species, for the animals, and/or for the lulz.

If you’re in, reply to the post that got you here (from linkedin or facebook or mrmoneymustache, or DM), or reply directly to this post.

Now then, who’s up for Veganuary 2018?

Verona Episode 3

The bridge near our apartment. Veronese sure love dogs.

We’ve been in Verona, Italy for 7 months now. Shortly after recording episode 2, we lucked out and found small apartment along the river Adige. Since our last podcast, we’ve studied Italian, travelled to the US and back for Christmas break, and now we’re finally settling in.

Previous episodes:       Episode 2.      Episode 1.

Note: In Verona Episode 2, Max became unresponsive toward the end of the recording as he focused on the timer. This time – well, let’s see if he can stay focused on the discussion.

verona_month_3
Morning cloudscape over Verona Piazza Erbe

More of Everything

I first spotted this shop while waiting to meet a real estate agent across the street. At the time, I didn’t give it much thought, assuming it was a tiny shop selling shitty antiques.

When I was younger I loved going through antique stores. I’d look for old coins, books, or jewelry. As a young adult, I looked for art and furniture. However, after buying a dining table, bed frame, and a few chairs, I decided, , “Mollo Tutto!” (Enough! No more!) The furniture was rickety and the art work fell apart. It felt awful living with such precarious furnishings.

Later, reading an article in the Economist, I learned why that furniture made me feel so lousy: Wobbly furniture makes one feel uncertain and insecure.  Since then, I’ve bought nothing but new furniture. Even chairs from IKEA are stable at least.

So I mostly ignored the shop, Ditutto Dipiu. The name means “More of Everything.” After looking it up in google translate, I thought, “More like, more of everything I don’t want.”

But, then we (at-freaking-last) found an apartment we liked, and we decided to write a proposal. The apartment was not only unfurnished, but we’d have to install our own kitchen. I estimated the costs of buying everything, and suddenly, recycled furniture  seemed like it deserved another look.

Jole was the one who suggested I give Ditutto Dipiu a try. I was helping her come up with a lesson plan for her class, (why she asked me for help with such a task, I’ve no idea), and I asked if she knew of any good used furniture stores – brick n mortar, or online. She showed me subito.it, and then recommended I head over to Ditutto Dipiu. She said they had loads of stuff – and she assured me that much of it was of high quality.

So I stopped in on my way home. Holy cripes, she wasn’t lying. What looked like a tiny store front, gave way to a huge warehouse of everything you could imagine … that’s right … everything, and more.

A solid piece of furniture
A solid piece of furniture

The furniture wasn’t all rinky-dink and wobbly. Many pieces were solid and of top quality Italian craftsmanship.

 

I noted the furniture, snapping a few pictures as I went. This dresser/desk is 120 euros.

On that visit, I bought a salad spinner and radiator humidifier. Not for us – but to replace those that had broken at our temporary airBnB apartment.

8 euros to replace stuff we broke at the airBnB
8 euros to replace stuff we broke at the airBnB

Rather than asking for 8 euros, the clerk asked for my address and documents. Apparently, they didn’t allow purchases without registering. I wondered if that was a government policy.  I gave him our temporary apartment address and my  California drivers license.

He printed out a sticker, slapped it on the back of this card, scanned it, and handed it to me.

So now I’m all registered, legal, and set up to bargain hunt, ala Frugal Wood’s Style, here in Verona Italy.

Here are some items I spotted on a recent visit to Ditutto Dipiu.

Turns out, another family beat us to signing a proposal for the river apartment. We’ve since found a place across the river. It’s partially furnished, and comes with a fully installed kitchen. So finding furniture on the cheap is no longer urgent. Even so, I’m sure we’ll need to buy some stuff. When I do, I’ll be sure to start at More of Everything.

