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A Snapshot of All My P2P Lending Accounts

by Peter Renton on January 19, 2012

Today, I am going to open the kimono, so to speak, and provide an inside look at all six of my p2p lending accounts. The question I get more than any other is about the returns I am getting. This is what nearly every investor wants to know. So, today I will answer that question in detail.

The table below shows the beginning balance, additions, closing balances and returns on all six of my accounts. If there is no opening balance this means that the account was opened in 2011.

AccountBalance 12/31/10AdditionsBalance 12/31/11Net InterestXIRR ROIReturn on Site
Totals $83,839.52 $36,000.00 $127,460.29 $7,620.77 8.12%
Lending Club Main $11,470.76 $0.00 $12,192.77 $722.016.29%8.48%
Lending Club Roth IRA$0.00 $5,000.00 $5,302.50 $302.509.08%15.85%
Lending Club Trad IRA $56,847.97 $0.00 $60,823.31 $3,975.34 6.99%8.85%
Lending Club Roth IRA PRIME $14,487.37 $0.00 $15,640.10 $1,152.73 7.96%8.71%
Prosper Main $1,033.42 $29,000.00 $31,209.49 $1,176.07 17.37%19.44%
Prosper - 2$0.00 $2,000.00 $2,292.12 $292.1221.78%20.77%

Here is an explanation of the above table. I have six separate accounts – four at Lending Club and two at Prosper. All of these accounts are under my name or my wife’s name. I took the balance from the December 31st 2010 statements, I included any additions I made during the year and provided the balance on the December 31st, 2011 statements. Then I used the XIRR() function in Excel to calculate my real world return on these accounts. The Net Interest column is interest earned plus late fees less the amount of principal written off due to defaults. The final column is the return number that Lending Club and Prosper provided on the accounts on December 31st, 2011.

A Note About XIRR() and Real World Returns

I have written extensively about the different ways to measure your p2p lending ROI and why I like to use the XIRR() method. Keep in mind, to get an accurate return at Lending Club you must use the balances from your statements, not what is provided on the screen when you login. When there are no additions to an account (I have never made a withdrawal) it is a simple calculation to figure out the return: net interest/opening balance. With any additions and withdrawals you need to use the XIRR() method. This also takes into account any gains or losses on the trading platforms because these will be reflected in the closing balance on your statement.

Lending Club Main

This was the first p2p lending account I opened back in July 2009. I started out with a more conservative strategy, focusing on A, B and C grade loans and continued with that strategy for two years or so but a few months ago I changed to a more aggressive strategy targeting D, E, F and G grade loans. I made no additions to this account in 2011, but I will add substantially to it in 2012 (I have already added $5,000 in January). My new strategy is already impacting my returns. My annualized ROI for the last six months for this account is 9.59% and for the last three months is 12.9%. But the fact remains that in 2011 I made a 6.29% return on this account.

Lending Club Roth IRA

I opened this new Lending Club IRA in April of this year and took around six months to fully invest the cash. From the start the goal with this account has been to earn the maximum ROI possible at Lending Club. I have only invested in D, E, F and G grade loans from the very beginning. I took so long to invest the money because I was very picky in my criteria and only invested in loans that met all my criteria.

Today, I am very happy with this account. I earned only 9.08% real return in 2011 because I invested my money so slowly, but in the last quarter of 2011 (when I was fully invested) my real return was 14.14%. I had one default in 2011 and I have had two more defaults so far in January. But with just one late loan right now I don’t expect many new defaults for some time. This is despite investing in some of the riskiest notes on Lending Club.

Lending Club Traditional IRA

I rolled over several IRA and 401(k) accounts that my wife had from various jobs and consolidated them into one Lending Club traditional IRA. That was in May 2010. I opened it up as a PRIME account with a medium risk focus which meant notes were mainly grades B, C and D. The total balance I started with was just over $52,000 – I wrote more about this account in my first review of Lending Club PRIME back in February last year. In October, I decided to take this account off PRIME and manage it myself because I believe I can do better with my note picking strategies.

Lending Club Roth IRA – PRIME

My second Roth IRA account at Lending Club is another of my wife’s accounts where I rolled over a Roth 401(k). I opened this as a PRIME account and have kept it that way because I am interested to see how a PRIME account will fare over the long run. Having opened this account in May 2010 the average age of notes here is over 12 months now. I am earning a real world return of close to 8% here which I think is quite satisfactory for an account that is completely on autopilot. I expect this account will probably dip below 7% in real world return this year before settling in to a 7-8% range in 2013.

Prosper Main

I opened my first Prosper account back in September 2010 with $1,000. In 2011 I added to this account substantially. You can see this is where the majority of my new money went in 2011 witha total of $29,000 new money invested. I invested $20,000 in October and an additional $5,000 in December so the average age of notes in this account is still very young. I am focused on D, E and HR notes in this account (mainly repeat borrowers) so I expect a large number of defaults here. So far, I have only had two defaults but I expect an annual default rate of well over 5%. You can see a portfolio breakdown of my Prosper account on Lendstats here. My Prosper screen name is SLN-10.

Prosper – 2

I opened my second Prosper account (under my wife’s name) when Prosper ran a special giveaway in April. They were giving new investors $104 to open an account and I couldn’t resist the free money on offer. I have only added $2,000 to this account and I have been focused primarily on new borrowers in grades E and HR (the highest risk borrowers on Prosper).

My goal with this account is to see if I can earn a decent return by investing just a small amount into the highest risk notes in all of p2p lending. My Prosper screen name for this account is green-inspiring-peace. I should also point out a good portion of my returns this year were gained by investing in my own Prosper loan – this was at 31.99% and I invested $750 in that loan. So that definitely skewed my results higher than normal. I paid back that loan in late December.

