Lending Club Investment Update: November 2012

Every 3 months I write an update on my 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.

By now, I’ve now been investing with Lending Club for 15 months.  I started with a $10,000 investment, and my portfolio is up to $11,756.  Using the Lending Club algorithm for calculating Net Annualized Return (NAR), I’m sitting at 14.15%.  If you recall from my last update in August, this is slightly down from 14.32% at that time, but not by much.  Hopefully, this is a sign that my return rate is stabilizing at this high rate or return, although I’ll be the first to admit that this is probably overly optimistic.  Here’s a snapshot from my Lending Club dashboard:

14% return is great, more than I could have hoped for.  Then again, I still think it’s better than we should be hoping for – especially considering that there’s 1 loan in Default, and 13 additional loans that are at least a month late.

When I considered the late loans in my last update, I made some calculations under the extremely negative assumption that all of my late notes would eventually default. What’s interesting is that at that time, I had 9 late loans and 8 loans that were already charged off.  Of those 9 late loans, only 4 of them actually defaulted, which works out to a 45% default rate on my late loans.  This is actually pretty close to Lending Club’s estimate of 47% default rate on loans that are late by 31 days or more.  I like when things work out like they’re supposed to.  :)

Rather than doing similar magical hand waving to estimate my future results, I decided to try out Nickel Steamrollers fancy little Portfolio Analyzer tool to figure out my estimated future ROI (thanks for the pointer, Megan).  I loaded my portfolio into the tool, and it spat out the results:

  • Average Age: 280 days
  • Weighted Return: 19.33%
  • Estimated ROI: 13.34%

Not bad!  I’ll take 13.34% as a long term return… Hell, I’d put my entire portfolio into this if it was guaranteed!

Going Forward

Some people have asked how I plan to manage my portfolio in the future.  Will I just keep reinvesting profits, or will I start taking money out?  The answer is both.  For now, I plan to keep building the portfolio up to $15K by reinvesting my profits.  Once I get to $15K, I’d like to make this investment a legitimate income producing machine by withdrawing excess cash above $15K each month.  If I maintain a 12% NAR or better, then a $15K investment will result in $150/month of income.  Not exactly high rolling, but it’s also a nice little buffer of cash flow for when I quit my full-time job.

Side Note

A few months ago I also started investing with Prosper.com.  Once I have my investments mature a little, I’ll start comparing results with Lending Club.  So far, the results from Prosper are superior to Lending Club – but it’s way too early to call.


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 about your results!

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.  

29 Responses to Lending Club Investment Update: November 2012

  1. Michelle says:

    I’m loving your return. I’m wanting to get into this, but I guess I am still a little scared. I will have to talk about this with my boyfriend tonight!

  2. Matthew says:

    It seems to me that Prosper returns will be slightly higher because the interest rates they charge are a little bit higher. In my case anyway, I considered taking out a P2P loan somewhat recently and checked MY rates at both. Prosper came back about 2% higher for me, than what Lending Club offered. And I have an excellent credit score.

    Instead I decided to invest at Lending Club. I don’t think they allow you to do both simultaneously.

    I’ve been meaning to write my Lending Club Initial Investment post for awhile now, but still waiting for my affiliate status to be approved. Who do you use for your affiliate broker? I’ve applied through FlexOffers. As soon as I get my affiliate link I will be writing posts similar to this on my site. I’m currently one month in and sitting at a 22.32% rate of return!

  3. Firefergy says:

    Are you still using the same lendstats filter settings to reinvest?

  4. Joe says:

    That’s great ROI. My return is around 12% at Prosper and I’m pretty happy with that, but higher would be better.

  5. Peter Renton says:

    Good article. I have found the Nickel Steamroller tool to be quite an accurate predictor of future returns so I think you should be able to stay north of 13% for the foreseeable future.

    One thing I would like to point out to your readers is that Lending Club is becoming a lower risk investment all the time. While it is certainly not without risk the recent announcement by Lending Club that it is now cash flow positive is good news for investors.

    • Good point on Lending Club being cash flow positive. Although, in theory, the notes would be protected and honored even if LC filed for bankruptcy – since that’s never happened there is/was no precedence for how that would work for investors like us.

      So it’s good to see LC moving away from that risk altogether.

  6. Dan B says:

    For the sake of accuracy………the 47% default rate you quote vis a vis your expectations of recovery on 31+ late notes, is exceedingly optimistic. More importantly, LC does NOT claim that 47% of 31+ day lates default. LC in fact claims that they are able to get at least a “partial” recovery on 53% of those late notes. Reverse that statement (which is printed CLEARLY under the pie graph that you’re looking at) & what it actually means is that 47% of 31+ day late loans default WITHOUT any additional payments, partial recoveries, settlements & any other word you’d care to use.

