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My Quarterly P2P Lending Results – Q4 2012

by Peter Renton on January 15, 2013

Every quarter I share in detail the returns I am receiving from my p2p lending investments at Lending Club and Prosper. I do this for several reasons. One, return on investment is what interests most readers. I also like to provide a level of transparency so everyone can see that I don’t just write about p2p lending, I am truly committed to it. Finally, it makes me accountable – I know that every quarter I need to display my returns for the world to see.

I opened my first Lending Club account (Lending Club Main) in July 2009 and since then I have opened several different accounts. I have a total of six accounts now and in the table below I provide my starting and ending balances for the last 12 months, additions I have made, total interest earned and my real return that I calculate by the XIRR method. The Return on Site number shows the official return that was displayed at Lending Club and Prosper at the end of the period.

AccountBalance 12/31/11AdditionsBalance 12/31/12Net InterestXIRR ROIReturn on Site
Totals $127,460.29 $31,500.00 $174,825.68 $15,865.39 10.77%
Lending Club Main$12,192.77 $14,000.00 $29,089.92 $2,897.15 12.34%11.16%
Lending Club Roth IRA$5,302.50 $-$6,063.54$761.0414.35%15.51%
Lending Club Trad IRA$60,823.31 $- $65,858.23 $5,034.92 8.28%8.73%
Lending Club Roth IRA - PRIME$15,640.10 $-$16,407.74$767.644.91%7.69%
Prosper Main$31,209.49 $17,500.00 $54,722.41 $6,012.92 15.34%15.22%
Prosper - 2$2,292.12 $- $2,683.84 $391.7217.09%17.45%

Now, I will provide some background and a brief discussion of each of these six accounts in the table above.

Lending Club Main

In my first account I started in a very conservative way. For the first two years I maintained a strategy that invested in A, B and C grade loans. After switching to more aggressive loans in September 2011 my returns have steadily been going up. This account seems to have stabilized now at just over a 12% return. My trailing twelve month (TTM) return has gone from 12.56% at the end of September to 12.34% at the end of December. This is after a steady rise from 6.29% at the end of 2011 due to my new aggressive strategy.

Lending Club Roth IRA

With this account I have had an aggressive strategy from day one. I opened this account in April 2011 and I have only ever invested in grades D-G. The criteria has been tweaked a couple of times but it is primarily my Lending Club Filter 1 that I described early last year in this post. This past quarter saw four new defaults hit this account so my TTM return has dropped from 15.18% to 14.35%. This is still a young account, the average note age is around 15 months and it has a 75/25 split in 60-month/36-month loans so it is probably unrealistic to expect I can maintain a 14-16% real return (my original goal) going forward. I suspect it will be more in the 12-13% range.

Lending Club Traditional IRA

I have described this account before as like an aircraft carrier. It is my largest account and despite taking this account off PRIME in November 2011 (where it was investing in mainly B and C grade loans) and focusing reinvestment on the D-G grade loans, returns have been very slow to increase. However, in this last quarter the ship has been slowly turning around. My TTM return on this account has increased from 7.14% to 8.28% despite 17 new defaults in the last quarter.

Lending Club Roth IRA – PRIME

I opened this account at the same time as the traditional IRA account above, in April 2010, and I have kept this account on PRIME. I invested initially in 100% 3-year loans (5-year loans were not even available back then) so many of these initial loans are nearing maturity. I realize I could get a much better return if I managed this account myself but I am keeping it on PRIME really as an experiment to see what long term returns people can expect from a hands-off account that is invested in low to medium risk loans. As you can see my returns have not been that great. My TTM return is close to an all time low right now at 4.91%. It is also curious that the difference between the real world ROI and the Lending Club NAR is very large – nearly 3%. I have called Lending Club to investigate this and will report back when I have an answer.

Prosper Main

This is my first Prosper account that I opened in September 2010 and it is still performing very well. The returns have dropped since my last update from 16.35% to 15.34% which is to be expected as the account ages. Prosper has my seasoned returns at 14.53% and for the past six months that number has fluctuated between 14% and 15% so I will expect my real returns to stay within that range for a while. Prosper Stats, which applies a discount to late loans has this account (my Prosper Screen Name is SLN-10) at 13.66% and that number has been hovering between 13% and 14% the last few months. If I can continue to get real world returns of 13% or more from this Prosper account I will be one happy camper.

Prosper – 2

My smallest account was opened in my wife’s name when Prosper ran a $104 giveaway promotion in April 2011. This is my least diversified account with just 131 notes but it is also my most aggressive with an average interest rate of 29.05%. I had 10 defaults this past year which is close to a 10% annual default rate but with such a high average interest rate this was still my best performing account. My TTM return did drop, though, from 20.31% to 17.09% in the last quarter and Prosper has my seasoned returns at 15.71%. Prosper Stats has this account at 14.71% today so I should probably expect no more than 15% going forward.

