I’ve managed to get writer’s block while trying to finish my last 2 posts in my core principle series, so I thought I’d take a minute to provide an update on my Lending Club investments.
I’ve been investing in Lending Club for a little over 6 months, so it’s probably a good time for an update anyways. I originally wrote about my strategy (which was using a filter on lendstats.com to find the most optimal notes to invest in) and I targeted a 14%-15% overall return on investment. So far, things are looking good. If you haven’t read the lending club investment strategy post, I recommend you go back and read that before you read this update.
The Funding Process
In order to increase my overall ROI with Lending Club, I set up a pretty strict filter on lendstats.com. I only invest in high return loans, and filter out high risk characteristics such as loans for education or loans to people that have not held long term employment. Historically, the data has shown that these loans are more likely to default. Because my filter was so strict, I’ve found it a slow process to get $10,000 invested in active loans while diversifying at $25/loan. About 2 months ago, I transitioned from $25/note to $50/note so I could get the rest of my money actively invested.
Currently, I have almost all $10,000 invested in active loans. In order to accomplish this I spent about 5 minutes per week to look for loans and click a bunch of buttons to confirm the loans. Now that most of my money is actively loaned out, I expect that time to drop to about 5 minutes per month to reinvest my profits.
In order to purchase new loans, all I need to do is click on this link. The scroll down to the bottom and click on the links under “Active Listings.”
Up until last month, I had an annualized return of 16% and no loan defaults. This past month, I saw two notes default (I knew that was coming, since Lending Club shows that the borrower was over 60 days late on payment). What’s interesting is that both of these notes were loans I made before I created the loan filter I described above. What’s even more interesting is that these non-filtered loans were categorized as “low risk” by Lending Club. In a way, these defaults were a positive sign that my filter was working.
Here are the numbers:
I’ve made a total of 283 loans with an account that I initially opened with $10,000. Of the 283 notes I’ve purchased, 97 were considered “low risk” and were not part of my filter. Of those 97 loans, 2 have defaulted and 4 are late and at risk of default. Overall, not good. On the other hand, 186 loans were chosen using my loan filter and classified as “high risk” (averaging over a 19% return). Of those 186 loans, I have no defaults and no late payments in the 6 months since I began the experiment.
While not conclusive, these are pretty exciting numbers! There is a statisticaly significant difference between my filtered loans and the unfiltered loans. I’m now considering raising my investment from $10K to $20K, which could quickly grow to about $250/month of passive income.
Feel free to ask any specific questions about my Lending Club experience in the comments below.
Here is a snapshot of my investments:
A few items for full disclosure:
1. If you sign up for LendingClub.com from this site, I get $25. It’s not the purpose for writing the update (I would write the same article regardless of this income), but I want to be open about it. So far I’ve made $250 in commissions over the past few months. If you’re one of the people that signed up after reading my results, I’d love to hear about your results!
2. While my personal results are currently good, there is still significant risk in this investment – as with any investment. Keep in mind that my $10K investment is still only 1% of my overall investment portfolio, so this is still a relatively small personal investment. I may go up to 2%, but probably not more.