Lending Club Update (September 2015)

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I haven't done a Lending Club review since May. Before that, it was a full year since my last one. Back in May, I had an Adjusted Net Annualized Return of 7.18% which was up from 7.02% the year before. Here's where things stand now:

Lending Club Performance (September 2015)

Lending Club Performance (September 2015)

As you can see it's up above 7.50% (barely, but I'll take it).

It's a good move in such a short time. I'm not entirely sure what to attribute the move to, but I have been using Lending Club's automatic investing feature. I let them pick my loans on criteria that I choose. My criteria is extremely simple: loans that are grade D or lower with credit scores above 700. I'm sure that this isn't the most efficient criteria, but it does the job.

It tends to keep payments from other loans reinvested... except that every now and then I log in and see that I have a bunch of money available cash. For example, in the image above I have $100 just sitting there waiting for loans. I was able to find more than enough qualifying loans available. I'm not sure what's up, but I'm guessing it's human error on my part (I'm missing some tiny detail). In any case, the "set it and forget it" method has worked reasonably well.

There's another detail in the image above that may be easy to overlook. I've received $12,500+ in payments over the years in Lending Club. I sometimes here that it's risky because P2P lending is new, but my loans have now rolled over a couple of times. With more than 200 active loans, it's got some good diversification. The poop may hit the fan with the economy and change all this, but it hasn't happened yet. And if the economy takes a big hit as in that scenario, your stocks may lose even more.

I look at Lending Club as something that is differently correlated to my other investments (stocks, real estate), which is valuable to me. I would love to have more money in Lending Club, but saving in retirement accounts is about the most I can do at this point.

If you agree, sign up for Lending Club today and start earning a healthy interest rate on your money.

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... and focuses on:

P2P Lending

Posted on September 14, 2015.

Lending Club Update (May 2015)

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Every few months, I do a net worth review. As I was doing the latest one, I got to my Lending Club account and realized it had been a long time since I've written a Lending Club update.

I hadn't no idea how long it had been.

The last update I found was a year old: Lending Club Update (May 2014)

At the time, I had a "if everything was perfect" rate of return of 8.10%. Using the more likely, "average amount of defaults" my rate of return was expected to be 7.02%

Today, not much has changed.

Lending Club May 2015 Performance

Lending Club May 2015 Performance (Click for larger version)

The high/"perfect" rate of return is 7.83%. The likely/"average" rate of return is 7.18% (pictured above).

It looks safe to say that I'm getting a 7%+ return in Lending Club. I think that's great considering interest rates elsewhere and the consistency I've seen in the account over the years. Investing in the stock market can have some wild swings, but the growth in my Lending Club account is slow and steady. The 200 loans I have seems to eliminate the ups and downs. Don't believe me? Here are many of the reviews of my Lending Club account over the years.

Years of data, consistent gains, a generous 7% return... I think these things could be valuable in any portfolio.

If you agree, sign up for Lending Club today and start earning a health interest rate on your money.

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... and focuses on:

P2P Lending

Posted on May 27, 2015.

Lending Club Update (August 2014)

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As regular readers know, I've been posting my Lending Club updates for years now. At the start of 2011, I was making a 4.78% return on my ultra conservative loans. I started to mix in more risk and it moved up to 5.90% by March and 6.42% by May. Three years later, I gave my last Lending Club Update (May 2014) and it was 8.10%. The difference is that I've been investing in the E, F, and G grade loans that have a historically better performance.

Today, I bring you another update. I think it's good news, but some could see it as bad news. So the good news is this:

Lending Club Performance ("Ideal" version)

Bam! Who else is giving you 8.54% nowadays? No one.

The bad news is:

Lending Club Performance ("Realistic" version)

Whaaaaat?!?! Where is this 7.42% crap coming from? (Okay, no one is giving you 7.42% either.)

The two charts are the result of Lending Club creating a new tool to customize your view. As you might have gathered from the captions, the first one is an "ideal" situation where all the deadbeat borrowers nice people with financial difficulties make good on their loans. This has been what Lending Club has been showing people for years. Thus in order to do an apples to apples comparison with my numbers in the past, this number is useful. By that metric, I'm almost doing a half percent better than what I was doing a few months ago.

The second chart, looks at the loans that are late, and calculates their "value" based on historical default rates of other, similar late loans. I consider this a more realistic, accurate view. And while there is a big difference between 8.5% and 7.4%, it is much, much better than many other markets.

