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My Quarterly P2P Lending Results – Q2 2013

by Peter Renton on July 16, 2013

I truly believe in p2p lending as an investment. I don’t just write about it, I am an investor putting my own money to work at Lending Club and Prosper. Every quarter I share my results for the world to see. I have been doing this since the 4th quarter of 2011; you can see all my historical returns here.

Overall Return is Now 10.89%

The second quarter was a good one for my p2p investments. My trailing twelve month (TTM) real return increased from 10.79% in the first quarter to 10.89% in the second quarter. As I have shifted my investment strategy from lower risk loans (mainly B and C grade) to higher risk loans (D and below) I have seen my returns increase every quarter. Eventually these returns will top out somewhere between 11% and 12% I expect.

The table below shows the breakdown of my returns for all six accounts at Lending Club and Prosper.

AccountBalance 6/30/12AdditionsBalance 6/30/13Net InterestAverage AgeXIRR ROIReturn on Site
Totals $156,560.20 $12,000.00 $186,567.66 $18,007.46 10.89%
Lending Club Main$27,348.17 $-$30,439.93 $3,091.76 19 mths11.31%10.96%
Lending Club Roth IRA$5,658.63 $-$6,315.99$657.3617 mths11.62%13.97%
Lending Club Trad IRA$62,907.46 $-$69,555.66 $6,648.20 21 mths10.57%9.51%
Lending Club Roth IRA - PRIME$15,938.10 $-$16,945.46 $1,007.36 21 mths6.32%7.63%
Prosper Main$42,222.39 $12,000.00 $60,430.69 $6,208.30 12 mths12.24%14.14%
Prosper - 2$2,485.45 $-$2,879.93$394.4811 mths15.87%15.66%

When looking at this table you should keep the following points in mind:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Age column shows how old on average the notes are in each portfolio. Because I am reinvesting all the time this number changes slowly.
  4. The XIRR ROI column shows my real world return for the previous 12 months. I believe the XIRR method is the best way to determine your actual return.
  5.  The Return on Site number is obtained from the platforms on the last day of the quarter.

Now, I will dig a little deeper into each account and provide some commentary on the numbers in the table.

Lending Club Main

Lending Club Account Summary

This is my oldest p2p lending account that I opened in June 2009. Now, over four years old it has seen many loans mature and my money has been reinvested here several times now. Astute readers will notice that the numbers in the graphic above don’t gel with the table exactly – that is because I took this screenshot this morning and the numbers in the table are all as of June 30, 2013. At 11.31% I am very happy with the returns on this account but I will not be adding to it any time soon. More on that in the next section.

Lending Club Roth IRA

I opened this account with $5,000 in April 2011 and I have only ever invested in the high interest loans with this account. With an average note age of 17 months now, the returns on this account continues to decline due to the impact of defaults. I experienced five new defaults this quarter taking the total to 22, 18 of of which have happened in the past 12 months. So, this account is now at its lowest ROI ever at 11.62% down from a high of 15.18% nine months ago.

I am in the process of rolling over a large Roth IRA account that is invested primarily in the stock market and I expect to make a large addition to this account in the coming quarter. Because of the tax advantages of investing through an IRA I am going to be focusing all new investments in my IRA accounts.

Lending Club Traditional IRA

This is my wife’s IRA account that I rolled over to Lending Club in April 2010. It also happens to be my largest account by dollar amount. For the first 18 months I had this account it was a Lending Club PRIME account and when I took it off PRIME my ROI was 6.99%. Since then, by choosing my own notes and focusing on what I consider to be the highest performing loans I have increased the ROI to 10.57% and it is still increasing every quarter.

Lending Club Roth IRA – PRIME

This is also one of my wife’s accounts and it has remained a PRIME account since it was opened in 2010. As you can see this is my worst performing account – for the last 18 months my returns have fluctuated between 4.5% and 6.5%. I have maintained this account as a PRIME account as an experiment to see what returns I would experience with a hands-0ff investment. But I have decided after more than three years now it is time to end this experiment. This quarter I will be taking this account off PRIME and will be managing all the reinvestments myself.

