Monday, November 10, 2014

Lending Club: It's Been Four Months Now

Well, I may not be getting rich, but I'm very satisfied with my Lending Club returns to date--so satisfied that this is the last time I'm going to update you about the experiment and probably the last time I'm going to show you a screen shot like this.  Am I quitting?  No.  I've just invested about half our bank savings, and frankly it isn't the world's business how much that is.  I may talk about Lending Club here in the future, but I'm seriously considering starting another blog about our progress toward retirement, (I've set it up and drafted a few posts, I have a number of post in mind that I want pre-scheduled before I go live) and will post Lending Club updates there.

So, how have I done in the last four months?  It depends on how you look at it.  Bottom line is that I invested $1,000 on July 10 and $1550 on August 14 and today I have $2578.24.  Lending Club says I have an annualized return of 10.6%, which beats my bank any day, and beats the k stock market much of the time.  However, the XIRR method, which many say is the most accurate way to compute returns, says today that my return is about 4%--but Friday it was 6%.  Why?  Lots of notes were due and paid on Friday, but not many over the weekend or today so they are averaging in three more days and not much more money and on an account this small and this new those days and cents make a big difference.  A larger and older account would have a more steady return, unless there was a late note or default.  Absent late notes, my return should climb as I bought many notes at a premium so that the interest they paid prior to this month went to replacing capital, not to earnings.  Now everything is earnings.  A third way to look at it is to say that since this time last month my account has increased by $29.10.  If you multiply that by 12 months it gives you $349.20 which is 13.7% of $2550.00.  Bottom line is I'm doing well, and even if I had a $25.00 note default every month, I'd still do better than my bank savings account.

What have I learned in the last four months?

  • I'm not a financial expert, this is not financial advise and your experience may not mirror mine, but to me, this seems like a great investment.  Banks have been making money on consumer credit for a long time; this allows small investors to do the same.  One piece of financial advice I got years ago was that if I was going to invest in something I needed to be able to explain how the investment could make money and how it could lose money.  Peer-to-Peer Lending is easy to understand as are its risks and pitfalls.
  • From everything I've read (and I've been giving Google a real workout) the more money you have invested in Peer-to-Peer Lending, the harder it is to get earnings signficantly above the average, or significantly below.  Considering the average is about 8%, I'll take it.  Right now I'm above average, but that's because my account is new, not because I'm brilliant.  I paid a premium for some resale notes hoping they would be less likely to default that new ones.  Time will tell if I'm right,but resale notes have a risk I did not consider when I bought a bunch of those--the risk of early payback.  I had a couple of notes pay off early and leave me with less money than I invested.
  • While I have enjoyed playing with these notes--selecting them and watching the account grow daily, and while I may have squeezed a few extra cents out of the account by doing so--I really can't see doing this on a large scale.  While I can't say I won't play with this anymore, I realize that the more money I have invested the more I have to rely on automatic tools.
  • In trolling the Folio site for resale notes I've noticed that large notes are for sale at larger discounts/smaller mark-ups than $25 notes of similar quality/interest rate.  Unless I have so much money that I can't get it invested in $25 increments, I'll stay with the $25 notes, even if I buy several of them on the same loan.
What will I be doing going forward?

  • Emergency fund:  I took about half of our cash savings and moved them to Peer-to-Peer lending; half to Lending Club and half to its competitor, Prosper.  I left enough in the bank to buy a new used car.  I figured that for any other use of our emergency fund, I'd have time to liquidate these notes.  Also, unlike many investments, this one throws off cash every month so if I know I need money for something, I can stop re-investing the returns and transfer them to the bank.
  • College fund:  My daughter is in college.  We've been paying what her scholarships do not.  I'm expecting an inheritance soon.  I plan to take the money for her final two years of school and invest it in resale notes that come due before she finishes.  I'm going to let my daughter manage the account.  If she chooses to do nothing, there will be money there when she needs it, with 4-5% interest (assuming defaults are no worse than expected).  If she is a little more active with it, she might do a little better.
  • Inheritance:  I'm expecting a substantial cash infusion soon.  While I plan to put some in the stock market, I also expect to increase my Peer-to-Peer portfolio.
  • For my readers:  If you want an invite to invest in Lending Club and get up to a $25 bonus, email me or leave a comment and I'll send you one.  


  1. I haven't read these posts in depth but I've gotten the gist as you went along, and I think it's a very interesting thing to do. I will be thinking about that down the line more, I am sure...when we run out of diversification options maybe. :)

  2. You know me, always look at the other side of the debate.
    Would you put your mortgage money in Peer to Peer?
    Let's say your dd takes her peer to peer and changes the investments and loses everything, would you shrug your shoulders and walk away? She, most likely does not have the time or expertise to gamble with her college money. You might think about letting her use a small amount for her college graduation money, but my experience is that few do well that young with something so important.
    I am glad you are doing well. That type of unsecured investment makes me queasy :)

    1. Money to pay the mortgage next year? Yes. Next month? No.

      As long as she doesn't do anything really dumb, as long as she follows instructions, if I'm wrong, and she doesn't come out ok, then I'll pick up the bill. She's not going to have to take out loans because of this.

      I've researched and I've read and while it is always possible that the borrowers will all quit paying tomorrow, historically speaking, as long as you are well diversified, it is hard to lose money. People who lose money are either not investing enough or are following stratigies akin to gambling.

  3. RAnn, is everything okay? Sunday Snippets isn't up yet, and I'm concerned that something may have happened.
    Sorry for the OT comment.


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