At the end of May 2013, I started a $1,000 investment account with Lending Club and I’ll be updating you on the progress on a regular basis. This is not my only investment with Lending Club, but I want to create a publicly tracked portfolio and share lessons that I learned with you. Note that I only start to do peer-to-peer lending again, now that I have a well-funded retirement account and some extra money to invest.
As of 12/1/2013, about 6 months after the original investment date, the total portfolio value after adjusting for charged-off loans and late loans is $1,021 — this represents 2.1% gain, or 4% APY. This is a big drop from the initial expectation, mostly due to poor result from the Trading Account experiment as I elaborated last month.
A Quick Intro
If you don’t know what Lending Club is, it’s an online platform that allows people to come together and either lend or borrow money. As an investor, you can lend out as little as $25 per loan to different borrowers; and as a borrower, you can borrow up to $35,000 from the platform. For more information visit Lending Club and check out these articles:
- Investing and Making Money with Lending Club Peer-to-Peer Lending
- Understanding Peer-to-Peer Lending Risks
- Lending Club Reviews – Is It Safe? at WealthPilgrim.com
I already have a Lending Club account, so it was an easy process for me to deposit $1,000 into the account. The deposit does take a few days to show up in my LC account (this is something they can certainly improve upon). Anyway, once the fund was available, I just use their Build a Portfolio tool (just click “Invest”).
On this page, I was presented with 3 options:
- 11.22% (projected 7.84%) – 37 loans out of 40 possible loans, prefer to spread out over 40 loans
- 15.31% (projected 10.31%) – 40 loans spread out across all grades, seems like a good place to start
- 19.81% (projected 12.79%) – 29 loans out of 40 and no A and B loans
I made a few adjustments to the recommended portfolio just so that I can see how the rate changes:
- I chose 36-month only loans and the rate drops to 13.71% (projected 9.3%). So I reversed this and included both 36-month and 60-month loans.
- I removed G credit rating loans and the rate go down to 15.23% (projected 10.28%)
- I adjusted the Max Debt-to-Income Ratio. At 20%, the rate went up to 15.34% (projected 10.34%) and at 15%, the rate went down to 15.06% (projected 10.17%)
- I removed A credit rating loans and the rate go up to 16.97% (projected 11.31%)
At the end, my Build a Portfolio page looks something like this:
I completed the process and saved the portfolio as 2013 Portfolio A. One thing you will realized quickly is that not all loans will be funded, so you will have to go through this process a few times to invest all of your money.
This is what my initial order looked like when I placed the initial order:
After several attempts to get the portfolio fully invested, this is what it currently looks like:
I don’t expect the investment to yield 16.70% based on the Weighted Average Rate above because some loans will default (e.g., the borrower stop paying altogether). I think I’ll be happy with a rate of return around 6-9% and thrilled if I ended up with anything higher than 9%. I will update this article about a month from now.
Portfolio History and Updates
As of 11/6/2013, about 5 months after the original investment date, the total portfolio value is $1,107 — this represents 11% gain, or 26% APY.
At this point, I have to admit that my Trading Account investments are not working out. 4 out of the 6 notes purchased through the trading platform are late and most likely will be a total loss. Excluding these 4 notes, plus the one defaulting note from my regular portfolio, the adjusted portfolio value is $1,030 — this represents 3% gain, or 7% APY.
This is not quite the result I was hoping for.
As of 9/28/2013, about 4 months after the original investment date, the total portfolio value is $1,105 — this represents 11% gain, or 30% APY.
Unfortunately, there is a problem brewing.
- The original loan is still doing well, only on late D1 loan that is 31-120 days late. I tried to sell in off in the Trading Account at FOLIOfn, but no luck so far.
- The 6 Trading Account notes I bought looked good initially, with 2 notes went from late to current. However, September has not been good. 4 notes still stuck in late category and one went bad again.
Discounting the bad notes, we are potentially looking at $70 loss, which means the we are more realistically looking at 3% gain over the past 4 months, which annualized to about 10%.
As of 8/30/2013, about 3 months after the original investment date, the total portfolio value is $1,062 — this represents 6.2% gain, or 24.9% APY.
The late D1 loan from last month is now 31-120 days late. As a result, I signed up for a Trading Account at FOLIOfn and I am trying to sell the loan for $9.99 (no one want to buy it yet). I also decided to buy some loans through FOLIOfn, I bought 4 late loans for $53.56 and 2 are already paying again. If this strategy works out, I can get a much higher yield by buying carefully selected loans from FOLIOfn at a deep discount. Lastly, I have one B4 loan that already paid back in full so that freed up some money for investing.
As of 7/28/2013, about 2 months after the original investment date, I received $20.42 in interest payment on my initial $1,000 investment, and $22.26 in principal was repaid. This allowed me to reinvest and buy another $25 loan and there are now 41 loans in my portfolio.
Also, there’s currently one D1 loan in grace period (the first step toward a loan default). A default means I would lose any loan amount not repaid, and any potential interest I expect to earn from that loan.
At this point, we are looking at about a 2.04% gain, which annualized to approximately 12.25%. I still have two loans that are still in review, so the rate of return may increase slightly once all the loans are fully invested.
As of 6/28/2013, about a month after the original investment date, I received $9.24 in interest payment on my $1,000 investment. This is about a 0.92% gain, which annualized to approximately 11.09%. The rate of return may increase slightly once all the loans are fully invested; however, it could also decrease as a result of loan defaults (which should be expected with this type of investment).
Until then, please share your thoughts in the comment section below.
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.