On 9/18/16 7:16 AM, Mark wrote:
> On Saturday, 17 September 2016 at 14:22:03 UTC, Andrei Alexandrescu wrote:
>> The Foundation's cash os currently sitting in a checking account at
>> Bank of America. I've googled for things like "brokerage accounts for
>> non-profit" and figured that most or all deep discount brokers
>> (Fidelity, Merrill, Etrade etc) allow opening accounts for non-profit
>> organizations. Bank of America has a partnership with Merrill Edge,
>> which I hadn't heard of before (likely a subsidiary of Merrill Lynch).
>> So, any suggestions on which brokerage would work best for the
>> Foundation? TD Ameritrade would be the familiar choice for me. On the
>> other hand, I'd be interested in trying something new. Thanks in
>> advance for any insights! -- Andrei
>
> As jmh530 pointed out, the time horizon is probably the most important
> parameter in an investment. If you can put the money aside for at least
> one year, I think you can make 1-2% a year without taking a lot of risk,
> e.g. by investing in investment-grade corporate bonds with short maturity.

Thanks all for answering! Well there is a relatively low-risk option to make some 5%-7% annually by investing in marketplace lending, see https://lendingclub.com/. (Individuals may do the same, too, btw - look into it!) I've been using them since 2013 with moderate amounts. Right now the portfolio's return rate is 5.06% - not to sneeze at. The issue is liquidity, i.e. your principal and interest are returned on a monthly basis over 3-5 years. The monthly schedule is actually nice for the Foundation because it matches the way operations are paid for.

One remaining issue is large rare expenses, e.g. DConf. For that case we need some buffer, or count on sponsorship.

Regarding the stock market, IB is quite attractive, and has an incredibly low margin rate. It does seem to be aimed at frenetic traders though :o). The lowest-resistance option is to just go with Merrill Edge (good reviews including on this forum, and works with our bank from the get go).

One differentiating factor may be special offers for non-profits - if you catch wind of anything like that, please let me know. Thanks!


Andrei

On Sunday, 18 September 2016 at 12:39:25 UTC, Andrei Alexandrescu wrote:
>
> Thanks all for answering! Well there is a relatively low-risk option to make some 5%-7% annually by investing in marketplace lending, see https://lendingclub.com/. (Individuals may do the same, too, btw - look into it!) I've been using them since 2013 with moderate amounts. Right now the portfolio's return rate is 5.06% - not to sneeze at. The issue is liquidity, i.e. your principal and interest are returned on a monthly basis over 3-5 years. The monthly schedule is actually nice for the Foundation because it matches the way operations are paid for.

I would advise against investing the whole sum with the Lending Club (some smaller amount, say 5-25%, I have less of an issue with). 5-7% is what people earn investing in dollar-denominated sovereign bonds from Emerging Markets. That's the kind of risk your taking on. You think it's low risk because you don't see the risk: unemployment is low and has been falling since 2013, so there are few defaults. What happens when there is a recession? There will be higher defaults, slower repayments. And you can't exit the position because you've locked up the investment for 3-5 years.

>
> Regarding the stock market, IB is quite attractive, and has an incredibly low margin rate.

Frankly, this comment makes me cringe. Margin rates should not influence your decision in the slightest.

On 9/18/16 11:44 AM, jmh530 wrote:
> On Sunday, 18 September 2016 at 12:39:25 UTC, Andrei Alexandrescu wrote:
>>
>> Thanks all for answering! Well there is a relatively low-risk option
>> to make some 5%-7% annually by investing in marketplace lending, see
>> https://lendingclub.com/. (Individuals may do the same, too, btw -
>> look into it!) I've been using them since 2013 with moderate amounts.
>> Right now the portfolio's return rate is 5.06% - not to sneeze at. The
>> issue is liquidity, i.e. your principal and interest are returned on a
>> monthly basis over 3-5 years. The monthly schedule is actually nice
>> for the Foundation because it matches the way operations are paid for.
>
> I would advise against investing the whole sum with the Lending Club
> (some smaller amount, say 5-25%, I have less of an issue with). 5-7% is
> what people earn investing in dollar-denominated sovereign bonds from
> Emerging Markets. That's the kind of risk your taking on.

Wouldn't that be risk from the unsecured personal lending business, which although numerically similar has a different dynamics?

> You think it's
> low risk because you don't see the risk: unemployment is low and has
> been falling since 2013, so there are few defaults. What happens when
> there is a recession? There will be higher defaults, slower repayments.
> And you can't exit the position because you've locked up the investment
> for 3-5 years.

I've been looking at their historical numbers. Their accounts didn't lose money even during the trough of the recession. At that time they were one of the best places to invest out there. There are challenges in the world of marketplace lending, but as far as I understand it sure is a solid choice.