[Update: Actually it seems that they had the tool back in my last update and my "realistic" view was 7.02%. So in an apples to apples comparison there, I'm doing almost a half percent better in a few months.

I know that it isn't the best comparison, but I find it difficult not to look at CDs. This table shows a return of around 2.3% for a 5 year CD.

That's guaranteed, which is very valuable to some people in certain situations. However, over the last five years that I've been investing in Lending Club loans, I've amassed nearly 200 loans and that diversification gives me what I believe to be a 99% or better guarantee of at doing double the 5-year CD rate and a reasonable chance of doing triple... without locking my money up as long.

It all depends on what your risk/reward tolerance is, but I think a strong case can be made for investing in Lending Club to smooth out the stock market's wild ride while providing you better interest (without much more risk) than CDs.

This post deals with: ... and focuses on:

Investing, P2P Lending

Last updated on August 13, 2014.

Lending Club Update (May 2014)

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A few months ago, I wrote a detailed article covering years of my investing in Lending Club. I estimated that I earned 7% Interest there. It's an estimation because of numerous things that make an exact calculation difficult. I wrote many of those things in this somewhat complex article.

Fortunately it's easy enough to get a fairly good range. In fact, Lending Club gives us tools to do exactly that. The image below shows that I am earning an annualized 8.10%. It presumes all those late people are going to suddenly start paying. While that's an unlikely scenario, it is a good upper bound.

Lending Club - May 2014

(Click for larger image)

Using Lending Clubs tool, I presumed all the late people will default. While the worst case scenario is that the people with current loans default, this is a reasonably very, very bad scenario. The result of this assumption would be an annualized return of 7.02%.

Lending Club has a lot of data of what default rates are, and they give you this information so you can predict what might be a most likely scenario. Using those numbers, my return would be 7.61%.

I have more than 200 active loans and I've been lending for years now. (The 478 number that you see in the image above includes loans that have been fully paid off and defaulted ones that were charged off). This large number of loans over a long time gives me a high degree of confidence in the returns. In fact, I am more confident in Lending Club returns than I am in any of my diversified ETFs. I certainly couldn't tell you that the S&P 500 is likely to return between 7-8% this year. In fact, I would confidently bet on it returning some amount outside that range.

On one hand, I have stocks that could gain 20% or lose 10%. On the other hand, I have Lending Club that has shown over years that it returns 7% or more. Finally, on my third hand (you don't have three hands?), I have:

CDs guaranteeing around 2.3% annually over 5 years.

It all depends on what your risk/reward tolerance is, but I think a strong case can be made for investing in Lending Club to smooth out the stock market's wild ride while providing you better interest (without much more risk) than CDs.

This post deals with:

... and focuses on:

P2P Lending

Posted on May 19, 2014.

Earn 7% Interest at Lending Club

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It occurred to me that it has been some time since I've updated people on my Lending Club lending. I've been Lending Club for years and years now... and typing that sentence makes me feel really old.

A friend of mine was asking me if lending money on Lending Club is really worth it. I decided to back and dig into my previous updates to give her a quick snapshot of how it has worked for me. The obvious caveat is that someone else's performance will be different, but my performance is actually a little below the norm according to Lending Club. Anyway, I sent her a couple of years worth of data and posts that I've written:

Here's what it looks like today:

Click for larger version...

So that $3045.10 of account value in May of 2011 is now nearly $3800! I've added no new money, just reinvested the payments of previous loans and let it snowball. That's around ~$750 on $3045 of principle in about 39 months. (Look at me getting all mathy). I found a calculator online and that rate of return comes out to about 6.75%. That's different than the amount that Lending Club shows in the image, but their calculation is over the entire time I've had the account (and is undoubtedly more complex).

In a world where banks are paying fractions of a percent, this is much better. (Especially when they pound their chests at giving "three times the nation average", which amounts to fractions of a percentage point.) Of course, this there's risk with Lending Club and it isn't like a bank account at all. I think that risk is minimal since I've had 456 notes, a significant sample size by almost any measure.

The thing that I like most about Lending Club is that I can see myself using my Lending Club account as a source of income in 30 years when I'm 67. Doing the math and compounding this interest, it will be $21,289 at that point. The cost of living will be more... and it's not like $21,289 will sustain me for years, but it's enough to take $200 a month out for years. That will hopefully cover some bills, which isn't bad considering that I just put money in once.

These small decisions add up. Get started at Lending Club today.