 

Verona Episode 2

verona_month_2

After nearly 2 months in Verona, we still haven’t found a home. Before moving here, I’d signed a contract to rent a beautiful top floor condo in Borgo Trento. But the owners sold it, and our contract was negated. We found out after arriving. We’ve gone from one airBnB to the next, all while apartment hunting. It seems every time we find a place, something goes wrong. On top of it all, we have to register with the questura (local police), arrange for all our boxes to be delivered, and get our son off to school every day.

In case you missed it, here’s Verona, Episode 1.

Note: As we began recording Verona Episode 2, I started a five minute countdown on my phone. After passing the four minute mark, Max became unresponsive as he focused on the timer. He seemed to think that we had to end exactly at 5 minutes, and he wanted to alert me when time was up. If he hadn’t diverted his attention so completely to the time, I think he would have answered our questions about Italian language and history classes. We’ll see how we do next time.

The apartment hunt continues; that’s no reason this kid can’t stop for some vino.

Christmas present spoiler alert for Michelle, my sister: Turn back now if you want to be surprised!

We’ve been utter failures at finding a place to live here in Verona. I’ll detail the experience in a later post. Suffice to say it’s been a few months, we’re living in a temporary hovel, and I’m coming both unhinged and unglued. Two days ago, we toured an apartment that’s kind of meh but good enough. Capitulating, we asked to sign a contract.  I received it in email last night.

However ….

Yesterday, after my penultimate Italian class at Inclasse of Verona, Dirk and I met with the owner of our temporary/bridge-to-home/hovel airBnb to sign a contract for this month. He was surprised to learn that his friend, Paola, hadn’t called us yet to arrange to see her apartment, which she intended to rent. He explained that this apartment was just about his favorite place in the city, and we really must see it. Top floor, terraces, the works. FFS.

But we got to talking tax and maritime law, and you know how that goes. That’s right, it was difficult to move on from such intoxicating subjects.

As he assembled his belongings, I asked him to call Paola on our behalf. Come to find out they’ve been renovating and her mother in law didn’t want to show the apartment until it was perfect. Paola explained, “You know how mother in laws can be.” Sarcastically, I said, “nooooo. I wouldn’t know at all.”* She didn’t pick up on my tone, however, and continued to explain how mother in laws could be.

*To be completely honest – my knowledge of bad in-laws comes second-hand. My mother in law is wonderful. I won the in-law lottery. And I’m not writing this to cover my ass. It’s absolutely true. Helen is a sweetheart.

Reminder: Italian humor != British humor.

She asked to meet to talk, and proposed 4pm at school. Her 11 yr old son also attends, and she picks him up at the same time we pick up DS. At that time we could arrange the viewing.

Ruh roh. But … but …. I had my class field trip to a Valpolicella winery at 2:30. What to do? It took all of 2 seconds to resolve the matter. Send husband as family ambassador to meet Paola.

Dirk accompanied me to my meeting spot with the class. As we discussed his meeting, I said, “act normal!” (as in Little Miss Sunshine). No one got the reference, but the Aussies thought it was funny. The Italians? Not so much.

Meeting my classmates at Ponte Vittoria
Meeting my classmates at Ponte Vittoria

Valpolicella is gorgeous. It’s a small valley to the northwest of Verona. We toured the grape processing, wine fermenting, and bottling facilities of Terre di Leone.

Obligatory Grape Shot:

Loading grapes into the stem separator ( later I learned that guy up there is the winery owner ):

My adorbs* teacher, Giacomo, complete with wild-n-crazy hair, snapping a photo:

Here’s our tour guide explaining the effect oak barrels have on the wine. I understood nothing (except for where the barrel maker’s label is located (Answer: at the very top of the lid)).

Here’s our tour guide explaining the complex process that went into each of the six bottles we were about to test. I understood nothing.

When a call came in from a realtor, suddenly, my brain snapped to attention. Over the phone, I held a full convo. We agreed to meet at 2pm Friday. When I returned to the wine tasting room, it was back to hearing the Peanuts teacher – wah wah wah wah wah.

