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However, over the last couple of years, more and more of those A and B loans have started coming off the books and have been replaced by the F grade loans.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:

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.

It’s been a little while since I’ve done an update of my Lending Club progress. For those who haven’t been regular readers earlier this year I looked at my Lending Club performance and was disappointed by the return of 4.78% – 84% of Lending Club investors did better than I did.

That performance was a hard on my ego. I had figured I could cut bait and give up on Lending Club or look into what I could do better. When I looked into why I was under-performing it was simply because I was investing in only the best credit risks – the ones with the least reward. When I looked at Lending Club’s performance in general people who were targeting these great credit risks also had low returns. The people who risking their money had higher returns, even when accounting for the risk. So from that 4.78% in January of this year, I’m now at 7.13% on my whole portfolio:

I didn’t add a lot of money in that time. In fact, I’ve only added about $450. The rest has been the result of reinvesting payments in my new strategy.

In my last update, a few people asked some very good questions about my Lending Club performance. The questions were a little too good… it would take me a few hours to answer them and I haven’t been able to set that kind of time aside. Instead, I figured I’d try to give a little more input until my new strategy with the hope that at least answers some of the questions.

The biggest thing is that I have a saved search or saved filters. When I log into Lending Club, I click on Invest and open up the filters. Instantly, I’m presented with three options from least conservative to most risky. Since I’m often investing $25 or $50 at a time (accumulated payments from previous loans), these three options don’t vary much for me. I usually pick the third (most risky) option and see that it gives me a projected return of around 12%. (It should be noted that Lending Club’s projection and what you get aren’t guaranteed, but so far the 12% on those loans seems to be the reason I’ve been able to push my earnings to over 7%. If I was starting fresh perhaps I’d be earning 10% or better without my previous strategy dragging down the percentages.)

The next obvious question is, “What are your filters?” Hey, I’m not Colonel Sanders, I’m giving away the secret herbs and spices. Here you go:

• Review Status = Approved – It’s comforting to know that Lending Club looked over the loan and approved it.
• Credit Score => 714 – Even though I’ll be taking loans with high returns, I want a good credit score.
• Interest Rate => 17.23% or Grade D – When I did my analysis back in January, grade D loans seemed to pay the best when adjusted for their risk
• Exclude loans invested in – I check this. Diversification 101.
• Months Since Last Delinquency = 24 – This is an area I should look explore switching to 60. My fear here is that I’d eliminate many loans. On the other hand, I do have the credit score filter which should factor in months since last delinquency.
• Delinquencies (Last 2 yrs) = 0 – In light of the above bullet point, feel free to call me Mr. Redundancy.

That’s really all I have. The overall strategy is to get those loans high percentage loans while trying to weed out some as much of the riff-raff as I can.

At the beginning of the year, I viewed Lending Club as simply good diversification similar to adding bonds to your portfolio. Now, I could see it playing a little more significant role (though probably still less than 10%) and perhaps even out-pacing the equities portion of your portfolio more often that you might expect.

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.