This post deals with:

... and focuses on:

P2P Lending

Last updated on February 18, 2014.

Lending Club Update – October 2012

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I just noticed that it has been awhile since I've posted a Lending Club Update. The last one was in July. At the time, I was averaging a 7.2% according to Lending Club (whether that rate of return is trustworthy is open for discussion). I've been steadily able to raise that rate of return from around 5% by realizing that F grade loans return twice as much as the A and B grade loans... even after accounting for defaults.

It's taken a lot of time to raise my return up as I had a lot of A and B grade loans. However, over the last couple of years, more and more of those A and B loans have started coming off the books and have been replaced by the F grade loans. So today my accounts like this:

Lending Club - October 2012

Lending Club - October 2012

The rate of 7.63% is close to what one might expect from equities... and it is a lot better than the 6.71% return that I was getting in May.

I'm starting to favor putting more of my money to work in Lending Club. I love to diversify and I think P2P Lending allows for one to do just that. While Lending Club is, in a historical sense, a new company, the returns appear to be a lot more stable than some other kinds of equities. I have 171 active loans and I don't expect them to all go bad at once. The only thing that could cause that in my view is a bad economy... and it's working in this bad economy thus far.

If this sounds like something you'd be interested in, sign up for Lending Club today and start earning more interest.

This post deals with:

... and focuses on:

P2P Lending

Posted on October 11, 2012.

Lending Club Update – July 2012

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I was looking at my Lending Club account a couple of days ago and I realized that I passed a milestone... I'm averaging over 7% on my Lending Club loans. It's not just a little over 7% either, it's a whole 7.2%.

When I did my May 2012 Lending Club report, I had a 6.71% return. That's a pretty good gain in a short time. I wish I could tell you that I found some fantastic secret in that time, but I didn't. In fact, I had largely ignored my Lending Club account leaving some dead money in it. That's why you see that I have $300 in funding when I should have put it to work awhile ago.

What is actually happening is that my A and B loans that I made a few years ago in hopes of having minimal risk are coming off the books as they get paid in full. After looking at the global Lending Club returns for each grade, it became clear that those low risk loans were also by far the lowest returning... even when accounting for defaults. The E and F grades return an average of around 13% after accounting for defaults according to Lending Club. A full quarter of my loans are still in the A, B, and C grades. I have another quarter in D grades which return about 10.5% on average. I then have 40% in the E grade which returns 12.31% on average.

I only have 9% in the F grade which returns 13.5% on average. The reason I have so few F grades is that I like to lend to people with 700+ credit scores or above. It's hard to find someone with a 700+ credit score who is willing to get a F grade loan and pay over 23% interest. In fact, I don't even know how I had 9% in that category. However, armed with the knowledge that F grade loans perform so well, even after accounting for defaults, it's something that I'll look to add exclusively to my Lending Club portfolio for awhile.

In the short term, the 7.2% return is making a great case for getting a bigger slice of my portfolio... even if we don't know if that rate of return is trustworthy. I didn't expect very good returns in this economic environment of high unemployment. I am happy to be proven wrong. I'm strongly considering opening up a Roth IRA account with Lending Club to try it from scratch (no A and B loans bringing down my average returns) in a tax-free environment. I have to look into how that works at Lending Club.

If this sounds like something you'd be interested in, sign up for Lending Club today and start earning more interest.

This post deals with: ... and focuses on:

P2P Lending

Last updated on October 11, 2012.

Lending Club Update – May 2012

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I woke up this morning and I first thought was, "I haven't done a Lending Club update in forever!" My second thought was, "What the hell am I dreaming about when I wake up and thinking about Lending Club?" The only connection I can see is that my wife found that they sell Lenders' Bagels at local commissary. I must have subconsciously went from breakfast thoughts to Lenders to Lending Club.

When I did my last Lending Club update in September of last year, I was making 7.13% return (according to Lending Club, but there is disagreement on how to an accurate number with regard to P2P.) So with the advantage of more time and a bigger sample size of loans, what do we have today? It looks like this:

Lending Club - May 2012

Lending Club Results - May 2012

I did make one change in this view over the previous months. Rather than show the number of loans in the lower right, I chose to show the amount. My thinking is that this gives you a clear idea of where I am with regard to failed loans. That's what most people fear when it comes to P2P, "Am I gonna get paid?!?!"