Prosper Main

Prosper Account Summary

I opened my first Prosper account in September 2010 and have added to it consistently since then. My total investment in this account has been $50,000 and that is where it is going to stop. As I said I will be focusing new investments in IRA accounts so I will be opening a new IRA account at Prosper shortly.

This account suffered quite a large drop in returns in the last quarter from 13.99% to 12.24%. Part of that was because of many new defaults and part was my own fault – I let the cash build up. Last quarter Prosper changed their mix of loans and my Automated Quick Invest filters were not picking up many loans. At one stage last quarter I had $10,000 in cash sitting in my account. In late May, I changed some of my criteria and also started using NSR Premium to invest through Prosper’s API. In about five weeks I was able to get that cash balance down to zero which is where I intend to keep it.

Prosper – 2

This smallest account continues to be my best performing account and by a wide margin. It is also my most aggressive account with an average weighted interest rate of 28.1%. I do expect my total return of 15.87% to start coming down. When looking only at the 2011 investments the return is 12.92%, that is a good indication of where returns are heading over the long term. But turning $2,000 into almost $2,900 in two years is quite an achievement (although that does include a $104 sign up bonus).

Final Thoughts

I think returns of 10-12% are sustainable long term with p2p lending. None of my accounts are new any more and I have been through an entire cycle of loans now in most of them. Lending Club and Prosper continue to tweak their underwriting and adjust their rates but astute investors can always beat the average. I will never complain if I can continue to earn double digit returns on my p2p lending investments.

I always like to end these updates with a discussion about interest. All this talk of percentage returns can be useful but it is net interest gained that is the most important number. That continues to grow every quarter for my investments and is now at $18,000 for the past year but less than half of that is earned in tax-sheltered accounts. This is something I intend to address going forward as I focus all new investing in my IRA accounts.

{ 28 comments… read them below or add one }

Tony Rogers July 16, 2013 at 6:42 pm

Peter – Are you not charged the $100 a year fee on your IRA that is below $10k?

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Peter Renton July 16, 2013 at 9:17 pm

I have never looked into this matter but yes it is true that LC did not charge the $100 fee for my IRA even though it is below $10K. This will be a moot point later this year when I rollover a large investment into this IRA but as of now I have not been charged.

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Martin July 16, 2013 at 11:51 pm

Peter, those are amazing results. I am glad seeing this report and seeing how much money you have involved. It makes me feel comfortable (and motivating at the same time). Sometimes I have down days when investing and your web helps me going over it. Thx.

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Peter Renton July 17, 2013 at 6:33 am

You’re welcome Martin. Thanks for the nice comments.

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Dennis July 17, 2013 at 2:31 am

Peter:

Thanks so much for the continuous updates on your investing in P2P. You and your website inspired me 2 years ago to take a chance on this new avenue of investment, and I’m so glad I did. Your results inspire me for several reasons:

- You are a seasoned P2P investor now, and with what I consider sizable amounts of cash, you have achieved nothing less than incredible results. You’ve proved to me that there is an alternative to investing in stocks, real estate, etc.

- Your enthusiasm for P2P, with results to back it up, is contagious. Who wouldn’t get excited over an overall return of 11+% on fixed rate investments?

- Since I’ve been coming here to your web site, I’ve never stopped being impressed with your devotion and never ending energy that you’ve brought to this board. I can’t imagine how you keep it all going, certainly your energy has rubbed off on me and no doubt many others too.

In short, thanks for it all. I hope to be here 20 years from now, able to brag how I was in P2P almost from the beginning (but not the very beginning like you and a few others).

Thanks Peter, keep it going……….