My Overall P2P Lending Return

My returns continue to improve as my accounts age which is in fact the opposite of what most people can expect. The reason mine are improving is that I started out with a conservative strategy and switched to a more aggressive one. As my accounts age more of the conservative loans are paid off and the balance of aggressive loans becomes a larger portion.

My overall real world return increased from 10.41% to 10.77% over the last three months. My goal is to have this number above 12% by the end of this year. I think that is a reasonable expectation for an aggressive p2p lending portfolio. While it is relatively easy these days to earn a 16% or  even 18% return after 12 months or less in p2p lending, that kind of return is much harder to maintain for the long term.

One final point I like to make is about interest earned. I include this number in my table because it is the most important number for investors. You cannot spend a 12% return, you spend the interest earned from your investment. That number increased almost $2,000 over the past three months to $15,865. I like to see that number steadily grow. Next update will be in three months.

{ 28 comments… read them below or add one }

Charlie January 15, 2013 at 3:26 pm

Thanks for the update Peter! It’s encouraging to see the success others are having p2p lending. Keep up the good work!

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Peter Renton January 15, 2013 at 5:23 pm

Thanks Charlie, much appreciated.

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Dan B January 15, 2013 at 6:44 pm

I’m not sure how difficult it is to do with these many accounts…………..but have you ever figured out the approximate average age of your entire p2p portfolio?

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Peter Renton January 15, 2013 at 9:57 pm

That is actually a good idea to include average note age in the table, I will make a note of that for next time.

I do know the average age of my entire Lending Club portfolio because once a month I download all my notes and combine them into one file and upload to Nickel Steamroller to do some analysis. So, I can tell you that my average age of my LC portfolio is 17.9 months. My Prosper portfolio is much younger with both my accounts having an average age of 9.2 months.

If you look at my overall p2p portfolio I would say the average age is only around 14 months.

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Lending Champion January 16, 2013 at 10:07 pm

Hello Peter, I’m a longtime Prosper lender myself. Faced with the limited return stats available online and on Prosper, I built a tool to help me answer the basic question of: “How much money am I actually making per month?”. After reading a few of the posts from this week in the Forum, I decided to make this available online at http://www.lendingchampion.com.

With help from a friend, I posted some overall Prosper portfolio stats as well as returns data for individual lenders. For example:
Monthly Dollar and % Returns: http://www.lendingchampion.com/lender_returns?name=SLN-10
Portfolio Snapshot: http://www.lendingchampion.com/lender?name=SLN-10

My goal is to calculate dollar returns as accurately as possible. I’ll post more about the actual methodology on the website but, for now, I have incorporated: interest income, principal repayments, loan service fees, late fees, mark-downs on the remaining principal of late notes, and mark-ups on the remaining principal of late notes that make a payment and become less late.

This approach should be more accurate than the average-rate method often used online because it tracks actual loan payments and accounts for payment timing and the variable principal of loans over time (prepayments, lates, new investments, etc.).

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Peter Renton January 17, 2013 at 9:05 pm

Nice tool, thanks for sharing. That will make a useful complement to Prosper Stats. Once you have filled out your site with some more information send me a note and I will do a formal review of your site on the blog.

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Gary S. January 15, 2013 at 10:16 pm

Is the interest you earned yearly or quarterly?

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Peter Renton January 15, 2013 at 10:21 pm

All the interest earned in my table is for the full year.

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Gary S. January 15, 2013 at 10:27 pm

Ah ha I see the dates very impressive is your ultimate goal to live off this investment?

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Peter Renton January 16, 2013 at 11:00 am

That is my ultimate goal. I would like to see this be a big component of my retirement income in a couple of decades.

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Dan B January 16, 2013 at 2:39 am

Peter…………..Perhaps I’m misunderstanding something but in the last sentence you stated that your total net interest increased by “almost $2000 over the past 3 months”. Yet my back of the napkin calculation suggests that an account of roughly $170k earning a ROI of 10.7% should be pulling in over $1500 in interest per month……………or over $4500 in 3 months. So, what am I doing wrong in my calculations??

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mbiz January 16, 2013 at 9:06 am

Dan…. I think his interest earned number is a rolling 12 month total. If you look at his Q3 results, he had $13,985.60 in interest earned in the previous 12 months. So he isn’t reporting 2k of interest earned in Q4, but essentially a 2k increase over the fourth quarter of 2011.

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Bilgefisher January 16, 2013 at 9:54 am

I am curious as well, although I assume the interest will not be a direct correlation since the year started at 127k and 31k was added throughout the year.

Peter when you perform Xirr analysis, how do you account for money added throughout the year?