One day it will be effortless (it has to be, right?), this comprehending of a foreign tongue. But that day ain’t today. Nor do I suspect it will be tomorrow. But one day. I have to tackle that Elena Ferrante novel, after all. Laudable goals here. Nothing but laudable goals.

I discovered that I possess the refined tastes of the proletariat.

We tried small pours from 6 bottles. From left to right:

1. Table wine. Valpolicella Classico. Aged in casks 4 months.
2. Ripasso. Where the cheap table wine went through 2 stages of fermentation.
3. Classico Superiore. similar to #1 but aged 10 months.
4. Calssico Superiore Ripasso. #3 taken through fermentation 2x.
5. Amarone #1 aged for years
6. Amarone #2 aged > 4 years.

My fave? 1 & 3. Nearly everyone else raved about the Ripasso – #2. That was my least favorite.

#3 reminded me of a wine that my sister loved. I don’t remember the name of it, but that right there was the taste.

We stood around in the cold, and Maria – a substitute teacher who I hadn’t met until the tour* – asked me questions. Like so many other Italians, her eyes widened, just so slightly, upon the mention of my son’s school. I interrogated. Her opinion: parents pay for grades. She knew a teacher who was pressured to inflate grades. I made a mental note to let DS’s teacher know that we did not want inflated grades. If DS earns a C, we’ll teach him how to handle a C. Better to learn how to deal with reality. The world ain’t made up of gentle and inflated As and Bs.

I thanked her for being candid, then explained my understanding of the school. (I forget if I’ve written about it). Briefly: there are two tracks – regular Italian certificate, and IB. For kids on the IB track, there’s no getting around the tests. Grades really don’t matter. We intend for DS to be in the IB track, so we should be okay. She added that as far as she knew, they hired really good teachers. It was mostly the administration that had a bad rep. This aligns with what Jole had told me.

Giacomo announced it was time to go? But wait, we hadn’t been shuttled into a retail room to buy wine. “Oh you want to buy wine?” he asked. He called out for our host.

OMG how refreshing!  Not being herded like cattle into the retail funnel.

I bought 2 bottles of #3 for Christmas gifts (one for my sister), and one bottle of #1 for me to enjoy, prolly this weekend.

When I returned home, I asked DH about meeting Paola. He said the apartment is 4 bedroom, 2 floors, 2 terraces, a bit up the hill in Valdegona. She’s going to pick us up at 9am Friday (4 hrs from now as I write), to come have a look. We’ll see.

For your viewing pleasure, one more obligatory grape shot:

*Why do  I still use the word, “adorbs?” Because, in addition to being adorbs itself, I get to imagine the 20 something kids of the family recoiling and cringing upon reading it. It’s a win win.

How I Negotiated My Book Contract (Part I)

After FIREing from my marketing job at a semiconductor company in 2014, I had loads of free time. So, I dedicated a few hours every day to writing a book. It was a collection of simple tips I’d learned during the part of my career I loved most: Planning products and working with customers in order to understand their roadmaps.

My intention was to post these tips as an ebook on Amazon, and sell it for a few bucks a pop. As I finished the book, I was contacted by an acquisitions agent from an actual, bona fide, New York publishing house. Hm, this was interesting. I put my copy of ‘how to publish an e-book kindle’ aside, and skyped with her. A few weeks later, she sent an official offer.

In this series of articles, I’m going to share my experience getting from the offer to a signed contract: What I learned about book contracts, how I negotiated for what I wanted, the compromises I made, as well as the advice that various people gave me.

Let’s start with the offer.

My initial reaction seeing the email in my inbox was glee. I immediately forwarded it to my mom to share my excitement.

After reading the offer, however, my excitement gave way to disappointment. The terms seemed paltry.

Royalties: Print: 10% on net price up to 10,000 copies sold; 12.5% up to 20,000 copies sold; 15% thereafter;
Ebook: 15% on net
Audio: 15% on net
Advance: $1k contract sign, $1k manuscript delivery, $1k publication.