Dennis

-

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Peter Renton July 17, 2013 at 6:36 am

Thanks Dennis. My enthusiasm for this kind of investment has only grown over time. I truly believe that every investor should have p2p lending as part of their investment portfolio and I am not going to rest until this becomes a reality….which will probably take another 20 years or so…

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Dan B July 17, 2013 at 2:52 am

I would also like to add my thanks. No one else I know of has provided consistent performance updates like you have…………….& with the level of detail that you have.

Also,I believe congratulations to be in order because unless I’m mistaken, this is the first quarter in which all your “self managed” accounts are showing double digit return numbers. Good job!

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Peter Renton July 17, 2013 at 6:38 am

Thanks Dan, that is high praise coming from you. And yes, this is the first quarter that all of my self-managed accounts have shown double digit returns. Good catch.

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Rob Leonard July 17, 2013 at 7:36 am

Tip of the cap to you Peter. The knowledge, information and enthusiasm you bring to the P2P community greatly benefits us all. Thanks!

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Peter Renton July 17, 2013 at 8:35 am

You’re welcome Rob. Thanks for your kind words.

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SeattleSun July 17, 2013 at 1:40 pm

Great Stuff!

I believe most of your accounts are “manual investment” and am wondering how you manage things during the “feeding frenzy” times? Multiple accounts open on one PC? Multiple PC with an account? Does the wife help and do her own accounts? Or ????

The power of tax deferred compounding is sweet.

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Peter Renton July 17, 2013 at 5:08 pm

I invest through NSR Premium (http://www.nickelsteamroller.com/blog/2013/06/nsrp-signup-is-now-open/) which uses the LC API so it is completely hands-off. Although I do use P2P-Picks on my main account for most of my reinvestments and for that I login during the feeding frenzy times.

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Martin July 17, 2013 at 2:03 pm

@SeattleSun: I don’t believe you have to catch every fish in a pond. If there is a feeding frenzy time I can skip some. There will be more plenty of coming in the near future, so if we do one account at a time and it takes a few days, I am OK with it.

that doesn’t mean automating wouldn’t help in releasing our time, it would. But besides writing your own batch doing it for you I am not sure how LC can help me fit my strategy. None of their services fit it, so I like doing it manually. Although sometimes it is a pain in the … you know where.

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Peter Renton July 17, 2013 at 5:09 pm

I expect that an automated investing tool for retail investors will be available from LC by the end of the summer. This should help somewhat with the feeding frenzy.

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Herb July 18, 2013 at 1:17 pm

Peter, congrats on your performance. Do you know if the figure for Net Annualized Return from LC is cumulative from inception or for the last year?

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Peter Renton July 18, 2013 at 9:41 pm

Thanks. The NAR is cumulative from inception.

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Herb July 18, 2013 at 1:28 pm

By the way, whats the easiest way to calculate the average age of my portfolio on LC? thx

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Peter Renton July 18, 2013 at 9:42 pm

I download my Notes and use the Portfolio Analyzer feature of Nickelsteamroller.com. You can also use InterestRadar.com.

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Megan/faeriering July 18, 2013 at 6:30 pm

do you subtract the fees for using NSR from your IRR?

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Peter Renton July 18, 2013 at 8:51 pm

No, I do not because I get that service for free.

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Dr Jeremy Welch July 23, 2013 at 1:35 am

I have been noticing that there are very few loans on prosper in the C or lower grades. As this is where I make the best returns this has been a bit troubling. I have been grabbing A and B level loans with the highest interest rates but this will over time lower my returns which have been good as of late. I am still able to get the loans that I want on lending club however. Even when I go to set up an automated account at prosper it will not allow you to set the C loans as a parameter when there are none available at the time. This seems like a significant flaw. Is there a time of day that I have to go on to get these loans. I can’t believe that I am unable to set up the parameters that I want on prosper unless the loans are available. that is the idea about automation you set it and when things come available it does it for you.

