Lending Club Update: May 2013

Normally I start off my quarterly Lending Club investment reports by stating “Every 3 months I write an update on my Lending Club investment, based on my patented LC investment strategy.  And now that another quarter has passed, it’s time for an update.”

I suppose I can’t quite claim that now, since I sorta kinda never got around to doing a report in February.  That’s probably not the smartest decision, considering the LC links are really the only place I make any money on this blog – and even that amount isn’t much.  Luckily, here at BNL we don’t follow the silly old-fashioned idea that we let income (or potential income) drive our decision making on how we spend our time.  I wasn’t motivated to write a report in February and so I didn’t.  This morning I woke up motivated, and so now I’m writing.

Wouldn’t it be nice if we all lived by that philosophy?

I’ve now been investing with Lending Club for about 21 months.  I started with a $10,000 investment, and my portfolio is up to $12,143.  Using the Lending Club algorithm for calculating Net Annualized Return (NAR), I’m sitting at 12.59%.  If you recall from my last update in November, this is down from 14.15% at that time.  So it’s down about 1.5%, but I knew that was coming since I had one note that was already defaulted but not charged off, and quite a few that were late by more than 30 days.

Here’s a snapshot from my Lending Club dashboard today:

lcmay

12.5% return is great, right about where I wanted to be, and well above my bare minimum goal of 10%.  At 21 months into this experiment, I’m getting more and more confident that a double digit return is an achievable long term goal.

But before we break out the confetti and hire any marching bands, I wanted to do a little more analysis of my current returns and loan status.  The best way I’ve found to do this is through Nickel Steamroller’s powerful  Portfolio Analyzer tool to figure out my estimated future ROI.  I loaded my portfolio into the tool, and it spat out these results:

  • Average Age: 374 days
  • Estimated ROI: 11.5%

So Nickel Steamroller is forecasting an additional drop of 1%, based on my 13 notes that are over 30 days late.  I think this is reasonable, and the return would still be acceptable.

Strategic Change

Many people have noted that finding loans through my Lendstats filter is getting more difficult.  I agree.  I dug into this a bit, and I learned that Lendstats was updating their database of notes only once a day, in the morning.  I exchanged some emails with the site owner, and he indicated that he wasn’t as active with Lending Club anymore.  Not to get presumptuous, but I didn’t want my income generating ability to be dependent on a tool that wasn’t actively managed by someone motivated to stay in the game. I know it takes a lot of work to run good sites like Lendstats, and if the return in value isn’t high enough (financial, or otherwise) then people lose interest.  Not saying that’s necessarily happening with Lendstats, only that I don’t want to wait around to find out.

So I began looking at other filters out there and found a few good ones.  Nickel Steamroller has a nice one, as does P2P-Picks and Peercube. But before I chose a new tool, I decided to look at the embedded filter on the Lending Club site itself.  I’m glad I did, because I found the filter to be greatly improved compared to when I initially looked at it 21 months ago.  Most of the same filters I used for my initial strategy are now in their embedded filter. As they should be…

I like the idea of having everything all in one place.  It has a few advantages.  First, it’s always sync’d with the latest available loans, so you won’t go clicking on a bunch of loans that are already 100% funded.  Second, there should be no issues if/when Lending Club changes their file format.  All the 3rd party tools import a .csv file, so if fields in their database are added or removed, then the tools tend to break (this happened to Lendstats earlier this year).

So, in the end, I’ve decided to use the Lending Club’s filter.  The parameters I’m using are very similar to the initial strategy.  Specifically:

  • Delinquencies (2 yrs): 0-3
  • Max Loan Amount: $35K
  • Location: All, except California
  • Max Debt/Income Ratio: 25%
  • Home Ownership: Own, mortgage
  • Exclude loans already invested in (nice feature no other tools currently have)
  • Interest Rate: D, E, F, and G
  • Minimum length of employment: 4 years
  • Loan Purpose: Refinancing credit cards, debt consolidation, home improvement, wedding expenses, moving expenses, home down payment

This filter can then be saved in your LC account, so it’s as easy as logging in and opening your filter. This morning there are 6 loans that meet my criteria, so it takes about 5 total mouse clicks from beginning to end to reinvest $150 at $25/note.  Easy peasy.

 

Side Note

About 9 months ago I also started investing with Prosper.com.  So far, the results have been great.  I’m averaging over 17%, and have already cashed out $1200 while keeping my overall investment principle at $15K.  There are also some really nice features with Prosper.com that Lending Club doesn’t have, and when I have some more time I’ll write a more thorough review.  I’m not claiming that I’ll maintain 17% at Prosper, but my goal is once again to achieve better than 10% like with Lending Club.

 

Final Thoughts

I know a lot of people are using my original filter, but I rarely here anyone’s results.  If you’re invested using my filters and you don’t mind sharing, I’m sure everyone would love to hear your results of ROI and time invested.  So please feel free and encouraged to leave your results in the comments. Happy investing, ya’ll.