I understood the logic behind a low royalty on print editions, as the cost of printing is non-zero. But 15% on ebooks? That seemed absurd. And I had no idea on audio books or the advance.

It was time to do some research.

First, I logged onto kboards. It was the path of least resistance. I had an account already, and had received decent advice in the forums in the past. Advice ranged from desperate (any interest from a real publisher was a gift and should be capitalized on immediately), to supremely confident (“My contract is 50/50 profits on all ebooks and I would never accept less.”).

I moved on to google. For understanding paperback royalties,  I found the article,  “Negotiating Book Terms and Royalties,” on www.foner.com to be useful. Here, I learned helpful insights. In a negotiation, the author wrote that it’s, “easier to move the (volume) break points, even eliminating the lowest category, than to increase the final royalty.” In the offer above, the volume break points were 10,000 units, then 20,000. I could recommend we cut those in half.

Then I wondered if those volumes were realistic. I quickly found out no. For a business self help book, I’d be wildly successful if I sold 8,000 copies. That means I would never advance to the second tier, and I’d be stuck with 10% on net for all sales.

Here’s an idea of what ‘10% on net’ means. Say the list price of the book is $15. Depending on how the publisher calculates ‘net’, my ‘10% on net’ pay off per book would be between 90¢ and $1.05.  However, 10% on list price, would be $1.50. Thats between 43 to  67% higher. Even 8% on list, would be 15-33% ahead of 10% on net.

List-based royalties come with simplicity and clarity.  There’s no need to worry about how ‘net’ profits are calculated, or if the book is selling at a massive discount. No matter what, if a book sells, I would get a % of the list price. Period.

As for ebooks, 15% of net seemed crazy low. I’d imagined 50% would make sense, as there’s such minimal overhead. Split the profits, right? I quickly discovered that the Writer’s Guild felt the same way. I also came to learn that the industry standard rate was 25%. So, I was right – the offer was indeed, low.

I wasn’t sure why an audio book royalty rate was even listed, as the plan was only for paperback and ebook, so I put off looking into that. Even so, 15% of net seemed quite low.

I’m not a master negotiator.  I’m not an idiot, but I do acknowledge that I haven’t exactly studied the topic. I understand concepts like anchoring, and that the first person to put out terms has the advantage, but my experience in negotiating a contract is scant. So, I reached out to four people whom I respect for their negotiating skills: two women and two men.

The women encouraged me to do my homework, research contracts, decide on what I want, then counter with those terms. The men advised me to shop the manuscript to other publishers in order to brew up a bidding war.

In the end, I researched the topic in each paragraph, and asked for what the writer’s guild and various writers recommended. The publisher agreed to all but one of my approx 2 dozen changes. Yeah.

I drink more wine in Italy (duh)

When we were living in Malaysia, I reduced my wine purchases to a few bottles a month, as drinkable wine could set you back 100ringgit a pop. At an exchange rate of 4ringgit to the dollar, that’s a $25 bottle of wine. Back in the US, $7-$12 was more the range I went for.

Eventually, I found a bang-for-the-buck value wine. Piccini Chinati, from Italy, sold for 72 ringgit a bottle. It offered the optimized balance of drinkability and affordability. Still, $18USD, so ouch.

Imagine my surprise/horror, when, soon after moving to Italy, I encountered this display in the local grocery shop near our apartment in Verona:
3€ ($3.40) for wine that cost me 15€ or $18USD or 70 ringgit back in Malaysia

Did you do the math? That’s right, this bottle of wine is 5x more expensive in Malaysia.

I think it’s time to celebrate this discovery with a financially-guilt-free glass of vino. Salute.

Revisiting my Cautionary Tale and Mentor … in Verona

Maria Callas was neither the voice, nor the diva to me. To me, she was a mix of cautionary tale, and mentor. 

