A couple of months ago I opened a Lending Club Roth IRA. At the time I recorded a video of the actual process of opening the IRA that you can watch here. I have been slowly investing my funds into new notes in this IRA. Last week Lending Club posted my initial NAR for the first time which, as you can see in the screen shot here, came in at just over 17%.
Actual Results May Vary
This high NAR reflects the fact that I am investing only in higher risk notes, those with grade D, E, F and G. My weighted average interest rate is 17.67% right now. Of course, you can impress your friends with an NAR of greater than 20% if you want to invest in just G grade loans. And because defaults will not impact your NAR for at least four months your account will look impressive for quite some time.
But that is not my purpose here. I am sharing this with you now just to show a starting point. You will not see another update on this account for many months until we can start to see the impact of defaults. I am investing in only 15-20 notes per week that meet my strict criteria, so it will likely take me four months or more before I have fully invested my $5,000. I will also be tracking my NAR every day and I will share the impact that defaults have upon a high NAR.
I wrote about my investment strategy for this account last month and here is the actual criteria on Lendstats where you can also see the estimated ROI of this investment strategy to date (as of this writing it was 13.06%). I have decided on this strategy after testing hundreds of queries on Lendstats and I will likely refine it slightly as time goes on.
What Are My Goals Here?
This is a Roth IRA that I intend to keep at Lending Club for decades. My goal with this account is for a real world return of greater than 12%. This will mean maintaining a Lending Club NAR of somewhere close to 13%. Why the difference? You should read my post about actual returns with p2p lending where I explain the reasons as well as show you how to calculate your real world returns.
The real goal here is to see if my strict quantitative analysis can produce an above average return. I rarely look at the loan descriptions, instead preferring to filter out the best loans to invest in based on historical performance. Of course, there is no guarantee that this will translate into higher returns, but I believe that it will.
Tax Free Interest with a Lending Club IRA
I have said it before and I will say it again. If you decide to invest in Lending Club, you should always choose the IRA option if at all possible. This way you will not have to pay any taxes on your interest income. If you are contributing to a 401k at work you can still invest in an IRA. If you are under age 50 you can invest $5,000 per year in an IRA, for those 50 and older the amount is $6,000.
I intend to contribute the maximum into my IRA every year. I hope and expect that when it comes time for me to retire I will have built up a substantial nest egg through the wonders of compound interest and peer to peer lending.