    This is a big difference. Let me illustrate. Say you have a note with a $22 balance that is 31+ late. Then the borrower makes a $2 payment & then defaults. This particular note has now been “partially” recovered, has it not? Therefore it is not counted in the 47% that defaults. The end result though is that you recovered $2 & lost $20. Call it what you will, but it sure smells like a default to me. I could give you other permutations/ examples that will yield the same unsatisfactory results, but I don’t see the point………since I’ve learned from experience that most people will believe what they want to believe anyway. :)

  7. Michael says:

    Hi BNL, Can you please also share how diverse is the $10k invested in LendingClub? For example $500 x 20? $100 x 100?

    • I have mostly $25 loans. When I first started investing, in order to get my money in active notes more quickly, I did buy quite a few $50 notes. Now, all my reinvestments are made at $25 each.

      At this point, it doesn’t make much of a difference with regards to diversification. I just like to be consistent.

  8. Headed Home says:

    Looks like you’re getting pretty good returns. I’m thinking of replacing more of the current fixed income portion of my portfolio with Lending Club. Would you get panicky with 5% of your portfolio at Lending Club?

  9. Dan B says:

    BNL……It sounds like I still have 6 months to go, don’t I? And when you do come back in 6 months, I’d like you to quote my post in its entirety & I’d like a 3rd party independent verification of your results……..Then we can all decide how right or wrong I was. :)

  10. Hardcorps says:

    …and the S&P returned 15% this year.

    • The S&P also returned -5% in the past 5 years. Longer term, it’s up 14% over the past 14 years. That’s less than 1% annualized.

      Besides, with stocks (and especially indexes like the S&P), it’s best to look at earnings growth over time, not short term price returns.

  11. Gah! Love that you are doing lending club. Really interested in learning more about it myself. But please remove your account info from the pictures!

  12. skwasha says:

    I’m curious if you’re finding, as I am, that it’s becoming more and more difficult to find loans matching your filters? When I first started a year or so ago, it seemed like every day there’d be at least a few loans matching my criteria. Now, it seems I sometimes have to wait a couple days for something to show up. And often by the time they show up on LendStats, they’re already fully booked.

    This leads me to a couple questions…
    1) Does anyone know when and how often LendStats is updated?
    2) Since LendStats is just pulling down the data from LC, does anyone know how often and/or when LC updates its data?
    3) What’s the underlying cause? (or am I just imagining it)

    I have my own ideas on no.3 just curious to hear your take.

    PS – 1 yr in, just had my first defaults – sitting at around 19% with a couple more defaults looming in the next month or two. Still, pretty impressed though.

    • I followed up with the owner of Lendstats on this.

      1) Daily, in the morning
      2) His belief is daily, but he didn’t know what time. This may be part of the problem. If the two reports are out of sync, we may always be late to the game.
      3) I have some theories also, but I’m still looking into them. I suspect the increase in institutional loans has a lot to do with it.

      It has definitely gotten harder to get the loans by the criteria in my strategy. I’m working on figuring out a better way, and I will update everyone as soon as I have an answer.

      • skwasha says:

        I did some more testing of my own as well. It looks like the In Funding Loan stats CSV is updated once a day at 10AM PT.

        I’ve since also built out my own site to parse thru the loans. I dunno that it’ll help much with the quantity of available loans. But at least I’ll know when things change and can get em as soon as possible.

      • BNL/skwasha – Lending Club updates their listed loans at 6 AM, 10 AM, 2 PM, and 6 PM Pacific Standard Time. As such, you will want to check out the available loans shortly after those times to maximize your available options. See here for details: http://blog.lendingclub.com/2012/09/28/investor-updates-and-enhancements/

        Ken at Lendstats doesn’t really update his site very much any more, so I would also refer you to some other sites, like NickelSteamroller, Interest Radar (member only), P2P-Picks (in beta), and Peercube.

  13. Anne says:

    Finally took the plunge after reading this and your strategy (you should see a referral credit soon). I agree with skwasha loans meeting the critera aren’t abundant, I ended up adding some B’s and C’s just to invest a few hundred initially, and will need to check back regularly.

    • Welcome to the club.

      The notes definitely aren’t as easy to get as they were a year ago, but hopefully this won’t drastically affect the overall results you achieve.

      As I told sqwasha, if I find a beter technique to get to the loans faster, I will let everyone know.

  14. BNL – Originally saw your criteria over a year ago and just wanted to follow up and see when you would be posting your next LC update?

  15. renee s says:

    I wish that we could do this in Ohio :( I would have signed up years ago!

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