I’m a bit late with this update, but I wanted to get it out there because I’m closing in on one year of lending money through Lending Club and will be doing a big, year-end post sometime soon. As April came to a close, my “net annualized return” (NAR) was 10.65% — not too shabby.
However, this calculation doesn’t take into account uninvested cash, nor does it take into account activity on the FOLIOfn trading platform. While I try to keep my money as active as possible, there’s always a bit of cash kicking around in my account. Also, as I’ve noted previously, I’ve sold a couple of troubled notes at a loss to reduce risk.
So how are my Lending Club investments really doing? To answer that question, I fired up Quicken and ran a quick report. I’ve previously talked about how to track Lending Club investments and account for defaults in Quicken. It’s very easy, and gives you a much more realistic picture of your investment performance.
Anyhoo… According to Quicken, my Lending Club investments have an average annual return of 8.90%. This includes defaults, idle cash, and the handful of notes that I’ve sold at a loss. Not quite as high as the NAR reported by Lending Club, but it’s certainly nothing to sneeze at.
I’ve got two accounts, one regular, one IRA. I’ve been trading in the regular account for 10 months and have a 10.42 return with 107 notes of which 1 defaulted and 3 more are late. When I purchased a lot of these notes, I didn’t pay much attention to credit scores and I think this has increased my default rate. I also was lax in reinvesting returns. Now I reinvest as soon as my balance reaches at least $25.
I started my other portfolio in January. It has 139 notes and is returning 13.09%. Most loans are B and C. So far, no defaults. I had one note go late. The borrower resumed payments but I sold it just to be safe. I do not invest in any note where the borrower has lower than a 714 credit rating, where the interest rate is less than 10%, and where they have been employed at their current job for for less than 3 years. I investigate their employer to ensure that it is a stable or growing company in a stable or growing industry. I prefer homeowners to renters. If they are consolidating debt, I reject anyone who is refinancing cards at a LC rate that is higher than their card rate. Finally, I read their posts to make sure they are doing something I find rational. If they haven’t described why they’re seeking the loan or if they’ve answered no questions, I pass or ask questions of my own for future reference. I think this system has significantly reduced my risk of defaults, but of course the portfolio is only 6 months old.
I also filter only loans where income has been verified, but I think this is more superstition than common sense on my part. According to LC, unverified loans actually have a lower rate of default, primarily because most of the incomes LC verifies have been checked because of some red flag in the application.
I started investing with lending club in September of 2009.
I invest in mostly C and D grade notes.
Presently my rate of return is 13.85%
however, I am scared. If you look at the loan performance statistics for the first year they are awful. Only A grade notes make money and everything else barely breaks even. Those notes were not performing so badly when I first started investing.
I also remember being told that the notes that will default do so in the first 90 to 180 days. I guess that was only the first wave of defaults. I hope collection agency becomes very effective. good luck everyone
I check my Lending Club account a couple of times per month and whenever I notice much more than $10 in the account I do an automatic transfer to my linked ING savings account. It takes just seconds to set up.
The rates provided by “high-interest” savings accounts obviously leave much to be desired right now, but it’s pretty easy to minimize the impact of idle money in a Lending Club account with just a little bit of effort.
I hope, Almost There, that you update us on your performance in the coming months. You have a lot of late loans, but I’ve had many late that surprised me by coming back current. Your numbers might still end up fairly good. Good luck.
Ace: The impact of your idle cash depends on the amount you have invested. Once your portfolio is relatively large, the having a couple hundred bucks sitting around doesn’t create that much drag. But early on, have (say) $500 invested and $200 in idle cash can really kill your returns.
Great post Nickel, thanks for crunching the numbers for us. It’s one thing that I’ve always been worried about with my lending club account is that the money sitting in there waiting to be invested is killing my return. The results that you turned out were actually quite surprising, I wasn’t expecting it to be that high.
Nickel: I started investing last July and joined their prime account with the minimum 20K investment soon after. I stopped investing in February and every time I get $100 in my account I transfer it out. I will see at the end what the overall rate of return is based on what I investment vs gained over 36 months. I have found out that anyone can lie through their teeth as long as they have a good credit rating, tell a sob story about needing the money for a wedding and then skipping town without making a single payment on a 25K loan. My notes vary from 25 bucks to 350 bucks. With the prime account they were supposed to invest for you based on what return you wanted. I wanted a save 11% before they took their cut. But my money would add up in the account for over a month before they invested it. I started investing it on my own with no more that $75 investments before I noticed the safe loans were going late. 338 notes, 24 paid off, 12 late, 3 charged off.
Storch: I have similar feelings. My experience has been good thus far, but I’m still cautious. I view it a bit like a cocktail portfolio. It’s fun to do, and it’s been performing quite well, but I’m not planning on replacing our stock and bond portfolio with social lending.
almost there: How old are your notes? And how much do you have invested in each?
I invested 30k, and have started taking money out. I stand to lose 1/2 my investment interest so far if the late ones charge off. So far my a-c rated loans have charged off over 10% of the interest I have earned.
My 40 notes are now all 6-7 months old. I had one B-grade note default almost immediately after funding and is now charged off. I’ve had several that have gone late at one time or another and at least one or two may now be on payment plans with Lending Club since “partial payment” shows up in the history.
The charge off really destroyed my investment return percentage, but it will hopefully come back up if I avoid more defaults for a while.
I really go back and forth about Lending Club. Many “serious” investors insist that social lending is completely stupid and some days I feel like listening to those voices. But stocks and real estate have lost me double-digit percentages over the last several years. It appeals to me to drop $10,000 into Lending Club and see what happens, but I haven’t yet psyched myself up to take on the risk.
More of a hobby for me than an investment at this point. I’m showing a return of 11.6% on my whopping 7 notes. I saw that they recently began offering 60 month loans. Eventually I want to be investing about $100/month into LC.
My personal update after about 5 months with Lending Club. 118 notes…NAR of 10.41%. No defaults yet, only a few loans that went into the grace period for a few days (longest was a week). One note paid in full after 2 payments. Idle cash is a drag on the return and I try to counter that as much as possible by doing frequent transfers of just a few hundred dollars from my 4% checking account. (yes, they still exist with conditions). Noticed a large increase recently in # of notes available for investing. Any idea if 100% of listed loans continue to be funded ?
PJ: Good question. There should be a fairly major effect of supply and demand. If there are more borrowers than investors (on a dollar-for-dollar basis) then rates should increase, and vice versa. This doesn’t happen in a real time, though, as the rates are set (based on credit grade) by Lending Club, and they don’t update them all that frequently.
Do you think the rate improves as more people discover Lending Club? Is there a network effect?