My Overall P2P Lending Returns

When I do the calculation of my real return across all my p2p lending accounts I come up with 8.12% in 2011. I consider this a decent return but one that I would certainly like to improve upon. My goal for this year is to have this number over 10%. In 2011 my Lending Club strategy shifted to focus purely on the high risk loans (with the exception of the PRIME account) and I expect to have my three actively managed Lending Club accounts showing a real world return over 8.5% this year and my long term goal is get this number up above 12%. I expect my new Roth IRA will do more than 12% this year.

You can also see the large difference between the Lending Club and Prosper return numbers and my actual returns. As I have written before there are two main reasons for this: their ROI numbers do not take into account the amount of cash in your account and they ignore profits and losses from trading activity on the Folio platform.

My Prosper accounts continue to perform better than I expected. However, I am not getting carried away with this success because the average age of my notes in these accounts are still very young. I do anticipate a large number of defaults this year, so I don’t expect 17% and 22% returns in 2012. But my goal is to finish the year with a real world return of 15% or more between both accounts.

Managing Six Accounts

I do spend a few minutes every day logging in to each account and recording various data points such as return numbers, late notes and available cash. Then once a week I invest my available cash in my three Lending Club accounts (the PRIME account is invested automatically). On Prosper, I have Automated Quick Invest setup on each account, so I do only occasional investing outside of this.

It is quite a task keeping track of six accounts and making sure there is no duplication of notes between accounts. How do I do that? Well that is a topic I will cover in a post next week.

{ 11 comments… read them below or add one }

Dan B January 20, 2012 at 1:37 am

Thank you for exposing yourself to us today. I must admit that on several occasions I almost averted my eyes after catching a glimpse of the eye popping return numbers……………..only to then notice that they were all from accounts that were opened the last few months. Nevertheless, these are solid returns, all things considered.

Would it be accurate to state that with the exception of money added just in the last few months, almost 95% of your p2p money has been allocated with Lending Club??

Reply

Peter Renton January 20, 2012 at 4:18 am

@Dan, Correct. To be honest, until a few months ago I was unsure about Prosper’s long term prospects. I only had $5,000 invested until October when it became obvious to me that they have an excellent chance of becoming profitable in the near term. So I decided it was time to get more serious about my Prosper investments. I intend to have $100K invested in Prosper by the end of the year and a similar sum in Lending Club.

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Dan B January 20, 2012 at 4:58 am

Thank you for being so candid. I don’t share your optimism, but I do hope that somehow you turn out to be correct on this.

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Dan B January 20, 2012 at 4:54 pm

Peter…………Are the 2% & 4% differences between your listed XIRR ROI & Lendstats ROI for the Prosper Main & Prosper2 accounts respectively, caused by a recent decline since the Dec. 31st info (as noted in your chart) or are they a product of the different ROI calculation method employed by you vis a vis Lendstats? Seems like a rather pronounced difference.

Reply

Peter Renton January 21, 2012 at 9:38 pm

@Dan, The main difference between the XIRR() returns and the Lendstats numbers is the late loans. Both account have some late loans and Lendstats will discount those loans when they are late whereas XIRR() will not discount them at all until after they default. I expect witha few more defaults (which will certainly happen this year) the numbers will get closer together.

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Danny S February 1, 2012 at 10:06 am

Peter (and/or Dan)- When your loans go to 30 days late, do you typically try to sell them on Folio at a discount, or try to hang on and hope the efforts by LC or Prosper are successful and they come back to current?

Reply

Russ February 1, 2012 at 5:00 pm

Peter:

I’m just wondering what interest rate you targeted in your Prime account. When I opened a prime account atlending club they asked me to target a specific interest-rate giving me several choices such as 10% 12% 14%, like that. I’m wondering how are your ROI corresponds to your selected target.

I only opened my account in September so it’s too soon for me to tell what kind of return I might get in relation to the target I selected otherwise I would tell you.

Reply

Peter Renton February 1, 2012 at 6:51 pm

@Danny, Once a loan goes more than 30 days late it is very difficult to sell on Folio even for a 50% discount. If you want to sell, you should do it before then. In Grace Period loans can be sold for a discount of 5-10%, but once they hit 16-30 days you will likely need to discount by 25% or more. Of course, you could get lucky but these are the averages I have seen.

@Russ, It is going back almost two years for the PRIME account but I know I chose the medium risk percentage that I think was around 12% or so. I know that for the first few months my NAR was around 12%, and right now it is hovering between 8.5% and 9%. I expect it will never get back to 10% but should stabilize at over 9% in coming months. So, for a mid-range account I would expect around a 2-3% variance on the interest rate. This will be a much larger variance for high interest notes and a smaller variance for low interest notes.

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Dan B February 2, 2012 at 2:32 am

Danny……….Also keep in mind that though Peter’s numbers only apply to Lending Club. You can’t sell “late” loans on Prosper & they don’t have a “in grace period” category. Other than that my advice would be to look at the details of the specific loan. There are rare times when a loan will go into grace or even late but can can still be something to hold on to. For example when a late loan is late because of a missed or “partial” payment…………but is still making regular payments.

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jack reidy June 17, 2012 at 10:21 am

Peter,

Is is feasible to take existing Propser/Lending Club accounts and convert them to traditional/Roth IRA’s or do you have to create brand new accounts?

Jack

Reply

Peter Renton June 17, 2012 at 2:30 pm

@Jack, You must open separate accounts at Prosper and Lending Club. You can rollover an existing IRA or 401k or you can open a new account. But they must be separate from your taxable account.

Reply

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