Friday, May 19, 2017

Why I'm Winding Down My Kickfurther Investment

Of course the primary reason I'm pulling my money out of Kickfurther is because I'm not making money, and in fact, am losing it.  If that wasn't true, if I was making money, some of the things I'll discuss in this post would still concern me, but not as much. However, I think that a large part of the reason I've lost money on Kickfurther has been the incompetence of Kickfurther rather than the risk I knew I was assuming when I invested.

What is Kickfurther?

Kickfurther is a platform that was developed to allow ordinary investors (as opposed to accredited investors a/k/a rich people) to help businesses that needed cash to purchase tangible inventory.  The business model was that a business that wanted money to purchase inventory could offer that inventory on Kickfurther and investors could purchase part of that inventory, which was then returned to the company so that the company could sell it on a consignment basis.  As the inventory sold, investors would be repaid with a pre-determined profit.

Kickfuther specifically denies that these contracts were loans, but businesses would refer to them as loans.  While repayment was supposed to be based on sales, often it was not; rather businesses repaid in a linear fashion, unless the inventory was not selling, in which case they would pay less, or not at all.  

Kickfurther recently changed its business model to, at least for the present time, only "purchasing inventory" for companies that have a purchase order for that inventory.  They require assignment of the purchase order and file a UCC financing statement covering that inventory.  

Problems with Kickfurther

Inadequate Vetting of Companies

Kickfuther claimed it vetted companies using a proprietary formula.  While Kickfurther did not disclose that formula, it was obviously inadequate as several companies that were outright frauds were allowed to raise funds.  Also, after they began only financing purchase orders they were defrauded again by thieves using the names of legitimate companies.  The thieves got the money, not the companies and the investors were left holding the bag. 

Inadequate Contracts

The bottom line is that Kickfurther has had no way to determine if merchandise was selling, and, if it sold, no way to assure that companies used that money to repay investors.  They did not even file a UCC financing statement until recently (a UCC -1 is a standard form used to record a security interest in financed property). The founder said that he envisioned the company as part of the "trust economy" which to me means he isn't ready to play with the big boys.

Inadquate Rates

Any form of lending (and I know Kickfurther denies these are loans, but the companies receiving the money refer to them as loans and especially now that they are only financing purchase orders, the arrangements even more resemble loans) has to take into account an expected default rate and the amount of money lost on a typical default.

I invested in 17 offers that did not pay back as promised and from which I do not expect to receive any more money.  The total I invested was $834.50 and I have only been paid $286.65,   I have 85 offers that have finished and paid out.  My $5281 investment returned $5769.08.  Clearly if I had been smart enough to avoid the bad offers I would have made money, but my experience is pretty typical.  It takes a lot of good offers to make up for the bad.  I would have needed about twice the returns I earned to break even.

Another problem is that recently there have been two types of offers.  One type is for several months and the pack price is substantial.  The interest rate on them seems reasonable--over 10% for less than a year.  However, an investor must be willing to risk over $1,000 to participate in these offers and the company has no record with Kickfurther.

The other type of offer allows investments under $100 but the offers are short and the offered profit limited.  While it is true that investing money for two months and earning 4% is like investing it for a year and earning 24%, it is also true that each offer brings with it the chance of default--the possibility of losing all our money.  While earnings of 24% may make it worth taking the chance, earnings of 4% do not.

Incompetent Company

Kickfurther is the quintessential middle man.  Their only job is facilitating transactions between those with money (investors) and those who need it (businesses).  Despite that, there have been numerous complaints from merchants about their inability to link  with Kickfurther's bank account.  People are reduced to sending checks through the mail, which causes a delay in having those funds distributed to investors.

They were recently scammed into giving investor's money to three companies whose deals turned out to be fraudulent--it wasn't the company raising the money, it was criminals.

Questionable Solvency

Kickfurther makes money by charging merchants a 3% fee on money they obtain from Kickfurther.  They also charge investors 1.5% to withdraw money (that's 1.5% of both principal and interest).  Kickfurther is running on venture capital but that will run out sooner or later and right know, having been in existence for over two years, Kickfurther isn't making enough to pay the people running it.  How long will the venture capital last?  