Here, in Verona, I first noticed the Maria Callas Exhibition during a house hunting trip back in May. Yesterday, I bought a ticket, slipped the audio tour headphones over my ears, and slowly progressed through each exhibit room at the Palazzo Forti Verona. Each display was mildly interesting, but two specific displays brought back vivid memories. 

One detailed the timeline of Callas’s relationship with Aristotle Onassis. The other, a room of manikins wearing dresses – Biki, Yves Saint Laurent – from her post-fat diva life. 

In December 1996, I was 24 years old, and just six months into my new career at a silicon valley semiconductor company. I flew to Boston and presented at a conference in Boston’s Copley center. My talk was on using configurable processors, simple chains of multipliers and adders, to implement filters commonly used in DSP algorithms. Applications ranged from radar communications to video manipulation. I was a green engineer. My talk was mediocre, and it was at a conference organized by the company my father was a director at. So my notions of grandeur were tempered somewhat. Still, I remember wanting to feel important, like a contributor to the Science. After the talk, to about nine attendees, in a small room off to the side of the convention, I didn’t feel terribly important. But – I didn’t feel small either. I’d answered most of the questions well enough, and a couple attendees said the presentation was informative. Good enough for me – I was on my way. 

My parents were staying in a room down the hall from me. I still felt like a college student – with my parents paying for dinners and chaperoning me around. One day, my mom noted that I dressed like what a college student might think a professional dressed like, and suggested we go shopping. She noted that I now had a silicon valley salary,* so why not spend it? I responded as I usually did with my mother: I tacitly agreed that it sounded a good idea, but I took no action. 

One night, my mom and I took in a play at Boston’s Wilbur Theater. It was Master Class by Terrence McNally. Faye Dunaway played Marie Callas. It was, if I recall correctly, the first time I’d ever heard of the opera singer. But I knew Faye Dunaway from Bonnie and Clyde. 

The story was set in Juilliard in the mid 1970s, at the end of Ms. Callas’s career. By then she’d lost her voice, as well as all the people she’d ever loved. She was unreserved and harsh as she dispensed curt advice to her students. She admonished them for childish notions such as sentimentality or not giving every performance the full measure of their hearts. As each student began a song, the stage would go dark, all except for a single spotlight on Faye Dunaway, and she’d reflect on her life. Two recurring topics were Aristotle Onassis and fashion. 

Numerous times, she referred to her role in her relationship with Aristotle as being that of a bird in a cage. She was his trophy, his prize to possess. She was on display for him. She filled this role easily, as she was the preeminent songbird of their time. 

I discovered, in the Maria Callas exhibition, that, prior to meeting Arno, she’d spent a couple years losing close to 40lbs. She’d cultivated a diva persona, and taken on the role of fashionista. To match the voice, she’d groomed her plumage to match.

Ultimately, however, there was a cage between Maria and her lover, and even as she hoped to be let out, she privately knew she never would. Confirmation came when reading the paper one morning. He’d married Jacqueline Kennedy. Faye Dunaway reenacted the scene on stage. It was heartbreaking to watch, but I couldn’t help but think she was an idiot all the same. Why would you choose to get your personal fulfillment by being someone’s bird in a cage? That imagery has stayed wth me for two decades. As has the motto of Blanche in Streetcar Named Desire**, “I always rely on the kindness of strangers.” Damned fools! 

Walking through the exhibit, I discovered new information about her relationship. For example, she renounced her US citizenship in order to be legally available to marry Mr. Onassis, should he ask her. He never asked her. Also, she had his child, but Homer failed to thrive, and only lived a few hours after birth. After Ari, and the death of her baby, she was never the same. From then on, a haunting emotion came through when she sang. Watch and listen to this 1973 performance in London.  The voice, the song, the feeling. Bellissima. And Gah – that gown. I love it. 

In the play, when she snapped back to coldly lecturing her students, she gave them her thoughts on fashion, being a diva, and how to make an impression on people. She advised wearing understated but well fitting and top quality clothing. And a scarf. A scarf that said who you were – that you could wear with purpose and conviction. She configured it through the class depending on her mood, and it somehow boosted her presence. 

