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 currently have a total of six different accounts that are detailed in the table below. I provide my starting and ending balances, any additions I made to the accounts, total interest earned and my real return calculated by the XIRR method. The Return on Site shows the return that was displayed at Lending Club or Prosper at the end of the quarter.
|Account||Balance 9/30/11||Additions||Balance 9/30/12||Net Interest||XIRR ROI||Return on Site|
|Lending Club Main||$11,811.79||$14,000.00||$28,260.28||$2,448.49||12.56%||10.87%|
|Lending Club Roth IRA||$5,121.46||$-||$5,899.12||$777.66||15.18%||16.72%|
|Lending Club Trad IRA||$59,950.56||$-||$64,231.80||$4,281.24||7.14%||8.52%|
|Lending Club Roth IRA - PRIME||$15,356.87||$-||$16,231.96||$875.09||5.70%||8.07%|
|Prosper - 2||$2,164.60||$-||$2,604.17||$439.57||20.31%||19.10%|
Below is a brief discussion of each of the six accounts in the table.
Lending Club Main
This was the very first p2p lending account I opened back in July of 2009. For over two years I had a conservative strategy on this account investing in A-, B- and C-grade loans. About a year ago I switched course and started investing only in the D-G grade loans which carry a much higher interest rate and are more risky. My trailing twelve month (TTM) real return has increased from 6.29% in December, 2011 to 12.56% today. I also more than doubled my investment in this account and all new funds have been invested in the higher interest loans. That is how I have been able to increase my returns so rapidly. My goal with this account is to maintain a 12-14% real return and I am now within that range.
Lending Club Roth IRA
My Roth IRA account was opened in April, 2011 with the intention of seeing what was the highest possible return I could manage with a Lending Club account. From the start I have only invested in D-G grade loans and I have used what I consider my very best selection criteria. So far it is paying off. I have almost 300 notes in this account now and I had no defaults this past quarter at all so my total remains at five defaults. My goal with this account is to maintain a real return of 14-16% and I am right in that range now. But I have nine loans that are more than 31 days past due so I expect my returns will dip somewhat in the coming quarter.
Lending Club Traditional IRA
Sometimes I think this account is like an aircraft carrier, it is very slow to turn around. This is my wife’s main IRA account and it was opened in April 2010 as a Lending Club PRIME account. I decided to take this account off PRIME in November of last year and manage it myself. Since then all reinvestments have been made into D-G grade loans as I try to slowly (it is a slow process) increase the returns. When I took this account off PRIME the account balance was just under $61,000. Since then I have made around $36,500 in re-investments in high interest loans but my returns are inching up ever so slowly. This is because of the large number of defaults this account has seen – that number stands at 77 now out of 1,495 notes. I expect it will take another 12 months before there will be a dramatic improvement in my returns with this account.
Lending Club Roth IRA – PRIME
This account was opened at the same time as the traditional IRA account above – my wife had a Roth 401k from her last job and so this was rolled into a Lending Club Roth IRA. I opened this as a PRIME account and have kept it that way as an experiment. I want to see what kind of returns investors can expect if Lending Club does all the work. The weighted average interest rate on this account is 12.78% as it invests mainly in B- and C-grade loans. This is my worst performing account but it looks like it might have bottomed. My real TTM return has gone from 5.13% in the second quarter to 5.7% this past quarter. All of the initial loans are over two years old and so the heaviest default period should now be over.
My main Prosper account continues to perform very well despite being hit by 21 defaults this past quarter. My return has dropped a little, down to 16.35% now, but I am still well ahead of my goal of 15% with this account. I have 55 late loans right now so I expect more defaults this quarter but I am still hopeful I can keep this account above 15%. My return according to the new site Prosper Stats is at 14.44% but my notes issued this year are doing remarkably well. My only complaint with this account is that I wish I could find more loans to invest in – I have been finding it difficult to deploy as much capital as I would like in the past couple of months.
Prosper – 2
This small Prosper account is under my wife’s name – I opened it when Prosper ran a special $104 giveaway in April last year. Since then I have added $2,000 and I am not planning on adding any more. I want to keep this account small and see what kind of returns are possible with only a moderately diversified account. This is my most aggressive of all my accounts with an average interest rate of 28.9%. I currently have 119 active notes and 7 charge-offs which is not bad considered these are the highest risk loans. I don’t expect I can maintain this 20% real return much longer though with a few more defaults expected soon but I am hoping I can stay above 16% for the next 12 months. Time will tell.
My Overall P2P Lending Return
This latest quarter was easily my best quarter ever. I have increased my total return on all my p2p lending accounts to well above 10% and I believe I am track to make it above 12% some time next year. While my accounts are now very aggressive overall, as long as the economy doesn’t fall off the fiscal cliff that we keep hearing about, I expect my returns will continue to get better for some time.
Even though I have spent this entire post talking about return percentages I believe the most important number in p2p lending is the total interest earned. I expect to one day be living off the interest generated by my p2p lending investments so I am pleased to see that number increasing to almost $14,000, roughly $2,500 more than the previous quarter. I will update all these accounts again in three months.