The LoanTech Investment Plan.
In our recent “First Thoughts” article about LoanTech, we introduced the program’s investment plan in the following way:
The investment plan has a number of interesting features. First of all, it is a “perpetual” investment plan, which means that you make an investment once and that you will receive an interest return forever. Second, the plan has an option whereby you can withdraw up to 34% of your deposit after 22 days. This has the effect of enabling you to break even at that time — significantly more quickly than will happen if you do not utilize this option. Of course, since you’ve withdrawn a third of your deposit, your daily interest return will be cut by one third at that time — although it still will continue forever. I have not seen this option before in any other investment plan.
This is actually a fairly thorough description of the investment plan. However, we didn’t mention is that the investment limits range from $10 all the way up to $10,000. It looks like we also didn’t mention that the daily interest that the plan pays you is 3%.
Analysis of the LoanTech Investment Plan.
OK, now the interesting part of things…
If you divide 100% by the 3% daily return, you get that the investment plan will break even in 34 days. No surprise there. Next, let’s take a closer look at this idea of withdrawing 34% of your deposit after 22 days. In 22 days, you will have recovered a total of 66% (3 x 22) of your deposit. So, you would still have 34% (100 – 66) of your investment to recover before you will break even. Typically, for a “perpetual” investment plan such as this, the investor is not permitted to withdraw his deposit. LoanTech permits you to withdraw up to 34% of your deposit after 22 days. So, you can see that, if you do this, you will have recovered your entire deposit and will have broken even; you will have broken even in only 22 days rather than 34. This is a nice feature of the program and will enable the nervous investor to sleep a little bit easier as he will have recovered his entire investment 12 days sooner than is usually the case. The downside of this is that you now have only 66% of your original deposit working for you. I must emphasize that this is an optional procedure. If the investor has confidence that LoanTech will be in business for the full 34 days, he might prefer to leave his entire deposit in place so that he gets full benefit from it for the theoretical “perpetual” length of the investment plan. As we indicated in the First Thoughts article, this is a very unusual feature of the LoanTech investment plan that we haven’t seen anywhere else before.
OK, enough about breakeven points. Now we’ll discuss the average daily net interest (DNI) that you can expect to receive from this investment plan. DNI is simply the total net interest that you will receive over the life of the investment plan divided by the number of days in the plan. Well, there is an obvious problem here because, for a “perpetual” investment plan, we don’t have any idea how long the plan will be. It will boil down to the plan being as long as the overall program survives online. So, the best that we can do is assume a number of different lifetimes for the program and determine the DNI for each of them. We’ll do this for assumed lifetimes of 60, 120, 180, and 360 days.
For an assumed lifetime of 60 days, the total GROSS interest that you will receive will be 3% times 60 days or 180%. Since this includes your investment, you must subtract 100% to get the total NET interest that you will receive, or 80%. Averaging this out over the assumed 60-day length of the pan by dividing by 60, you get an average daily net interest (DNI) of 1.33%. If you repeat these calculations for the other assumed lifetimes for the plan, you will get the following results:
- Assumed lifetime of plan DNI
- 60 days 1.33%
- 120 days 2.17%
- 180 days 2.44%
- 360 days 2.72%
What happens is that, the longer the program survives, the higher your average daily net profit becomes. Ultimately, DNI will home in on the 3% daily return; it can never get higher than that. All this should make sense because, after you break even in 34 days, everything that you earn after that is “pure profit.”
I don’t think we will extend this analysis to the situation where a person withdraws 34% of his deposit after 22 days. However, in Part 2 of our review of the LoanTech investment plan, we will work a numerical example that will explain exactly what happens in this situation. Please stay tuned. Part 2 will be in print in a few days.
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