>> Regarding the stock market, IB is quite attractive, and has an
>> incredibly low margin rate.
>
> Frankly, this comment makes me cringe.

s/cringe/curious to know more/

The basic idea here is to have a buffer for short-term borrowing. For example, for DConf we'd need to plop down some money for renting a conference hall until proceeds from registration roll in. The notion of being able to take a 1.60% APY for that is quite attractive. Sadly, I've looked at IB since and they don't offer any checking or general banking. I'm not 100% sure, but I assume they'd lend money only for investing; they wouldn't allow you to transfer cash on margin into your bank. Does anyone know exactly what the case is?


Thanks,

Andrei

 I think it would be best to speak to people from other non-profit organizations (preferably ones that are very similar, at least in spirit, to the D Language Foundation) about their experience with such matters.

 Even if the Foundation currently has no more cash than a typical (or not so typical) individual, that doesn't mean that what is good advice for the individual is also good advice for the Foundation.

On Sunday, 18 September 2016 at 16:13:55 UTC, Andrei Alexandrescu wrote:
>
> Wouldn't that be risk from the unsecured personal lending business, which although numerically similar has a different dynamics?
>

In my head, I was imagining an efficient frontier and where a 5-7% return would get you.

>
> I've been looking at their historical numbers. Their accounts didn't lose money even during the trough of the recession. At that time they were one of the best places to invest out there. There are challenges in the world of marketplace lending, but as far as I understand it sure is a solid choice.
>

They have different ratings for loans. The favorably rated investments did well, but the lower rated stuff lost money. So at least that provides some guidance.

Anyway, I'm pretty sure longer-term Treasuries had even better returns during the financial crisis (b/c of the price change as yields fall) and you could sell a fund containing them at any time.

>>> Regarding the stock market, IB is quite attractive, and has an
>>> incredibly low margin rate.
>>
>> Frankly, this comment makes me cringe.
>
> s/cringe/curious to know more/
>
> The basic idea here is to have a buffer for short-term borrowing. For example, for DConf we'd need to plop down some money for renting a conference hall until proceeds from registration roll in. The notion of being able to take a 1.60% APY for that is quite attractive. Sadly, I've looked at IB since and they don't offer any checking or general banking. I'm not 100% sure, but I assume they'd lend money only for investing; they wouldn't allow you to transfer cash on margin into your bank. Does anyone know exactly what the case is?
>

I suppose this makes sense if they let you do it. I was thinking you were going to use margin for investing, which did not seem to fit with your goals.

On Sunday, 18 September 2016 at 16:13:55 UTC, Andrei Alexandrescu wrote:
> On 9/18/16 11:44 AM, jmh530 wrote:
>> On Sunday, 18 September 2016 at 12:39:25 UTC, Andrei Alexandrescu wrote:
>>>
>>> Thanks all for answering! Well there is a relatively low-risk option
>>> to make some 5%-7% annually by investing in marketplace lending, see
>>> https://lendingclub.com/. (Individuals may do the same, too, btw -
>>> look into it!) I've been using them since 2013 with moderate amounts.
>>> Right now the portfolio's return rate is 5.06% - not to sneeze at. The
>>> issue is liquidity, i.e. your principal and interest are returned on a
>>> monthly basis over 3-5 years. The monthly schedule is actually nice
>>> for the Foundation because it matches the way operations are paid for.
>>
>> I would advise against investing the whole sum with the Lending Club
>> (some smaller amount, say 5-25%, I have less of an issue with). 5-7% is
>> what people earn investing in dollar-denominated sovereign bonds from
>> Emerging Markets. That's the kind of risk your taking on.
>
> Wouldn't that be risk from the unsecured personal lending business, which although numerically similar has a different dynamics?
>
>> You think it's
>> low risk because you don't see the risk: unemployment is low and has
>> been falling since 2013, so there are few defaults. What happens when
>> there is a recession? There will be higher defaults, slower repayments.
>> And you can't exit the position because you've locked up the investment
>> for 3-5 years.
>
> I've been looking at their historical numbers. Their accounts didn't lose money even during the trough of the recession. At that time they were one of the best places to invest out there. There are challenges in the world of marketplace lending, but as far as I understand it sure is a solid choice.
>
>>> Regarding the stock market, IB is quite attractive, and has an
>>> incredibly low margin rate.
>>
>> Frankly, this comment makes me cringe.
>
> s/cringe/curious to know more/
>
> The basic idea here is to have a buffer for short-term borrowing. For example, for DConf we'd need to plop down some money for renting a conference hall until proceeds from registration roll in. The notion of being able to take a 1.60% APY for that is quite attractive. Sadly, I've looked at IB since and they don't offer any checking or general banking. I'm not 100% sure, but I assume they'd lend money only for investing; they wouldn't allow you to transfer cash on margin into your bank. Does anyone know exactly what the case is?
>
>
> Thanks,
>
> Andrei

IB offer a trading account only.   You can wire money to your organisation's bank account,  and that's it.

I think the suggestion from others to be cautious about asset allocation is a sensible one.  Keynes did quite well in the end for King's College,  and more recently Dave Mittelman and Maurice Samuels did rather well for Harvard.  But those were established bodies that had plenty of cushion financially and prestige to carry them through the downs that come with the ups.   Nobody was going to refuse to donate to Harvard because they disagreed with its investment policy.

