Lending Club 2010 Performance

Lending Club 2010 Performance

Over the weekend, I spend some time getting caught up on our finances in Quicken. It’s been a few months since I updated my Lending Club performance, so I thought I’d take this as an opportunity to share some results from the past year.

As things currently stand, Lending Club lists my net annualized return (NAR) stands at 9.07%. That number does not, however, reflect the effects of idle cash or activity on the secondary trading platform (FOLIOfn). Thus, I always like to ground truth things with my Quicken data.

So what did Quicken have to say? Well… From January 1 – December 31, 2010 my Lending Club account returned 8.8%. Not too shabby. This number has been negatively impacted by my initial experiment, in which I had Lending Club auto-select a high risk and low risk portfolio.

Not surprisingly, that high risk portfolio has suffered a number of defaults that have pulled my returns down. My manually selected loans have done much better (as have the auto-selected “low risk” loans) but, in the interest of transparency, I’m presenting the data for my entire Lending Club investment.

Over the past months, I’ve refined my loan picking criteria and my returns have been gradually improving. Perhaps the biggest thing that I’ve done recently has been to move all of my loan picking to the secondary platform, where I can buy “proven” notes at a slight discount.

In terms of real numbers, my current Lending Club balance is around $10k and I’ve invested in a total of 452 notes. Of these:

  • 395 loans are current
  • 41 loans have been paid off early
  • 1 loan is currently 16-30 days late
  • 8 loans are currently 30-120 days late
  • 7 loans have defaulted and/or been charged off

All in all, I’ve had a pretty good experience. While I wouldn’t rely on P2P lending as the core of my investment portfolio, it’s been fun to play around with, and the returns have been solid if not spectacular.

Of course, it’s still too early to predict how my long-term returns will look, as my notes are all three year notes. I’ve only been doing this for about 20 months, so I still don’t have a “fully seasoned” portfolio.

The primary downside for me has been the time required to select loans. Even with the filters that I use, I’m still left with a number of notes to sort through. This time commitment is amplified by the fact that I never invest in notes above $50 (to spread my risk around).

What about you? If you’ve been investing with Lending Club, how have things been going for you? Do you have any tips or tricks for improving performance?

25 Responses to “Lending Club 2010 Performance”

  1. Anonymous

    I wish they had a auto-invest feature for Lending Club. I bet I loss a lot of interest on the money that sits around my account (either from principle or early pay-offs). I go to my account once a week and there’s always money sitting in the cash area. I don’t like how I constantly have to maintain it.

  2. Anonymous

    Mr. Nickel. Very off topic, but have you ever considered investigating and informing your readers about covered call writing ? The most conservative individual stock investing method. I’ve toyed around with it for years, but became serious with it early in 2010 upon retirement and dedicated a portion of my IRA into a self directed brokerage account. Results have been good so far, nothing spectacular, but a solid two digit return. I’m sure you know the deal…buy a stock and then immediately sell someone the right to buy it from you at a designated price anytime in the future…with an expiration date on his right to do so. Of course, you miss out on any big advances in the stock but the premium you receive from selling the call offers downside protection. And in the meantime you collect dividends from the stock you hold. (sometimes…but that’s another story). I only invest in positions of dividend paying, high cap stocks that are widely traded. Today is an expiration date on stock options and I will have 4 positions closed. Three of them were profitable with returns of 13.34% for 177 days, 4.23% for 117 days and 0.94% for 33 days. Totaling about $1000. The one loser was a loss of 1.01% for 35 days. About $100. All of this is after transaction costs and dividends rec’d. A low cost broker is a must.

  3. Anonymous

    I don’t know how accurate the rating system is either, but having said that (& keeping in mind that I apply a strict standard to picking notes)……..nevertheless out of the 65 A rated notes I have, I’ve never had any even go into grace period in 14+ months. So I think there is something to be said about the ratings.

  4. Anonymous

    @Rick and all: I agree LC loans are not always priced properly. This is similar to other markets, where some items are overpriced, while others are “on sale”.

    I personally look for loans, that not only meet my criteria, but also believe lending club priced too high based upon the risks. Keep in mind, Lending Club has some formula to create the rate. Formulas are not always accurate for a specific borrower situation.

  5. Anonymous

    @Nickel………Are any of the 9 “lates” you have on a payment plan? I have 4 & 2 are on a plan & making reduced monthly payments that are basically just interest. The other 2 are certainly going to default. With a 500+/- note portfolio I’ve found that each of my 4 previous defaults has cost me 0.75% off the NAR………so you might have an interesting 2011 in store.

  6. Anonymous

    I have invested in about 320 notes to date, very consistently over the last 13+ months. 15 paid early, no defaults yet (although one borrower is filing for bankruptcy after 1 payment), one note at 16-30 days late, another at 31-120, and typically 3-5 in the grace period. LC has my return at 10.39%. My calculation is 8.88%. About 63% A&B and 29% C&D notes.
    All notes selected individually. Typically one per day, and all at $25.

  7. Anonymous

    @ LEH

    Well said. That’s why my top metric is job security. It’s qualitative so it makes the loan screening process more labor intensive, but that’s why I spend an hour reading loan applications every week.

  8. Anonymous

    I have selected some “B” rated loans along the way and two defaulted pretty quickly. What I think happens is that people know they are going to lose their jobs, or have already lost their jobs and are “doing home improvements” etc as the reason for the loan.

