Friday, May 13, 2016

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.


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.  As of May 8, an account of about $19,000 has paid me over $4,000.  That's a handy number to keep in mind if you want liquidity in an investment.  Lending Club notes are not instantly liquid (though they can be sold on a secondary market) however, they regularly throw off cash, which you can choose not to reinvest.  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.  


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.


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.  


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. 


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


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 not 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.  


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.  

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









2 comments:

  1. What is your overall impression of Lending Club?

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    1. I like it. The reality is that banks have been making money making unsecured loan to individuals (a/k/a issuing credit cards) for years. Unlike some of the more exotic investments I've read about, I understand these loans; I understand how I can make money and how I can lose it. My peer lending accounts have had better returns than the stock market recently and the way they throw off cash regularly means that if I need the money, I can get at least some of it relatively soon.

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