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Peter Renton July 23, 2013 at 7:17 am

I have received several emails and comments about this issue recently. There are still loans in grades C and below available but they are snapped up very quickly by investors. Loans are added to Prosper’s platform at 9am and 5pm PT Mon-Fri and at noon on weekends. If you want to invest in the lower grade loans then this is the best time to do it.

But I agree you should be able to setup parameters for Automated Quick Invest regardless of what loans are available at that time. I know they are working on a revamp of their investor interface and hoping when they release an update this flaw will be fixed.

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Robert Circle September 8, 2013 at 9:51 am

I think my results are doing pretty good. The month started with 37795.88 and ended with 38393.85. So if I used the starting amount as the amount that I earning interest on I have believe a net increase of 1.58 percent this month. I don’t really pay attention to the NAR only what I can measure from the beginning of month to end of month. I also had a lot of notes in funding. I only invest in G F or E notes and I sell notes when they go south lower sell price on how south they go. I am also glad to see that lending club is successful in collecting default notes and winning law suits.

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Peter Renton September 8, 2013 at 4:16 pm

It is a good idea to ignore NAR, particularly if you are selling notes on the trading platform. Measuring returns based on monthly statement balances is the best way to go.

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Mathew Lewis September 18, 2013 at 9:19 am

In regards to your main LC account, if I’m tabulating it correctly 6.6% of your loan count (90 divided by 930 + 318) have been charged off. 8.6% are what I would call distressed/charged off (past due or charged off). Have these figures been pretty consistent for you? I ask because I currently only have around 1% in the distressed category (3 out of around 275 notes). I’m wondering whether I should expect a correction. I do buy all my notes on the secondary market and of course try to make smart investing decisions. I would love to credit myself for the large apparent spread in distressed loan percentage but I’m sure much if not all of it is due to good/bad luck, respectively. Also, would you mind sharing with us the balances for each category? Also, for charged off loans, do you know roughly what percentage to date has been recouped (ie what percentage of loan was recouped before charging off the rest)? Thanks for taking the time to consider my questions and for all the hard work you put into this site. It has certainly helped me.

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Peter Renton September 18, 2013 at 10:54 am

Hi Mathew, Lots of questions here, I will do my best to answer them.

First, you need to keep in mind that my main LC account if over 4 years old so I have had several cycles with this money (I have invested a total of $65K in an account with a $31K balance). Lending Club reports total charge-offs over the life of the account so it is a little misleading to think a newer account would have similar numbers.

I have no idea whether you are lucky or good but if you have a newer account you need to expect that your losses will increase as time goes on.

As for your charge-offs question I just ran the numbers. The total amount of principal I have lost to charge-offs is $3,209.70. The total value of these notes when I invested in them was $3,900 and I received a total of $1,189.92 in payments on these notes before they were charged off. Now, keep in mind I invested in these notes on the retail platform so buying on the secondary market your percentages will likely vary.

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Mathew Lewis September 18, 2013 at 1:18 pm

Peter,

Thanks for the quick reply. Yes, it makes sense that the charge-offs would increase as time passes. However, I avoid any notes with less than 12 months of perfect payment history and for the most part attempt to sell my Grace Period notes before they reach past due status. So I’m hoping both of these strategies help limit my charge-offs. I use a buy/hold strategy for the majority of my portfolio which consists primarily (90%) of B and C grade loans. I speculate/trade some lower grade notes and occasionally hold on to a few if they are particularly credit worthy. To date my NAR is 13.56% but I expect that figure to drop once some/all of my three past due notes are charged off. One last question – do you use a truly passive investing approach or do you at least sell some of your distressed loans? Or are you even more active than that? Again, thanks for the response.

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Peter Renton September 18, 2013 at 5:23 pm

Even though I spend all day, every day, researching and analyzing this industry my investment approach is passive. In most of my accounts I invest in an automated way and I do very little selling on the trading platform. I know I could improve my returns if I spent some time selling notes on Folio but that is not what I want to do. I want to see what kind of returns are possible using a passive investment that can be easily duplicated by anyone.

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