So you can see that I have had $338 worth of deadbeats and I have another $72 heading into that range. That's a loss of $410. However, that is counterbalanced by the $960.28 that I've received in interest, leading to a gain of $550. You'd think that may make it easy to calculate returns, but I had put money in irregularly over the years. That makes the math a little difficult, so I'm going to lean back on Lending Club's number of 6.71% annual return.

While that 6.71% is down from the 7.13% from last May, it isn't drastically down that's a cause for concern. One thing that I like about Lending Club it pays much better than any savings account around today. Of course, a savings account has guaranteed interest rate and gives you access to your money right away if you need it. With a diverse set of loans, Lending Club offers a return I can count on - it isn't like they everyone is going to suddenly turn into deadbeats. While I can't get at my money as easily as a savings account, I can sell my loan if I choose, which, if successful, would get me money back without waiting. Additionally, with the loans staggered and micro-payments coming in each month, I get a couple hundred dollars in payments and expiring loans. Some of this I have to reinvest to keep it going, but if things are a little tight one month, I could sneak some cash out. There are some of the advantages of forced savings along with the ability to access money if necessary.

If this sounds like something you'd be interested in, sign up for Lending Club today and start earning more interest.

This post deals with:

... and focuses on:

Investing, P2P Lending

Last updated on May 5, 2012.

Get Higher Interest Rates: Learn P2P Lending from an Expert

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When I started this blog in May of 2006, I was pursuing all kinds of interesting investment opportunities. One of them was condohotels, which fortunately I didn't pull the trigger on. (If you haven't heard of condohotels there's a good reason.) Another opportunity was P2P Lending. I had been one of the first people to jump in and invest in Prosper. I had a little money to play with and my theory was, "It's likely to be an inefficient market and if I'm one of the smarter people there, I have a chance to leverage the inefficiencies to my advantage."

Turns out that nearly everyone investing in Prosper at the beginning lost money or just made a percent or two. I was no exception. The Prosper system didn't really seem set up very well. I believe they allowed borrowers who shouldn't have qualified to receive loans on the platform - without their being a pay day type interest rate attached. They've since tightened their system up and people seem to make double digit returns on average. Lending Club, in my opinion, used Prosper's initial growing pains to "get it right" from the start and it seems like a vast majority of their lenders make over 8%. In a world of CDs that lock up your money for years and give you about a 1.5% interest, it very well might be worth taking a little risk to get a lot more of a return.

At the beginning of this year, I decided I'd spend more time looking into P2P Lending. I was making something like 3-4% in Lending Club, and the average was around 9%. I was clearly doing something wrong. I wrote a post about what it Revisiting Lending Club about a few of the changes I've made and now I'm making more than 7% (and that has a lot of those 3-4% loans dragging down my average). It became clear to me that there's a right way and wrong way to invest in P2P Lending.

Enter Peter Renton of SocialLending.net

Peter Renton, runs Social Lending, left his first comment on my site on that previous post. I could tell that he definitely knew his stuff. However it wasn't until the middle of September, that he left a series of comments showing his expertise.

Two weeks later, at the Financial Blogger Conference, I happened to meet Peter in the most bizarre speed networking things I've been a part of. You had literally less than two minutes to talk to the person before the buzzer sounded and had to move on. You can barely exchange a hello and get an explanation of one website out in that time, much less have any meaningful dialog. At the very least I was able to put a face to the name. Six weeks later, I found myself at dinner with him thanks to Prosper who was sponsoring a get-together about creating an industry standardization for P2P rate of return. It was at that point that Peter told me what he was making interest rates of around 23% at Prosper and that he's been doing it for over a year. (Please don't hold me to those numbers, I could have misheard him, but I was amazed.) He was quick to mention that anything like that can't, and won't, continue long term. He's right. If that's your expectation in investing, you will have a very disappointing life (well as far as the investment aspect goes). However, I'd take half that all day. After all, if you take the rule of 72 of around 12%, you'd be doubling your money every 6 years. That's not too shabby.

