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:
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.
Investment in Lending Club is more accurately compared to the return you would receive on junk bonds, not a savings account. Return of principal is not guaranteed with Lending Club, as you have seen with your defaults.
Lazy Man says
Thanks Mike. I have made the point about Lending Club investments being similar to bonds in the the past. However, few people have any experience in buying a bunch of junk bonds for $25 a piece, so it isn’t something that they can grasp.
This time I chose to compare it to something that I think everyone is familiar with – a savings account. I think I was clear about the defaults, but the point is that with enough diversification, it is something that “I can count on”, which is a phrase I prefer for something that isn’t guaranteed, but extremely reliable.
If we were to continue with Mike’s analogy couldn’t you put the $25 into a junk bond etf or something similar?
Currently at a bit over 7%…
Lazy Man says
The fees for me buying an ETF is around $8 from USAA. Putting $25 in wouldn’t work. I could invest more at one time and make this a moot point.
Finally, my returns on Lending Club are below average (I don’t know why). There’s a chance that my investment catches up to the norm and returns 9-10%
Also, I like the fact that I’m helping individuals with small businesses or those who are looking to lower the interest rates on their debt.