The next day, my mom asked me if I wanted to go shopping. I readily agreed. $300 later I owned a new, perfectly tailored suit, a couple sleek blouses, and a scarf. To this day, I’m particular about wearing clothes that fit. I tend toward pieces that convey an understated message of confidence. When the air has a bit of a chill, I wear a scarf. I still have the scarf that I bought in Boston that week I saw Maria Callas.

*note: SI Valley salaries were high back then, but nowhere near what new engineers are paid today.

** Oh Marlon Brando. Swoon. 

Verona Episode 1

Verona-Episode1

Two weeks ago, my husband, my son, and I moved to Verona Italy. This is the first in a series of podcasts about a family of Americans adjusting to life in Italy.

It’s our second overseas jaunt. We come here by way of Penang, Malaysia, where we lived for four years. The first two years were as employees of a semiconductor firm. We’d moved there on an expat assignment, having worked for many years at the same Silicon Valley semiconductor company. After two years in Malaysia, we quit our jobs and began living off of savings. This is what people in the early retirement community refer to as FIRE (Financial Independence / Retire Early). But after four years of perpetual summer, I couldn’t take it anymore. My husband, Dirk, didn’t want to move back to the states, so I chose Italy. Now, here we are. And this is our story.

Want to know what happens next? Here’s Verona Episode 2.

Our Experience With Lending Club

It all started innocently enough, in April 2014, when I wished for steady and healthy cash flow from an investment. At the time, we were contemplating early retirement.  I felt our assets weren’t up to the task of bringing in cash on-the-regular. So I looked for something that would.

I’d heard people brag of double digit returns with Peer To Peer (P2P) lending. Hastily, I opened an investment account with Lending Club, and seeded it with a big fat nut-o-cash. I selected all of the robo-investing options such as ‘automatic distribution’ across various kinds of loans, and ‘automatic investing,’ which poured earnings back into new loans.

After three months, the account was returning 12% on an annualized basis, and after accounting for service fees of about $10 a month.  Hot damn! I sent in more money. By summer’s end, we were in for tens of thousands of dollars.

September’s e-statement was the first to give me pause. I’d incurred a loss of $50 for charged off loans.  Service fees had crept up to $20. On interest income of $511, the effective fees were under 4%.  I could live with that.  But that charge off fee was closer to 10%. “Meh, the cost of doing business.” I figured.

Come tax time, I contemplated the reality that interest income was taxed at ordinary rates. I turned off the ‘Automatic Investing’ feature, and decided to start taking profits off the table.

By April 2015, we’d made over 8% on our initial investment.  Yeah!  Taxes be damned! I turned ‘Automatic Investing’ back on and watched as our retained profits swooshed into new loans.

In the May 2015 statement, I was shocked to see $333 in charge offs. That was more than half of the monthly interest brought in. Service charges were at $25.

Again, I turned off ‘automatic investing’.  By this time I’d decided that we could live off of Vanguard ETFs and rents from real estate investments.  We had pulled the plug on our jobs months before, and were living like kings in Patagonia, er I mean, we were living confidently off of our assets – you know, those assets that I’d thought were structured so poorly. Turned out, they were fine.

At month’s end, I withdrew all cash received from note payments for that month.

In June, $339 was charged off against $683 of income. Again I withdrew all cash that had accumulated.

In July, $422(!!!) was charged off against $694 in interest income.  Ouch.  I scrolled down to the details section of the statement and found a curious item: a $6 ‘recovery fee’. What was this?  Then I saw that $33 of previously charged off loans had been recovered. They’d charged me $6 to get $33? That was an 18% fee (~15% if you adjust for the service fee that otherwise would have been charged in normal operations).

Lending Club stood to make money charging off loans and then collecting lucrative fees in their recovery.  Not that I minded getting the $33 back.  However, I’d rather that $33 hadn’t been written off in the first place.

