Worthy Bonds - 5% fixed rate - thoughts?

[grobinski]

Hello MMMians!

I've been lurking for a while and have gleaned so much amazing info! Thanks for sharing!

Have recently pushed our FIRE window to 12.31.19 which has me re-thinking investments and such.

I am curious if any of you are investing in Worthy Peer Capital? https://worthy.capital/start

At 5% return, this seems like a viable alternative to (not very) high interest savings accounts like Marcus at 2.25%.

I have had a small amount in for ~9mos and the returns are there. I am considering using this as a holding place for cash reserves in addition to high yield checking account (CCU at 5.09% on $10k). Though maybe just leaving that $ in an index brokerage account is a smarter move?

"Bonds have a 3-year term however you can withdraw your money any time at no charge. You have better things to do with your money than pay fees!"

If you're interested in giving it a try, we can both get a $10 bonus bond if you use the referral code below (strings attached - both balances must stay $100+ for 12 months). Sorry to shill, but $10 is $10 right?
https://worthybonds.com?r=HABgN

Worthy bonds are not insured, so there is certainly some risk.

I'm very interested to hear thoughts of more informed financial gurus here as there is not a lot of info/discussion of Worthy to be found on the interwebs.

Also very interested in alternative suggestions for decent returns on liquid reserves.

Thanks in advance and happy saving/earning!
-grobinski

[BicycleB]

Not so well informed here, but...

I assume because these are under Reg A+, there is less governmental oversight and therefore less protection for investors. So I guess a key risk factor is the reliability of the vendor. Not sure how to evaluate that. I agree with you that there is a trade-off of higher interest rate than most 3 year low risk instruments (bank savings, CDs) vs higher risk, but am unsure of where the balance lies.

Personally for cash/fixed income I'm seeking safety, and where I take risk, I prefer stocks' short term volatility risk in exchange for good long term returns and therefore, in my view, long term moderate safety.

For high returns on cash, maybe explore the how-to-make-$1600-per-year by optimizing account bonuses thread?

[Xlar]

It sounds like this is the same model as Lending Club: https://www.mrmoneymustache.com/the-lending-club-experiment/ Just you get no insight into what individuals they are lending your $$ too... And Lending Club didn't exactly pan out as advertised either...

[FIPurpose]

It sounds like this is the same model as Lending Club: https://www.mrmoneymustache.com/the-lending-club-experiment/ Just you get no insight into what individuals they are lending your $$ too... And Lending Club didn't exactly pan out as advertised either...

Uhh except it obviously isn't set up like lending club at all. Lending Club made loans without any backing. Their website states that they only write bonds to companies that have enough assets to fully cover the loan. So these bonds at least on paper seem to be 100% financially backed.

Are there still risks, yes. Are they as loose as Lending Club? No. 100% not.

[MustacheAndaHalf]

I think you should compare this to "junk bonds", where the yield is currently better and expense ratio probably lower.

Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX) charges an 0.13% expense ratio.  Worthy Peer Capital doesn't state how much they profit off your money, so they are even less transparent than Lending Club in that regard (which charged 1% of assets).

Currently VWEAX returns 5.6% because of the riskier bonds involved.  Since it's a regulated mutual fund, it's required to reveal it's contents.  So you can see that it holds bonds from companies like Credit Suisse and Sprint Capital.
https://investor.vanguard.com/mutual-funds/profile/overview/vweax

Overall, I think you pay less in expenses (0.13% vs ???) and get more return (5.6% vs 5%) while also having more transparency (list of bonds) if you invest in high-yield ("junk") bonds.

[Xlar]

It sounds like this is the same model as Lending Club: https://www.mrmoneymustache.com/the-lending-club-experiment/ Just you get no insight into what individuals they are lending your $$ too... And Lending Club didn't exactly pan out as advertised either...

Uhh except it obviously isn't set up like lending club at all. Lending Club made loans without any backing. Their website states that they only write bonds to companies that have enough assets to fully cover the loan. So these bonds at least on paper seem to be 100% financially backed.

Are there still risks, yes. Are they as loose as Lending Club? No. 100% not.

This is fair, their loans to other companies should be backed. From their SEC filings: (https://www.sec.gov/Archives/edgar/data/1699834/000155335019000279/wpc_partii.htm

Our Loan Portfolio


Beginning in September of 2018, we began deploying the capital we had raised through the sale of Worthy Bonds. As of December 31, 2018 we had entered in to three loan receivable agreements for an aggregate amount of $1,200,000, with small business borrowers. The loans pay interest at varying rates ranging from 0.62% per month to 1.5% per month and collateral management fees ranging from of 0.5% to 1% per month. The loan agreements have customary loan origination fees, which have been netted against our loan costs with the net amount recorded as deferred revenue to be recognized as revenue over the term of the loan. One of the loans has an annual facility fee, which is being amortized into income over one year. The term of the loans range from two to three years, with no prepayment penalty and generally pay interest only in year one. The loans are secured by the assets of the borrower.


Subsequent to December 31, 2018, we have entered into several additional agreements utilizing the proceeds from the sale of Worthy Bonds, including:

• in January 2019, we entered into a $170,000 loan receivable agreement with a small business based in the United States.  The terms are similar to the loan receivable agreements entered into during 2018 described earlier in this section;
• in February 2019, we invested $200,000 in two privately held real estate investment trusts (REITs), and we invested an additional $200,000 in fixed income marketable securities; and
• in March 2019, we invested $175,000 in a loan secured by a mortgage in real estate located in Florida.

