Like anything in personal finance, you can measure things in a number of different ways, depending what you look for.

When I put money in a brokerage account to invest in stocks, I don’t include the returns of the money market fund when I ask the question of how my stock investments are doing.

It’s not wrong to include the idle cash – in fact, as you say, it may me a more accurate reading of “how much am I making from being involved with Prosper”. Carrying costs count.

However, if you want to compare Prosper investments to Bonds or other types, it might be misleading to include your cash in this analysis, but not your analysis of the other investments.

Hope this helps. Thanks for the kind words.

Adam

On the other hand, I’m attempting to calculate IRR for my entire Prosper account, meaning dollars sitting idle negatively contribute to the IRR. This seems like a better calculation from a personal finance perspective because it fairly compares the return to the 24/7/365 return of CDs, stocks, etc. I believe this is also easier to calculate, although I would really appreciate some guidance if I’m wrong in my calculations:

I am counting only actual transfers into my Prosper account and transfers out of my Prosper account as cashflow. Then when the IRR is calculated, I compare the inflows&outflows and their dates with the current balance (using Excel’s XIRR). I belive this achieves what I’m looking for but if you guys disagree, I’d love to hear about it.

So that’s 2 questions I guess: are you attempting to calculate IRR only for dollars actually loaned out, and do you see any problems with my calculation?

Thanks a lot. By the way, I just recently found your blog and have been enjoying it.

The basic differences in your procedure for Microsoft Money is that one must create the brokerage account in the Portfolio Manager first, then add loans in much the same way (using investment type of “Other”, one can track shares and price per share as you do in Quicken). Reconciling each borrower payment is much the same as you described.

I am a Quicken addict back to the Dos days! – and a Propser Lender. I update a spreadsheet on Prosper loans weekly. At the end of the month the interest goes into Quicken. I would love to use your idea, however Propser has changed the screen so you can’t view the interest anymore. Only way to do it now is from their statement.

Kris

I’m not sure I understand the logic of using $10.00 as a share price. If you are having a problem with rounding, then maybe you should use $100? Cents require 2 digits to prevent rounding, and $10 only provides you with one.

Adam

I meant to say 19.5 cents per $1.00 unit on a 19.5% loan, but I hope you get the rounding idea.

Sorry

I just joined Prosper and I’m using the described hybrid method, but I’m using $10 rather than $1.00 as the price for the security. (and reducing number of shares by a factor of 10)

The advantage to me is that you can use the ‘estimated income’ column in Quicken’s Investing Center so you can see how much interest you’re generating per year for your total portfolio. (loans, stocks, bonds, cd, etc.)

For the individual loan, when you’re using $1.00 per share, Quicken will round the amount of estimated income per security, so that distorts the amount if a loan generates 19.5% interest. (You can’t enter 1.95 cents per dollar per year on a $1.00 unit [Quicken rounds it to 2 cents], but you can enter $1.95 for a $10 unit)

Hope this helps and makes sense.

As a sale, your cost basis doesn’t change, and your roi is correct, because you get the same price for the sale as your purchase, leaving the interest income – misc expense as the return.

The way I’m thinking of it is:

cost basis for $1000 loan is $1000
total cash out should be $1000 + interest – expenses

The cost basis should increase when you reinvest, because you are making a new loan, with its own cost basis.

Adam

Question: would the principal repayment be considered a “return of capital?” as opposed to a sale? What are the implications of using one category over the other? I’ve taken a look at the irs (a search on the phrase returned numerous results) and wikipedia (http://en.wikipedia.org/wiki/Return_of_capital)websites on the topic, but I’m still a little hazy.

I could only find the IRS applying the phrase to stocks and mutual funds.

I’ve tried both in Quicken. Recording principal payments as sales resulted in my cost basis increasing when that payment was reinvested, but with return of capital used the cost basis did not increase. (Well, technically it did with the purchase, but it declined by an equal amount when the payment was recorded.)

I’m curious, how do you set up this type of payment when the amount of interest and principal will be different every month? I can’t figure out how to do this on the Mac OS version of Quicken.

If this could be automated into a single transaction, that would be super helpful. Unfortunately, the brokerage account type doesn’t seem to support split transactions.

I’m using Quicken 2007 for Mac OS X.

Adam