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.[table "40" not found /]
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.
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.