I’ve now been investing with Lending Club for almost 4 months. Around that time, I wrote about my Lending Club investment strategy. Basically, I used historical analytic data to filter out loans that I believe will return a significantly higher return than the average.
When I began investing in Lending Club, I decided I would invest $10,000 to see what kind of returns I can get. If, after 1-2 years I find my returns to be sufficient, I’ll increase my holdings to $20,000. I doubt I’ll go beyond $20,000 in Lending Club, but I’m not completely ruling it out. It’ll depend on my returns, as well as what other opportunities for investment that I find.
My stretch goal is to achieve a 15% CAGR, although I consider anything over 12% a big success. 10% CAGR is a passing grade, and anything under that will be considered a failure. Given the inherent risks of P2P lending, I won’t be satisfied with a return of under 10%.
4 months later, I’m happy to report that with my initial investment strategy for Lending Club I’m returning 15.67% net annualized return. This puts me in the 91st percentile of Lending Club investors. But before you get too excited, let me provide a caveat: This value will likely go down rather than up. The reason for this is because I have 0 defaults on 221 loans. This is to be expected, given that very few people default in the first few months of a loan. In fact, the most common time to default on a loan is between 1/3 and 1/2 the loan duration. It’s at this time that I’ll see the true test of my strategy. Unfortunately, that’s a long time away. People don’t default early because they have good foresight into their expenses and income in the near future. They don’t default late because they have too much invested. But at 1/3 of the way through the loan, they are most tempted to default.
Still, I’m happy to see that all my loans are on schedule. Lending Club reports loans that are 14-30 days late,and those that are 31-120 days late. While most in the 14-30 category do eventually get paid (25% default rate), the ones in the 31-120 day category have a significantly higher probability of default (45%) – see here for details. Luckily, I don’t own any notes in these categories.
One thing I’m seeing with my strategy is that it takes patience to get all my money invested. Because of my extensive filters, I generally only have about 6-7 notes per week that I can buy. At $25/note, that’s $150/week. Trying to invest all my money will likely take more than a year. One thing I may consider is increasing my loans from $25/note to $50/note. If I do, I’ll let you know.
I know a few people have jumped into Lending Club (I know this because I was paid a small commission) – I’m curious how you guys are doing. Let me know in the comments.
Note: As mentioned above, if you invest in Lending Club after clicking from my site, I do receive a commission. Lending Club is obviously a service I use, and so far it’s a product a support. If after sufficient time I decide I no longer support the service, I will remove any affiliate links which pay commission and I’ll notify my readers of my reasons why.