The main reason most investors have taken the plunge with peer to peer lending is for the excellent returns. For this reason every quarter I post the details of my own returns for all my accounts at Lending Club and Prosper. You can see my historical returns here.
There are a few points you need to keep in mind as you look at the table below.
- I do not rely on the return numbers that Lending Club and Prosper provide. Instead I work out my trailing twelve month (TTM) return using the XIRR method. This allows me to take into account cash drag as well as any deposits (and withdrawals if I had any) while providing an accurate return.
- The Net Interest number is total interest earned plus late fees less any charge-offs.
- The Average Age column shows the average age in months of the loans in my portfolios. I added this based on feedback from my last update and it is useful because as a loan portfolio ages the more impact defaults have on the overall returns.
- All the interest and total balance dollar amounts are obtained from the monthly statements, I do not use balances displayed on the websites of Prosper and Lending Club.
- The Return on Site number is from the platforms recorded on the last day on the quarter.
Below is the table showing the return breakdown from my six accounts.
|Account||Balance 3/31/12||Additions||Balance 3/31/13||Net Interest||Average Age||XIRR ROI||Return on Site|
|Lending Club Main||$23,620.71||$3,000.00||$29,591.84||$2,971.13||19 mths||9.17%||10.65%|
|Lending Club Roth IRA||$5,476.51||$-||$6,149.93||$673.42||15 mths||12.30%||13.99%|
|Lending Club Trad IRA||$61,689.09||$-||$67,357.11||$5,668.02||20 mths||9.19%||8.96%|
|Lending Club Roth IRA - PRIME||$15,719.98||$-||$16,642.50||$922.52||20 mths||5.87%||7.60%|
|Prosper Main||$37,765.00||$15,000.00||$59,122.15||$6,357.15||12 mths||13.99%||15.06%|
|Prosper - 2||$2,394.16||$-||$2,767.63||$373.47||14 mths||15.60%||16.59%|
This past quarter was a mixed bag for my investments. Some of my accounts were up and some were down. I provide some more detail below.
Lending Club Main
This was my first p2p lending account that I opened in June 2009. All the loans from my initial investment have now matured and this money has been completely reinvested in a new batch of loans. But this account was my biggest disappointment last quarter. I went from a 12.34% TTM return on December 31, 2012 to 9.17% on March 31, 2013. Why the big drop? One word: defaults. January was my worst month ever for this account with around $412 in defaults against $453 in interest earned. February and March were much better and more in line with my historical numbers but the hit in January caused the big drop in my TTM return.
Lending Club Roth IRA
My $5,000 Roth IRA that I opened in April 2011 is now nearly two years old and it too suffered quite a big TTM return drop in the 1st quarter. My ROI dropped from 14.35% to 12.30%. This is my most aggressive Lending Club account, only investing in loan grades D-G and it also suffered more defaults in the latest quarter than ever before. January was also a terrible month here with more defaults than interest, which is the first and only time this account has gone backwards in a month.
Lending Club Traditional IRA
This month marks the third anniversary since opening this account. It was started as a Lending Club PRIME account but I took it off PRIME in November 2011 as I felt I could do a better job cherry picking loans. This is my largest Lending Club account and it is continues to show improved performance. I have gone from a TTM low of 6.45% one year ago to 9.19% today, this is also up from 8.28% last quarter. I continue to focus on grades D-G in this account by investing in my Lending Club Filters 2 and 3 as described in my How I am Investing post.
Lending Club PRIME Roth IRA
My second Roth IRA account (this is my wife’s Roth) is a Lending Club PRIME account. This is my experimental account. While I know I could do better by managing this account myself I like to see what happens when I let Lending Club choose the loans for me. This account has been a PRIME account since I opened it in April 2010. After several quarters of declining return numbers we showed a nice jump from 4.91% to 5.87% in the last quarter.
I opened my first Prosper account in September 2010 with just $1,000. I have continued to add regularly to this account and today it has almost $60,000. Like most of my older accounts my returns here continue to drop but I am still very pleased with the numbers. My TTM return on March 31st was 13.99% down from 15.34% three months before. This account has the youngest average age of all my accounts at just 12 months so I should expect these return numbers to continue to fall. But I am hopeful that I can maintain returns here in the 12-13% range.
Prosper – 2
My smallest account also happens to be my best performing account out of all six. It is also my most aggressive account. I have only ever invested in grades E and HR in this account and so far it has paid off. I opened this account in April 2011 during a promotion where Prosper gave away $104 for every investor who opened a new account. My TTM return number of 15.60% does not include this bonus. While that number sounds impressive, it is down from 17.09% the previous quarter.
My Overall P2P Lending Return
My overall TTM return remained steady at 10.79% up just 0.02% from the previous quarter. My goal this year was to get my overall real world return to 12% by the end of the year. If I don’t add to any accounts I think that would be difficult. Long term, I may have to settle for returns in the 10-11% range.
I have decided to stop adding new money to my taxable accounts at Lending Club and Prosper. The advantages of earning interest in tax-deferred accounts are simply too great. I am going to add no new money this quarter at all but in the third quarter I am rolling over a six-figure IRA and investing it into both Lending Club and Prosper. This will give an initial boost to my return numbers but the average age of these accounts will drop dramatically.
The Final Word
While studying return numbers is interesting the most important number in my table is total interest earned. This is the money you have earned and can withdraw at any time if needed. My total interest earned continues to steadily increase now just under $17,000.