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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.

Last updated on August 13, 2014.

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

Investing, P2P Lending

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