Monday, May 29, 2017

Update on My Lending Club Portfolios

Lending Club allows you to divide your notes into "portfolios" or groups of notes and it shows you data about those portfolios.  This post is about my Lending Club portfolios--what they are, why I invested that way and what my results are.
I started this article by copying a similar one I wrote about a year ago.  Then, I updated the text, and changed the old text to blue.  Hope this makes sense.

Last Year's Screenshot
Current Screenshot 

This portfolio is made of all the notes I purchased in 2016.  I have invested no new money in this account; all of these notes were purchased with the principal and interest paid to me each day.   I use Lending Club's automatic investment feature to purchase equal numbers of C, D, and E rated notes.  I filter the notes to get only those for debt consolidation or credit card payoff and to eliminate those where the borrow has other credit inquiries in the last six months.  Lending Club projects that my return will be 7.38% annually.  So far, none of these notes is late.  

The above post was written May 8, 2016, so you can see by the diagram that I must have manually grabbed a few F notes.  I cut this portfolio off at the end of the year.  Also I started investing a lot of my returns in resale notes but this portfolio only reflects the notes I purchased new.  While this screenshot doesn't show it, the total amount I invested in this portfolio was $7125.00.  

As of this time, about 36% of my interest has been lost to charge-offs.  My total interest minus charge offs on this portfolio is about 9% of the principal. 

2016 Screenshot

2017 Screenshot 

I purchased all the notes in this portfolio new in 2014 and 2015. I used a lot of different criteria and tried to track them for a while but just gave up.  It is the largest of my portfolios.  I have lost 31% of the interest earned because of loan charge-offs.

I invested $12,291.86 in this portfolio.  At this time I have lost about 60% of my interest to charge offs. My interest minus charge offs is about 8% of the original principal value.

2016 Screenshot
2017 Screenshot

Lending Robot is a service you can use to pick notes for you.  They will invest a certain amount at no charge; after that, they charge a percent of the money they invest for you.  The advantages to Lending Robot are speed and its algorithm.  Lending Robot's computers are able to log onto Lending Club's site, filter the available loans and select and purchase appropriate ones more quickly than even Lending Club's automatic investing system.  If you are trying to deploy a large amount of money at one time, it can make a real difference.  Also, Lending Robot and similar services crunch all the numbers on all the loans made by Lending Club and try to find weaknesses in Lending Club's underwriting.  In short, they are trying to find loans which Lending Club overpriced--loans that are less likely to default than others with the same interest rate.  If you invest via Lending Robot you can use your filters or theirs.  This portfolio was designed by and picked by Lending Robot.  I have lost 33% of the interest gained on this portfolio to charge-offs.  

The total amount invested in this portfolio was $3975.00.  At this time I have lost 56% of my interest to charge-offs.  The interest minus charge-offs is 10% of the invested capital. 

2016 Screenshot
2017 Screenshot 

Peer to Peer Quant was a website that purported to have a system for picking notes that were less likely to default and therefore would earn higher returns than other similarly-rated notes.  The owners decided to shut it down, and said the returns were not enough better than average to justify keeping it.  Interestingly, I have only lost 13% of my interest to defaults. 

The total I invested in this portfolio was only $1446.86.  By now, I've lost 53% of my interest to defaults and charge-offs.  The interest minus charge offs is  about 10% of the principal.  

2016 Screenshot

This is another Lending Robot portfolio.  I have lost 30% of my interest for this portfolio.  

A year later, that figure is just about the same--31%, which makes this portfolio an outlier. My interest minus charge offs is 13% of my $1625 investment.  The question is whether Lending Robot is better than my other methods of picking notes or whether the small size of this portfolio skewed the results. 

2016 Screenshot
2017 Screenshot

When I first started researching Lending Club I read articles that said that most defaults at least get started in the first year of the note's life.  The borrower will be late for a payment, even if he later pays on time for a while.  The borrower's FICO score will go down.  The writer of what I was reading recommended buying high-interest notes that were at least a year old and which had perfect payment records.  He also recommended avoiding those whose borrowers had FICO drops.  The problem with such notes is that the owners generally know they have something of value, and charge a premium for it.  When I bought these notes, I generally paid a premium with the attitude that if I made money, I had no problem with the first owner doing so as well. Unfortunately, I found that early pay-offs of these loans were not uncommon, and at 39%, this is one of the portfolio where defaults have taken the biggest chunk of my interest.  

A year later, charge-offs have taken 59% of my interest.  My interest minus charge-offs is 8.8% of my original $3245.70 investment. 

2016 Screenshot
2017 Screenshot

Another article I read early on talked about a "penny notes" strategy.  He recommended buying A or B notes with about a year left on them.  It was his opinion that these were very unlikely to default.  Since I was not sure about Lending Club, I liked the idea of getting my money back quickly in case I wanted it for something else.  As you can see, there are 213 notes in this portfolio and 101 have been paid off completely.  Seven have been charged off, so I have lost 39% of my interest to defaults so I don't think this turned out to be a "safe" way to invest.  

Well, I've officially made a profit on this portfolio.  I invested $4182.45 and have received $4203.55. I have lost 38% of my interest to charge-offs.  My interest minus charge offs is 5.6% of the amount invested.  That sounds worse than it is because a lot of this money has been paid off, and moved to different portfolios for a long time.  
5/29/17 Screenshot
This is a portfolio I started in January, 2017.  It was autoinvested in high-risk notes as you can see from the pie chart.  The money came from payments on other notes.  May's reinvestments are also here.  February's money went to another portfolio and in March and April the payments were withdrawn from the account.  So far there have been no charge-offs.  The interest is 3.7% of the $2350 invested. 

5/29/17 screenshot
In February, I reinvested using Folio-fn to pick resale notes.  I wanted notes selling at a discount with no downward FICO and no late or missed payments, and which had only had no more than two  payments made,   So far I have no charge--offs and my interest is 3% of the 528.40 I invested.  


5/29/17 screenshot

  
From July through December, 2016, I reinvested my daily payments via Folio-fn.  I looked for notes with less than two payments made, even or upgoing FICO and selling at a discount. So far I have lost about a third of my interest to charge-offs and my interest minus charge offs is about 7% of the invested $5458.41. 

Do you invest via Lending Club?  What are your returns?




3 comments:

  1. Wow! This seems so complicated. Is it done within your IRA or do you have to do taxes on each drip? Could you give a summary? Add up all of your principles and then your totals and give a figure for the difference? I cannot, quite, figure it out from above. Not interested in $$ totals as much as yearly interest overall. What do you see as the advantage of this program over regular mutual fund investing?

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    Replies
    1. Opps---sorry. Just went back and reread the post from a bit ago addressing most of my questions.

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    2. The tax reporting isn't that bad; you get forms every year on the account as a whole rather than each individual note (though they are listed). The advantage of this over mutual funds is that it is a different asset class, so that if stocks are doing poorly, this may still do well. It is an income investment and it thows off money regularly that can be reinvested in something else or spent.

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