If you’d like to invest in Lending Club yourself, click below.

lc

 

A few items for full disclosure:

1. If you sign up for LendingClub.com from this site, I get $25.  This isn’t why I write these updates (I would write the same article regardless of this income), but I want to be open about it.  If you’re one of the people that signed up after reading my results, I’d love to hear how you’re doing!

2. While my personal results have been very good so far, there is still significant risk in this investment – as with any investment.  Keep in mind that my $10K initial investment is still only 1% of my overall investment portfolio, so this is still a relatively small personal investment.  

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35 Responses to Lending Club Update: May 2013

  1. Thanks for the useful info!

    How have you found Lending Club and dealing with tax returns? Is it a paperwork nightmare?
    rjack (Mr. Asset Allocation) recently posted..New Feature – Asset Allocation CalculatorMy Profile

    • MMM did an article on LC taxes a few weeks ago. Short summary: It’s easy. LC provides a 1099-OID, which is similar to the 1099-INT file that your bank probably gives you on interest earned.

      I think maybe a few years ago it was more complicated because I’ve heard horror stories, but I’ve done this for 2 tax years now and it was no problem.

  2. I’ve been at prosper for about 20 months and my ROI is at 9% right now. It’s getting more difficult to find the loans that fit my criteria and I have to wait a bit longer.
    I’ll try LC later this year.
    retirebyforty recently posted..The Pros And Cons Of Living In A Smaller HomeMy Profile

  3. Joe says:

    I’ve been using your filter for a while, and recently I tweaked it to also include a Max Debt-to-Income Ratio of 20%.

    (I keep notes with your original formula and notes with the DTI tweak in separate portfolios so I can track if DTI makes a difference. I haven’t been using the DTI tweak long enough to notice any difference.)

    I’ve been seeing slightly better returns than you posted today, but perhaps that’s because my notes are newer and haven’t hit the predictable road bump that older notes see (defaults, etc.). I only have 1 late and 1 charged off note, from a total of 110 notes. But I think it’s beginner’s luck.

    I’ll save your new investment criteria as a new search and track notes invested with it in a new portfolio so I can see if it makes any difference.

    Thanks for the update!

    • That’ll be great to see the performance over time when reducing the max debt to income ratio.

      Did you run that through the lendstats filter? I just did it now, and surprisingly the ratio was statistically identical, but with about half the number of historical loans to parse through.

      • Joe says:

        Nope, I’ve only ever used LC’s built-in filters. That lendstats page makes my eyes hurt. It looks like a over-ripened peach stuffed with numbers.

  4. Byron says:

    Hi BNL,

    I have followed your blog for some time now, and I made my first investment into LC about 2.5 months ago using your strategy (with 20% max DTI like Joe).

    Of course, my NAR is at a little over 20% right now, but I will keep you updated as time passes to reflect the true value.

    After 9 months using Prosper, do you have a preference between the two? Which one has the most income potential? It did take an excruciatingly long time to invest all of the money using your filters, but that’s the price you pay to be smart about your investments I guess :).

    • I can’t say which one has more income potential yet. My return rate is high on prosper, but I’m also invested in some high-rate/riskier notes so it may drop significantly in the future.

      I do prefer the user interface and features of Prosper. For example, I was able to give parameters of loans to filter on, and now it just automitically reinvests. Even better – I set it to a $15K limit on invested principle, so all I need to do is log in once a month and take out the cash above and beyond the $15K. This is an easier way to manage the income stream than I’ve been able to do on Lending Club.

      But, time will tell. If LC performs better on returns, I’d probably be willing to give up the convenience of Prosper.

  5. Nice jobe BNL! The longer the account is open, and the more those notes age, I think your expectations of having a 10%+ return for the long haul is reasonable. I know for my first account (open four years now) I have maintained a about a 10.5% real return over the course of those years.

    Looking forward to reading about your Prosper investment as well.
    writing2reality recently posted..Want to Start An Investment Club – Investing Decisions and RewardsMy Profile

  6. Zimmy says:

    Thanks for posting the information about the Lending Club. I am defiantly going to take a look at what they have to offer.
    Zimmy recently posted..Help Wanted : Interview Tips for the Millennial Job HuntersMy Profile

  7. Mr. 1500 says:

    Hi BNL! I’ve been using your original filter and am currently earning 17.71%. My sample size is very small at 12 loans and this portfolio is young, but so far, so good.
    Mr. 1500 recently posted..Ask the Readers: Who do you love?My Profile

  8. BNL – Just wanted to link you to a statistical analysis you were included in that measure your investment criteria. I didn’t prepare the analysis but thought I’d bring it to your attention!

    http://www.lendacademy.com/comparison-of-different-p2p-lending-investment-strategies/
    writing2reality recently posted..Lending Club – April 2013 UpdateMy Profile

  9. nsarwark says:

    I’ve noticed that you dropped the home ownership filter. Was that on purpose, or did you just leave it out?
    nsarwark recently posted..Square Foot Gardening UpdateMy Profile

    • Thanks for the heads up. I did not remove that filter on purpose, nor did I remove it in my actual LC filter. I just failed to document it.