For the next three months, I withdrew all cash at the end of each month. The account balance had fallen by 10%. Charge offs continued to range from $300 to $400 every month.  Also, my returns were down to 6%.

Then I plotted the data: earnings, fees, charge offs and balances. Specifically:

  • Blue Bars: Monthly Income (interest income + late fees)
  • Red Line: Monthly Expenses (charge offs + service, recovery, & collection fees)
  • Yellow Line: Net Earnings per Month (Income – Expenses)

LendingClubEarnings

Point A is February 2015, when I first noticed the charge offs, contemplated the high tax rate, and turned off automatic reinvestment of earnings.

Point B is May 2015, when I realized that LC had incentive to charge off loans and then charge lucrative recovery fees to reclaim them. This was when I began pulling money out of the account in earnest. Returns fell dramatically from here, as less money came in from interest (no re-investment of principal), and charge offs continued to increase. The last bar was September 2015. At least our returns were still positive.

That all changed in November, when we made nothing. That’s when the earnings we brought in were completely offset by fees and charged off loans.

Lending Club Performance, November 2015:

EARNINGS:  $614
Interest received:     $520
Recoveries:              $94 ($ that had previously been written off)
EXPENSES: $612
Charged Off Loans: $563
Fees:                        $49 (includes $17 in recovery fees for bringing in that $94)

Yep.  $2.  Two bucks. December, incredibly, didn’t pass into negative territory. In fact, net earnings remained flat:

LendingClubPerf-Dec2015

It was around this time that a fellow Mr. Money Mustache forum member, CanuckExpat, suggested I sell notes on the trading platform. Just a few days before Christmas, I applied for a trading account. By the end of the year I’d sold 27 notes.

It was then that I decided on my objectives – get out of this Lending Club investment, without suffering a loss.

I experimented selling notes at a various premiums and discounts. I found I could sell ‘current’ notes close to their fair value. For late notes, I had to set sell prices that were at least 20% off. And even then, only a few would sell. The key was to divest of all of the current notes before they were marked in arrears.

In January, I sold about 25% of our portfolio.  That month, the statement revealed an improvement: our net income was $115.  Yeah!

LendingClubPerf-Jan2016

Here was the ROI of notes sold at that point:

Primary notes:    2.77% (at least it’s positive!)
Traded notes:     15.43% (1063 notes sold)
Combined return: 6.77%

By March 2016, we’d sold 90% of our account value. With the removal of so many interest-bearing notes, our gross income collapsed, and net income fell into negative territory:

Now it’s July 2016. I’ve sold off 97% of our Lending Club portfolio. Every few days, I lower prices on the remaining notes that are eligible for sale. Every day, one or two notes trade. I’m hoping to have this account closed out by the end of the year.

Even so, we’ve come out ahead. Just looking at the money that transacted between our savings account and our LC account, we’ve put in $65,000, and pulled out $68,500, for a net gain of $3500. The account has a balance of about $1500. If we are able to recover two thirds of that, then we’ll have made $4500 on an investment of $65k over the course of 2 years. That’s 7%, total return, or about 3% annually. Not great. Also, bear in mind that we paid taxes on the earnings each year, and that puts us at a return closer to 2% annually. Hey – at least we didn’t lose money!

A lot of people make the mistake of looking at the interest earned each month. Indeed, we earned a lot of interest. Since opening this account in 2014, we’ve taken in $12,370 in interest. Problem was, that income came with $7700 in fees, expenses, and write-offs.

So, be careful what you wish for. And if you choose to invest in P2P lender, watch the fees.

edit: I’ve been asked what our note allocation was. Here it is: 15% A, 30%B, 28%C, 14%D, 8%E, 4%F, 1%G. Probably a little too high on the C,D,andE. That could have something to do with all of the write offs. However, it’s in line with a somewhat conservative ‘platform mix’ portfolio offered by LC. I probably went for too much risk and that could account for some of my getting burned. Still, I’m done with LC.