If I'm reading this correctly then this company currently has 4x loans to small business for a total of $1,370,000, $200,000 in private REITs, $200,000 in fixed income securities, and 1x mortgage @ $175,000. For a grand total of $1,945,000.

This doesn't seem to be very diverse... Compare that to VWEAX that MustacheAndaHalf mentioned: 476 bonds at a total of $23,900,000,000.

[samirol]

My question is their positioning as a cash equivalent when their yields are right in line with junk bonds. ETFs like ICSH, MINT, and NEAR all strive to maximize yield while maintaining a low price risk and they are all around 3% yield. That extra 2% yield is coming from taking on additional risk, so the question is where is the best place to get a 5% yield from short-term loans. Short-term high yield bond funds like SHYG have about the same loan length risk and yield (2.18 years/5.41%) but far less concentration risk and I'm far more confident in Blackrock being around in 5 years than Worthy.

[Xlar]

There are some fun details further down in their most recent SEC filing:https://www.sec.gov/Archives/edgar/data/1699834/000155335019000279/wpc_partii.htm

here is substantial doubt about our ability to continue as a going concern.


We began reporting revenues in 2018. In 2018 we generated net losses and had cash used in operations of approximately $143,000 and $45,000, respectively. At December 31, 2018 we had a working capital deficit, shareholder’s deficit and accumulated deficit of $1,203,680, $3,680 and $193,220, respectively. These conditions raise substantial doubt about our ability to continue as a going concern for a period of 12 months from the issuance date of this report. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. No assurances can be given that we will achieve success in selling any material amount of our Worthy Bonds, or that our operations will provide sufficient revenues to cover our operating expenses.

We have only begun to make loans with the proceeds from the sale of the Worthy Bonds.


We made our first loan in September 2018 and as of March 25, 2019, we have five outstanding loans.  While we have identified several additional opportunities for investment in the proceeds, our lending history is limited. Interest on the proceeds from our Regulation A+ offering will not cover interest payments accruing on the bonds or our operating expenses.  Accordingly, until such time as we are able to generate significant income from the investment of the proceeds we will be required to utilize cash on hand to make the interest payments which will reduce the amount of proceeds available for loans by us.

So running a deficit and the current loans that they have made don't even cover interest they owe on the bonds or their operating expenses!

And speaking of operating expenses: (Bold added by me)

Competition for employees is intense, and we may not be able to attract and retain the highly skilled employees whom we need to support our business.


Currently, our staffing needs are satisfied by a total of nine full time employees and independent contractors who provide a substantial portion of their time to us.  Additional management and staffing are presently provided by our parent company at no cost to us.  We will need to expand our employee base as our company continues to grow.  Competition for highly skilled personnel, especially data analytics personnel, is extremely intense, and we could face difficulty identifying and hiring qualified individuals in many areas of our business. We may not be able to hire and retain such personnel. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we intend to invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve borrowers could diminish, resulting in a material adverse effect on our business.

So those operating expenses don't include extra "free" staffing from their parent company!

And they haven't currently retained legal counsel to meet relevant regulations:

Compliance with Regulation A and reporting to the SEC could be costly.


Compliance with Regulation A could be costly and requires legal and accounting expertise. We have limited experience complying with the provisions of Regulation A or making the public filings required by the rule. Besides qualifying this Form 1-A, we must continue to file an annual report on Form 1-K, a semiannual report on Form 1-SA, and current reports on Form 1-U.


Our legal and financial staff may need to be increased in order to comply with our Regulation A reporting requirements. Compliance with Regulation A will also require greater expenditures on outside counsel and outside auditors in order to remain in compliance. Failure to remain in compliance with Regulation A may subject us to sanctions, penalties, and reputational damage and would adversely affect our results of operations.

And while they state on their fancy website that you can withdraw your $ at any time they have this fun detail in the SEc filings: (bold added by me)

There is no public market for Worthy Bonds, and none is expected to develop.


Worthy Bonds are newly issued securities. Although under Regulation A the securities are not restricted, Worthy Bonds are still highly illiquid securities. No public market has developed nor is expected to develop for Worthy Bonds, and we do not intend to list Worthy Bonds on a national securities exchange or interdealer quotational system.  Bondholders should be prepared to hold your Worthy Bonds through their maturity dates as Worthy Bonds are expected to be highly illiquid investments.

So yeah... This opportunity seems to be a pretty terrible choice.

[MustacheAndaHalf]

"collateral management fees ranging from of 0.5% to 1% per month" sounds like they have an effective annual expense ratio of 3.00% to 6.00%.

[Xlar]

"collateral management fees ranging from of 0.5% to 1% per month" sounds like they have an effective annual expense ratio of 3.00% to 6.00%.

Good eye! That is a great catch. Wow, is that high!

[grobinski]

Xlar, Stacheandahalf and all,

Thanks for looking into the SEC filings and specifics of Worthy. It's hard to wrap my head around the 3-6% expense ratio when they are paying 5%. It seems they could be treading on some very unstable ground and I'm relieved funds to date are very modest.

I think I will file this into the "if it seems to good to be true" folder and keep an eye on it. I'm certainly less inclined to drop five figures into it.

Cheers!

[Xlar]

Xlar, Stacheandahalf and all,

Thanks for looking into the SEC filings and specifics of Worthy. It's hard to wrap my head around the 3-6% expense ratio when they are paying 5%. It seems they could be treading on some very unstable ground and I'm relieved funds to date are very modest.

I think I will file this into the "if it seems to good to be true" folder and keep an eye on it. I'm certainly less inclined to drop five figures into it.

Cheers!

Glad we were able to provide some helpful insight!