Learn from the Expert

Today, Peter Renton is sharing all his secrets in his P2P Lending Wealth System. Personally, the name comes off a little Tom Vu-ish to me. The system consists of nearly 3.5 hours of video spread across 8 modules. The first module is short introduction and history of P2P Lending. So if you are new, you can hit the ground running. Then he details the risks and tells you what you need before you get started. There are two extensive modules on Lending Club and Prosper. Each of these modules actually are two separate videos, because there's just a lot of information to cover. The 6th module is the one I'm most interested in. It's over 42 minutes of maximizing your ROI. This is the kind of thing that I did when I increased my Lending Club interest from 3% to 7% in a few months. I just scratched the surface. The 7th module is on the trading platform (you can sell your loans for liquidity purposes). I've never looked into that area of P2P lending. Finally the 8th module is what Peter himself is doing with his money, including his Lending Club and Prosper filters - so you can find the same loans he finds. All the videos are available as MP3s, so you could add them to your portable music player and listen to them in the car or on the treadmill the gym (nothing like multitasking!)

I'd like to say that I've gone through the entire system and tested it, but it is 3.5 hours long and it just launched a few hours ago. I hope to carve aside some time this weekend to look it over.

Everything is puppies and sunshine, right? Well, there's a catch. And I'm guessing you know what it is. Peter clearly put a lot of work into this and there's a lot of value to be had here. So he's looking to make some money for his efforts. His price: $97. In true salesman form, Peter tells me that it is a limited time launch, it will be available for just a few days and he's limiting signups so that he can give a high level of support.

Does this sound like a fit for you? Let's say that you invest $1000 and you think that you can earn 6% (which is nothing to sneeze at). That's $60 a year in interest. If Peter's tips can help you get that up to 11%, you'll bring in $110 of interest - a gain of $50 in the first year. At the end of the second year you'll be ahead of the game (especially with compounding). The rewards would get bigger the more you have invest.

Click here to get the P2P Lending Wealth System.

This post deals with:

... and focuses on:

P2P Lending

Posted on December 8, 2011.

Prosper Looking for a P2P Rate of Return Industry Standardization

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Last night I had the pleasure of attending a webinar where lots of technical jargon was used to discuss complex mathematical topics. The use of the word pleasure in that last sentence was not an accident. Allow me to explain...

When I say that I attended a webinar, I meant to say that I got to be part of the live studio audience. The audience consisted of SVB from The Digerati Life, Bobby from 2 Minute Finance, Peter from Social Lending, Fanny from Living Richly on a Budget and a few others. The location: Prosper's office in San Francisco. I hadn't been to the offices in more than 3 years since I used to write for Prosper's Blog. Truth be told, I lost some money by misjudging risk with the way Prosper worked when it first came on the scene in February of 2006. However, all that is changed now. The people allowed to get loans are better risks and the returns are better.

On the topic of those better returns... we were there to learn about the difficulties in calculating the rate of return on peer-to-peer loans. It isn't just a Prosper problem, but a Lending Club thing as well. That's where all the technical jargon and complex mathematics comes into play. Let me give some examples that were discussed:

  • Loan Vintage - This is analogous to wine. The credit market of 2008 was different than 2011... and it will be different than 2015. It is difficult to compare the three. It doesn't get any easier when companies like Prosper and Lending Club change their lending criteria and other
  • Loan Seasoning - Since a loan can't default for a few months, a recently made loan with even a small payment is going to deliver top results. Anyone who has lent any serious money in P2P knows that there will be some people who won't repay their loans and thus the actually rate of return on their portfolio will be negatively impacted. How should this be factored in?
  • Idle Cash - Should cash that is sitting idle in your account be factored in your return?
  • Secondary Market - You can sell off loans to other bidders. This creates its own set of complexity in measuring returns.
  • Charge-offs - If a loan is delinquent (late), but not charged off (considered a total loss) yet, how should that be factored in? If a borrower calls up the P2P institution and works out a payment plan for less than original loan, how should that be handled?

(I should note that all the above is my best interpretation of the issues. Three years ago, I had a better handle on the math involved in judging a P2P loan, but the cobwebs in that area of my brain are thick.)

All these factors significantly impact the rate of return on a P2P portfolio. There are different philosophies as to is the most accurate method. There's a tool by Nickel Steamroller, a tool by Lend Stats, as well as Prosper's and Lending Club's own assumptions. The interesting thing is that in general, a P2P investor doesn't need to understand all these details to successfully lend on the platform. The P2P industry needs to have an industry standard. This way Joe Average Investor won't just default to mutual fund rather than getting scared off by all the ugly math.

I have some of my own ideas and I'm constructing a rough straw-man in my head. However, that's an article for next week. In the meantime, let me turn the floor over to you. What are your thoughts on an industry standard for P2P rate of return?

This post deals with: ... and focuses on:

P2P Lending, Prosper

Posted on November 4, 2011.

 
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