    I don’t trust the ratings – I’m with you – some people have a decent rating but are in a low category – makes you wonder why they’re borrowing at such a high interest rate. I’ve had many pay off loans quickly (within a year.

  9. Anonymous

    @ Rick

    It’s my theory that without proper research, an A rated note is just as likely to default as a F rated note. LC’s numbers say otherwise, but I don’t put a lot of faith in the rating system since I’ve seen 780+ FICO borrowers listed in the C category.

    Bottom line: don’t put much faith in grading systems or financial algorithms b/c if behavioral economics teaches us anything, it’s that people do crazy things that can’t be modeled with equations.

  10. Anonymous

    I am divesting myself of Lending Club notes as soon as possible. I have 3 defaults out of 31 notes! These where supposedly vetted by Lending Club as to income, etc. All 3 where rated as B for risk. One of these borrowed 18k and didn’t make even ONE Payment! No recourse except a “shame on you” to the borrower. This site is ripe for fraud and people using multiple IDs to steal money from people honestly wanting to help others.

  11. Anonymous

    What I am peeved about is that my 1099 form from LC is just over what I have lost this past year to charged off loans. Yet LC doesn’t subrtact the charged off loans on the 1099. I continue to take any cash out as soon as it reaches a hundred bucks. I made the error of investing with their auto invest at the safe 11% return level and got burned big time. No more.

  12. Anonymous

    I always stick with the 25 dollar notes just because I feel like spreading individual loan risk around is a better strategy than minimizing lending club fees by the small percentage.

    I’ve taken an approach to sell any note that goes to even “Grace Period”. I look at payments vs. amount still owed and can usually sell them to deal seekers for an amount that gives me at least a few percent overall profit from the 25 initial dollars. If they go to actual late then the only way to sell them is with a loss.

    I’m not convinced this is the best strategy since probably 90% of those I sell end up getting current again. But it does keep me from having any worry about potential defaults and loans showing late (which drives me bonkers).

  13. Matt: How long have you been investing with LC? 300 is a decent number of notes, but if they’re mostly new(ish) then I wouldn’t expect to see many defaults – yet.

  14. Barbara: I have separate portfolios for “High Risk,” “Low Risk,” “Ongoing,” and “Secondary.” The first two are from my initial auto-select experiment. “Ongoing” is for newly issued notes selected using my regular criteria, and “Secondary” is for notes that I pick up on the secondary market.

    Unfortunately, they don’t calculate NAR on a per-portfolio basis. Beyond that, I’m not interested tracking these all separately in Quicken – it would be WAY too much work. It is nice, however, to get a breakdown of late notes, early payoffs, etc. based on strategy.

  15. Anonymous

    One way I use to differentiate different loan picking strategies is through the Portfolios feature. I have several different portfolios with descriptive names, so when a loan is late or defaults, I can see (at least partially) what strategy isn’t working as well. You could put your “auto-picked, high risk” loans in a separate portfolio. Not sure if you could separate these out in Quicken (or if you’d want to), but just saying. Cheers, Barbara

  16. Investor Junkie: For what it’s worth, I never invest in someone that has a late payment or default on their record no matter how long ago it happened. Unfortunately, Lending Club doesn’t let you filter these individuals out entirely, so there’s still some manual filtering to be done.

  17. Investor Junkie: Three of those seven defaults were in my 20 note, auto-picked “high risk” portfolio. I fully expected poor performance there, but I don’t feel right splitting them out (nor do I want to go to the trouble since it’s all in one account in Quicken). But if we ignore those intentionally risky notes, I’ve had 4 defaults on 432 notes, which is a bit less than 1%.

  18. Anonymous

    I’m ~15.6% NAR with ~300 notes. But, I suspect I’m about to get hit with the default bug fairly soon as I had a borrower do a Ch.13 bankruptcy on me.

    @ John,

    Great tip, hadn’t really thought about fees in the “Office Space” example of “taking a fraction of a penny from the community penny tray” yet.

  19. Anonymous

    @FCN: Interesting how may defaults and late notes you have:

    I just updated my performance recently.


    I have 200 notes and no where near the amount you have and have been doing it around the same timeframe as you.

    I now have two defaults. I’ve decided to never invest in a borrower that has even been late or defaulted previously on other loans. I figure since this is an unsecured note they only thing that will force them to pay it back is their conscious.

    @John: Interesting mention about the rounding up. Kinda like Superman 3 or Office Space eh? 🙂

  20. John: Great tip. I’ve noticed that (rounding of fees) in the past, but haven’t been inclined to increase my note size. With a reasonably large portfolio, though, you could easily hold a large number of $75-$100 notes, thereby helping to reduce the risks associated with any one borrower.

  21. Anonymous

    My only suggestion is to invest about $75-$100 in each note. The fees that LC takes off of each payment(principal and interest) are 1% rounded to the nearest cent. If you invest $50 and the interest rate makes your payment ~$1.60/month, you pay $.02 in fees. If on the other hand, you invest $75 in the same loan and your payment is ~$2.35, you still pay $.02 in fees. While this won’t make a huge difference, it is significant. On a $1000 chunk of loans, it could make the difference of up to $.14/month, $1.68/year, or .16% payment increase. Since the fees are taken from the principal payment as well, the actual change in your APY is about 4-6x that amount, depending what interest rate you are collecting. The lower your interest rate, the more effect it can have.

    I’ve done some experimenting with $25, $75, and $100 investment sizes and determined how they calculate the fees.

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