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Peter Renton January 16, 2013 at 11:07 am

Dan, As Bilgefisher pointed out I started the year at $127K and added to my investment throughout the year. When I am talking about my interest I am always discussing it in terms of the trailing twelve months. As you can see in my previous update (http://www.lendacademy.com/p2p-lending-results-q3-2012/) my total interest earned in the 12 months ending 9/30/12 was $13,986. The total interest earned in the 12 months ending 12/31/12 was $15,865 an increase of almost $2,000. I am sorry I wasn’t more clear.

Bilgefisher, I include the date when the dollars were added to the account in my XIRR() calculation. The function allow for additions and deletions. I explain more about it here: http://www.lendacademy.com/xirr

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Dan B January 16, 2013 at 3:11 pm

OK, I see. So, I don’t mean to pry but I suspect that most would be interested to know how much interest in total have all these accounts combined produced in the past 3 months…………………..and how much has been lost in total via defaults in the same time period.

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Peter Renton January 16, 2013 at 3:31 pm

I don’t mind sharing more information but the table can become unwieldy if there are too many columns. I will think about it for the next update.

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Dan B January 16, 2013 at 10:51 pm

No, no, I’m not suggesting you add more columns or anything of the sort. I’m not trying to be difficult, all I’m trying to ask/suggest ( & not doing too good of a job ) is that beyond return rates & the various ways of measuring them……………. at its most basic level the questions most investors care about ( I think) are:

1. How much is invested?
2. How much gross interest is one receiving per month or per whatever time period?
3. What are the net earnings per month or per whatever time period? (i.e. how much is one making after losses?)

The answer to #1 is clearly visible. The answers to #2 & #3 don’t appear obvious, at least to me. But I have little interest in belaboring the point if this isn’t something that is of interest to others.

Bilgefisher January 17, 2013 at 10:10 am

I agree with Dan’s questions. Those are the things I look at in my own account. It helps me determine my passive income.

Charlie January 17, 2013 at 3:00 pm

I agree – for comparison sake it would be neat to see what you are making (net & gross) per month (or some unit of time).

Peter Renton January 17, 2013 at 9:06 pm

Thanks for the comments everyone. I will take these into consideration when I do the next update in three months.

Danny S January 16, 2013 at 12:53 pm

good update; i always look forward to your quarterly reports. i use them as a benchmark to try and beat :)

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John January 19, 2013 at 2:37 pm

I think the simple method of ROI is being overlooked here. The fact is with p2p lending you will always have cash balances & pending loans, not collecting interest, but this money is affecting the bottom line of your account

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Peter Renton January 24, 2013 at 10:34 pm

John, My XIRR method takes into account cash balances and pending loans which is why I believe it is the most accurate way to understand your ROI.

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Marsha January 24, 2013 at 3:19 pm

Hi Peter, Thank you for the update. Very informative and helpful. Love reading your blogs. We are steadily growing our Prosper accounts since we joined last year. We have three accounts now including a Traditional IRA. Our returns are amazing and we have no HR loans. It’s truly a miracle watching our money grow each month at over 18% (current rate right now). I have an account for my grandson’s future (car, education, etc) and in all the years I’ve had that investment (in a bank savings account for 11 years), I haven’t made as much money as I’ve made in one month at Prosper, plus we are helping people realize their dreams. I do hope the changes at Prosper are all positive.

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Peter Renton January 24, 2013 at 10:36 pm

Hi Marsha, As I am sure you are aware that 18% will go down over time. But the numbers can be truly eye popping for relatively new accounts.

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shayn February 24, 2013 at 9:53 am

Peter,

I’m sorry for going back so far in time but I had a question about your Roth IRA with LC. I know you started out with 5k and obviously you couldn’t invest it all at once. How long did it end up taking you to invest the 5k and what criteria did you use? Did you use the “super simple high return strategy” which was broad or did you use something else like your 2013 Lending club filters? Your blog is awesome I’ve read a lot of it!

Shayn

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chris smith April 4, 2013 at 1:13 pm

What is your mix of investments in your Prime account?

I currently use prime but shift my asset mix to be more in line with an aggressive return.

A – 5%
B – 15%
C- 45%
D – 25%
E – 10%

Since I only invest 25$ into each loan, Prime works for me since I do not have the time to sort through and select new loans daily.

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Peter Renton April 4, 2013 at 7:26 pm

My PRIME account has a more conservative mix than yours. It is officially a Moderate risk account and the breakdown is as follow:
A – 1%
B – 65%
C – 25%
D – 7%
E – 2%

I have kept my allocation consistent from day one, which is about three years now, mainly because I want to see the long term returns one can expect from a moderate risk hands-off portfolio.

My next update from Q1 2013 should be out next week.

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