At the beginning of this year, I decided to take another look at Lending Club. They were claiming that the average person made a 9.68% and I was making 4.78%. While I don’t like being below average in anything, I hate being that far below average. It was time to examine the loans I had been making.
It turns out that I was being too conservative. After the subprime issue of a couple years ago, I was only lending out the cleanest of credit reports… and when a couple defaulted, it impacted my returns greatly. You can read more about my new Lending Club strategy.
A strategy isn’t very good if it doesn’t work. Today I thought I’d share with you the results of the strategy. At the end of January, I had the aforementioned 4.78% return. On March 10, I gave a Lending Club Update that I had raised that 5.90%. That article had a few more tips that I’ve been using. Another two months have passed, so where am I now? Here you go:
Booyah, it’s up to 6.42% – I’ve moved from the 16 percentile in January to the 23 percentile today. Perhaps that’s a little too much excitement for someone that is still far away from being average. However, considering the vast amount of my account was invested using the my less-than-optimal strategy, this is a very significant move.
I think that peer-to-peer (p2p) lending through Lending Club is a good way to diversify a portfolio. It’s not going to move in the same direction as stocks, real estate, or gold. However, I’m cautious about putting a lot of money in it. Since p2p lending is new, I wouldn’t suggest anyone put more than 5% of their net worth into it. If you agree that this sounds interesting, I suggest you give Lending Club a try.
Congrats on the move up. Although I wouldn’t be too hard on yourself about the percentile. Long time investors will always be at a disadvantage where this comparison is concerned. This is because you are compared to all investors including brand new investors with a similar mix of investments. Every one of these new investors (say four months in or less) will have zero defaults because you it is physically impossible to have a default until a loan is four months old.
I have spoken to Lending Club about this and they have agreed that the Compare tool is misleading. I think we will see a revamp of this system some time later in the year.
I’ve been hovering around 10% on lending club over the last 1.5 years since I started. While I hardly feel like some kind of master at it, here are some lessons I feel like I’ve learned:
1- I would be VERY wary of this method of lending without putting 2.5k or more money into it. Below that amount it’s just too big of an impact when a loan defaults in my opinion.
2- Along with that, never invest more than $25 dollars per loan – unless you have a large amount of money involved that isn’t realistic to break up into $25 chunks. Like 30k plus might be where you would up it to 50 bucks per loan or something. But for us “normal” guys who are putting in 20k or less, $25 per loan spreads out the risk of individual defaults.
3- This is entirely my opinion, but I LOVE the trading platform. Sign up for it. Mostly I use it to dump loans in grace period before they get too late. Usually in grace period you can sell the loan for a break even (or a little above if they’ve been paying for awhile). This way I never have to worry about late and default. I may be losing some late fee money and interest on many that get back to current again – but it’s a nice piece of mind to get my 25 bucks back before it goes south! Also, if you search hard enough you can find some good deals on loans to buy. I’ve heard of many investors who only acquire new loans by buying ones on the trading platform with proven payment history.
I’ll have to take a look at Lending Club. I currently do P2P lending through Microplace, which lends money to poor people in other countries. Have you ever tried that?