My Conclusions about Kickfurther:

I still think the idea is good, but the execution clearly is not.  I am withdrawing money weekly but I expect to lose money when it is all said and done. I do not recommend that anyone invest with them but if you have to try it for yourself you can use my link and I may win a prize.  
*Part of Financially Savvy Saturdays on brokeGIRLrich.*

Tuesday, May 9, 2017

From Free to Fee


Any business has to make money to remain in business.  That's a fact.  It is also a fact that small investors pay a larger percent of their investment dollars in fees than do larger investors.  Those two facts came into focus for me recently.

Loyal3 Shuts Down

Loyal3 is a commission-free brokerage firm.  They not only allowed investors to buy and  shares of stock without paying commissions, they also allowed the purchase fractional shares, so that investors can invest a small amount of money at a time, as little as $10. 

Loyal3 had three downsides:
  • It only offered about seventy different companies, so if you wanted other stocks you were out of luck
  • It saved costs by engaging in batch trading, only going to the market once a day.  You got the price at that time, not at the time you placed the order
  • It did not offer IRAs
Last month Loyal3 investors were told that as of May 22, accounts would be transferred to FolioFirst, a low-cost brokerage firm that gives commission-free trades and allows the trading of fractional shares.  FolioFirst offers 200 different stocks.  However, it charges a fee of $5.00 per month.  Right now, my Loyal3 account is about $1500 so $60 per year means a cost of 4% per year, which is much higher than the average mutual fund or ETF.  I will not be moving to FolioFirst, and given the small size of my account, I didn't want to go to the hassle of moving the shares elsewhere, so I sold them.

Motif Institutes Yearly Fees

Motif Investing allows investors to purchase or sell  a basket of stocks for one fee of $9.95.  Until recently, that was the only fee charged by Motif.  However, starting May 15, Motif accounts under $10,000 that have had no commission trades in the last six months will incur at semi-annual charge of $10.  My Motif account is about $8200, so that cost is about .24%, which is in line with many mutual funds.  I have decided to move my Loyal3 money to Motif, which will cover my fee for this six month time period. I'll probably add enough to bring the account over $10,000 to get it back to fee-free status. 

While investing fees have definitely dropped over the last few years, the question is how low can they go and maintain a viable business.  What's your favorite low-fee or free investment platform? 

Friday, May 5, 2017

Not Me!

If you are a parent, I'll bet  your child's friend "Not Me!" has been over to play many times.  "Not Me! gets the blame for  lots of things at my house, and my friends mention that he or she visits their house regularly too.

Well, "Not Me!" is moving up in the world. "Not Me!" has a job now--paying for healthcare.  I learned this watching the news and following social media as the Republicans passed a healthcare bill through the House of Representatives.

Who should pay for my health insurance?  "Not Me!", I get mine at work.

Who should pay for my employee's health insurance?  "Not Me!"; they are low-wage help, health insurance costs more than their paychecks.

Who should pay for the health insurance of those who work for my small business?  "Not Me!"; I'm barely making ends meet now.

Who should pay for my family's health care?  "Not Me!"; I don't have enough money, my car payments are killing me.

Who should pay for healthcare for the poor?  "Not Me!".  Don't raise my taxes, and besides, if they would just get a good job they wouldn't be poor anymore.

Who should pay for healthcare for the old or chronically ill?  "Not Me!"  I'm young and healthy and you want to take all that money from me every month to pay someone else's healthcare bills?  How is that fair, especially if that person earns more than I do?

Who should pay for healthcare for those with serious expensive illnesses?  "Not Me!", that would bankrupt my family if it happened to us.

Who should pay if I need to spend the rest of my life in a nursing home?  "Not Me!" Why should I have to spend my kids' inheritance?

Who should pay for my family's routine healthcare bills like check-ups, sore throats or birth control?  "Not Me!"--after all the money I spend on health insurance it should pay for my healthcare--and besides I have better ways of spending that money.

Yup, "Not Me!" has a job for life.  I wonder if this job comes with good health insurance?

One issue I have with both the ACA and its purported replacement is that both rely heavily on "Not Me!" and neither addresses the real problem--the cost of healthcare.  We have a dragon eating us alive and we are arguing about whose turn it is to feed the dragon ("Not Me!" of course) rather than talking about how to get costs down.

The reality is that to get costs down,we are going to have to give up something--at least some people will.  Countries with lower healthcare bills than we have provide less care than we do. They use waiting lists and price controls to limit access to expensive tests and treatments.  Of course the answer to "Who wants their treatment limited in return for lower costs?" is "Not Me!".

I don't pretend to have all the answers about healthcare, but as a mom I know that "Not Me!" isn't really the answer.
Disease Called Debt