The whole thing reeks of a get-rich-quick scheme. The only people guaranteed to make money are the prosper.com middle men. You are the capital, they are the managers. The only person taking a risk is you. They loan your money to someone and charge 20-30% interest. In return they pay you 15% (more than likely only
after the loan is repaid in full). If the borrower defaults they aren't out a thing but you lose it all.
I'm trying to figure out the actual risk based on the past performance of the loans,
People that will borrow short-term money in that interest rate category are probably high-risk borrowers. My guess is the default rate will be somewhere in the 20-25% range, minimum.
Nope, not for me. I say put it in medium growth mutual funds and let it ride.
But the return on investment is generally so low as to be pointless,
Therein lies a very large problem. You have have a millionaire's expectations and are trying to fund it with a blue-collar pocketbook. And you want it
NOW! Ain't. Gonna. Happen. You're looking for immediate gratification of the financial sort without the means to underwrite it. You don't have the capital for a large short-term return on speculative items. Period. So forget about it.
For you to make a quick short-term return with $500 you'll have to use it as a springboard for something else. Example - use the $500 to get a auto dealers license and buy $1500 auction beaters that you could turn in a week for $2000-2500. Sticking that $500 somewhere then sitting back and expecting people to fall all over themselves paying you money is unrealistic. Unless you have access to a bunch of capital, either your own or from investors, you can't afford to think short-term. That is, unless you intend to go into loan-sharking or something equally shady.
Investing is long-term, not something you do in 6-month chunks. The savviest investors, the ones who make the most overall, do one of two things. If they have money to burn they bet a big chunk on a few high-risk investments. If they are like you and me they put their ongoing small contributions into proven performers and forget about it for a couple of decades. Regular contributions and compound interest are your friends.
Brad