      It’s not that big of a factor based on historical data, but it definitely improves the returns.

      Anyways, updated the post now. And thanks again.

  10. alex in virginia says:

    I put $20K into Lending Club less than 3 months ago. I decided to do loan selection the lazy way: I am trusting Lending Club’s statistical finding that you can’t go wrong if you have 800 loans in your portfolio.

    With that as a backup, my criteria got simplified down to: (1) ratings of A, B, C, and D… (2) 3-yr loan term… (3) loan purpose: debt and credit card consolidation… (4) $15K loan limit… (5) $25 per loan.

    To select loans, I just do a “random walk” down the day’s open loans list and click them in as they come. Portfolio breakdown is about 25% A, 40% B, 25% C and 10% D loans.

    So far, so good. No defaults yet and a NAR above 12%.

    I’m getting ready to put another $10K in.

    Alex in Virginia

    • Welcome to the (lending) club. I hope you’ll stick around and share your performance over time. I’m reluctant to get into the A/B/C loans since the rates are so much lower, but time will tell if that’s a safer strategy.

  11. Ken says:

    So I was curious about something. Say I put $10,000 into LC. Do I reinvest and buy new notes with the payments or do I always withdraw the payments each month/week?

    • alex in virginia says:

      Ken,

      Whether you withdraw or reinvest your earnings will depend on your financial objective. If you are still accumulating for FI, I say reinvest. If you’re already at FI and looking for income now, then withdraw.

      I withdraw. I wait until I have $500 cash net in the account over and above my original $20K investment, and then withdraw. First, however, I reinvest enough of the incoming payments to keep the investment value at that $20K.

      Alex in Virginia

  12. Ken –

    Yes, FI = Financial Independence.

    And I agree with Alex in VA, about reinvesting. In my case, I invested 10K in LC and decided I would reinvest to 15K, then “cash out” from there, meaning I would reinvest any capital to keep it at $15K and take out the rest. I also invested $15K in Prosper, so I’m already just taking out the cash above and beyond $15K. In retirement (or soon to be retirement) this is a nice cash flow. Otherwise, I would be reinvesting.

    • Ken says:

      Well I’m 31 and will be working for a while so I might as well keep reinvesting for a while, or at least until I need the money. I’m self employed and have a lot of free time Feb-July so I’ll have to find something to do to earn more income that time of year. Can’t think of anything though.

  13. This sounds interesting. I have some cash I’d like to put to use and this is something that looks promising. However I know nothing about loans, do I have to select the loans personally or can they make selections for me based on risk criteria?
    Captain Dividend recently posted..May Dividend UpdateMy Profile

  14. DMElkins says:

    Have you considered the effect on your overall return by the notes that have been charged off? Whereas I formerly just chalked up the defaults and charge-offs as the cost of doing business and understood that in most cases the defaulting parties had at least made a fair number of payments prior to defaulting, I have since started selling the notes of those late-payers on the trading platform. Doing so at least protects me from taking a total loss on those notes and I would rather have a portion of my money available to use in buying other notes rather than waiting for Lending Club to engage in collection efforts that may ultimately prove to be unfruitful.

    • I’ve considered it, and from everything I’ve read this is the best thing to do. The Nickel Steamroller analysis tool is good about telling you when to sell late notes for optimal results.

      The only reason I don’t do this is because I wanted to share my raw results with the BNL readers while investing in the most passive form possible. In the future, probably in a year or so when my results are more mature and most of my original notes are closed, I’ll start selling late notes.

  15. Susan says:

    Hi BNL, a small issue about your criteria to discuss with you. It seems that the return rate on moving expenses isn’t high, only at 7.49%, according to https://www.lendingclub.com/info/statistics-performance.action.

  16. Susan says:

    Hi BNL, a small issue that I would like to consult with you. How’s your opinion on Delinquencies in last 2 years? I don’t feel confident to invest when I saw the loan has delinquencies record in the past. Thanks.

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    • Ken says:

      Had my first Charge Off this morning :( The borrower filed for Chapter 7 months ago.

      • Welcome to the club!

        I’ve got dozens of charge offs, but at this point it’s just a numbers game. I expect a certain number of defaults, but few enough that my returns still remain above 12% total.

      • Ken says:

        I’ve also now got 5 notes late 31-120 days as well and 2 notes in grace period. I wish people could pay their bills like good little borrowers :)

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