If tech and the corporate sector keep doing well,  that should be pretty good for being able to raise funds in coming months and years.   If things are more difficult,  then it's going to be harder to raise money,  and at the same time there will be more opportunities to spend money to further the aims of the foundation (since you can actually hire good people to help you in a downturn). So at least the needs of the foundation are more pro than counter cyclical.

I don't think there is a good case for having a margin account at all.   First there may be increased credit risk because of different custody treatment (I forget,and the rules have changed in any case).  Secondly to be a hundred percent fully invested is already taking an awful lot of risk, and cash needs ahead of a conference are something you can plan for when setting maturity of your investments.   Yes,  you can borrow against stocks and wire money to the organisation account,  but should you?

Re lending club,  if you invest a little,  then it's not enough to matter,  and if you invest a lot,  then you do have credit risk on the whole notional.   The nature of credit risk is that you're short convexity - you can only gain the coupon,  but defaults can often surprise.  And short term historical data doesn't tell you what you need to know,  because the really major events aren't ergodic.   (you obviously don't have long term data for lending club,  but you can look at data for past two centuries for a much better idea).   It's not the probability,  but the magnitude and  consequences of loss.

Theres a whole set of expectations and lore regarding what one should do as a fiduciary.   Not my area,  and others will know better.

It's a very strange time - when rates are low people tend to pile into anything to get a return.   Understandable,  to be sure,  but not always prudent.  That's how the credit bubble began post 2001, and episodes like the present don't necessarily end well.

Cash isn't without risk either,  particularly if inflation should start to pick up in coming years.   (something that's not necessarily good for all asset prices). But on shorter horizons capital gains and losses dominate inflation surprises,  and my guess is that for the time being you will spend capital raised in the course of a few years.

So there's no easy option,  and I am also not able to give investment advice.   But definitely worry about the return of your capital first,  and the return on it next rather than the other way around.

See here on the rehypothecation risk of margin accounts.   A margin account allows your broker to lend your securities to the street.   If your broker should get into trouble,  you are potentially in a significantly worse position than if you held a non margin account.


https://blog.wealthfront.com/false-comfort-of-sipc-insurance/

It's worth also considering the SIPC ceiling.

On 09/18/2016 07:46 PM, Laeeth Isharc wrote:
> So there's no easy option,  and I am also not able to give investment
> advice.   But definitely worry about the return of your capital first,
> and the return on it next rather than the other way around.

Thanks. Well this kinda boils down to a tautology. I remember my wife asked me once "what kind of insurance could protect us against anything"? There isn't one (which is kinda terrifying first time you realize it). In the US, as an aside, I don't think there is even a medical insurance that could protect you from financial ruin in all cases.

There is no easy option, and there is no risk-free option - so obviously we aren't looking for such.


Andrei

On 9/18/2016 5:20 PM, Andrei Alexandrescu wrote:
> Thanks. Well this kinda boils down to a tautology. I remember my wife asked me
> once "what kind of insurance could protect us against anything"? There isn't one
> (which is kinda terrifying first time you realize it). In the US, as an aside, I
> don't think there is even a medical insurance that could protect you from
> financial ruin in all cases.
>
> There is no easy option, and there is no risk-free option - so obviously we
> aren't looking for such.


My fatalistic view is if the market tanks that badly, it'll bring down everything else with it.

On Monday, 19 September 2016 at 02:39:33 UTC, Walter Bright wrote:
> On 9/18/2016 5:20 PM, Andrei Alexandrescu wrote:
>> Thanks. Well this kinda boils down to a tautology. I remember my wife asked me
>> once "what kind of insurance could protect us against anything"? There isn't one
>> (which is kinda terrifying first time you realize it). In the US, as an aside, I
>> don't think there is even a medical insurance that could protect you from
>> financial ruin in all cases.
>>
>> There is no easy option, and there is no risk-free option - so obviously we
>> aren't looking for such.
>
>
> My fatalistic view is if the market tanks that badly, it'll bring down everything else with it.

What I mean is that if you have a margin account and never use margin,  I believe - unless things have changed - that you expose yourself to custody risk that you wouldn't have without a margin account.  If you're going to have a margin account,  you might even make sure you have an unlevered account as well,  since this custody risk is reward free.

And as regards equities,  a fifty percent retracement in equities would be unexceptional given the move since 2009,and your asset allocation should be prepared for that possibility. Being levered might not be consistent with that.   That kind of move certainly wouldn't mean it brings down everything with it, just that it's a hairy period of the kind that happens from time to time.  It's entirely possible to have such a move with a surprisingly strong economy because stronger wage growth and higher rates might be difficult for some sectors and that's not what people expect  now,  and not what is priced in.

I emailed Andrei directly on lending club.

In investing,  think about risk first,  and consequences over probability.   Taleb is mostly right on this. The distribution of returns isn't Gaussian.