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My Quarterly P2P Lending Results – Q3 2012

by Peter Renton on October 15, 2012

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.

AccountBalance 9/30/11AdditionsBalance 9/30/12Net InterestXIRR ROIReturn on Site
Totals $99,895.80 $54,000.00 $167,881.40 $13,985.60 10.41%
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$777.6615.18%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$875.095.70%8.07%
Prosper Main $5,490.52 $40,000.00 $50,654.07 $5,163.55 16.35%16.48%
Prosper - 2 $2,164.60 $- $2,604.17 $439.5720.31%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.

Prosper Main

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.

{ 15 comments… read them below or add one }

Michael October 15, 2012 at 1:17 pm

Peter, thanks for sharing this. One thing I would like to see on your table is either pending or outstanding so we get a feel for how fast your money is working for you. Do you find an issue with getting your money to work faster? Any techniques you have used other than simply looking for notes that are mostly funded already?

Reply

Peter Renton October 15, 2012 at 5:38 pm

Michael, To be honest I don’t worry to much about time taken to invest. I know it irks many investors how long loans can take from fully funded to being issued but it is not something that concerns me. I can tell you that I typically have 40-50 loans pending at any one time across all accounts at LC and probably 8-10 loans at Prosper. But I don’t track exactly how long they take to originate.

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carl October 17, 2012 at 9:55 am

“I expect to one day be living off the interest generated by my p2p lending investments…”

I am intrigued by this statement since my goal is the same. However, it seems to conflict with an earlier recommendation in which you stated that no more than 10% of liquid assets should be in p2p lending:

http://www.lendacademy.com/what-percentage-of-your-investments-should-be-in-p2p-lending/

I realize that post was written a while ago, so I’d like to know if you have changed your views since then. Thanks!

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Peter Renton October 17, 2012 at 10:17 am

Hi Carl, While I may have changed my views Lending Club and Prosper have not. Here is a direct quote from the Lending Club prospectus: No investor may purchase Notes in an amount in excess of 10% of the investor’s net worth, determined exclusive of home, home furnishings and automobile.

Here is what I expect to happen. I think as p2p lending becomes more mainstream this 10% requirement will go away. You don’t see it in stock or bond market investments but p2p lending is still considered an alternative investment. By the time I am living off the interest of my Lending Club and Prosper investments I expect to have 40% or more of my liquid assets in p2p lending because it will no longer have that 10% requirement.

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Dan B October 23, 2012 at 9:57 am

I agree that the 10% requirement is rather ridiculous especially in view of the fact that there is no such requirement that pretends to caution against making extremely risky investing moves such as putting ones entire portfolio in 1 stock, for example.

Granted that this type of investment is still very new & obscure & like Peter I suspect & expect that the requirement will be lifted as the industry matures & the perception of it being “high risk” diminishes. Nevertheless, as Peter alludes to, there are sectors within the stock & bond market that are of equal or perhaps higher risk & are highly volatile to boot……………… yet have no such requirements. For example, I know a couple of retirees in search of “yield” who are heavily invested in the mREIT sector, yet no one advises them of the risks. I’m sure we can all think of other similar examples.

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Peter Renton October 23, 2012 at 1:18 pm

Dan, Well said. It is amazing but we seem to be in complete agreement here…

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Mark November 6, 2012 at 9:22 am

Do they actually check your net worth, as in asking for bank statements, etc.?
If you have several houses, only one house doesn’t count, but others do count as net worth, right?
Problem with this is that money should always be working, not sitting idle, so it may be difficult to prove your net worth. For example, if you have land in a foreign country does that count? A rental property in Nicaragua? Bank deposits or bonds in a foreign country, in foreign currency (contracts signed in a foreign language). And so on…

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Dan B November 6, 2012 at 9:42 am

Mark……….No they don’t check, nor as you’ve demonstrated by the points you have raised, is there a practical way for verifications.

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finopp October 17, 2012 at 5:53 pm

Thank you, Peter.

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Ray October 25, 2012 at 11:25 am

@Dan,

I agree with your comment on your Prosper Main account. The number of loans that meet my criteria have almost dried up and most of the time I almost can’t find any loans to invest in. I don’t know if those investors are moving to alternative locations such as Lending Club, but I have found that Prosper seems to be catering more and more to the very much financially challenge person and that’s not the person I want to lend to.

I’d be more than happy to accept lower rates of return at Prosper, but I see too many high revolving balances, current defaults, too many inquires in the last 6 months and past public records.

In the past I could look through 10 loans and find 3-4 that work for a specific interest rate and now I’m lucky to find 1 in 30.

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Mark November 6, 2012 at 9:15 am

Peter,
May I ask a dumb question?
While I understand why you would want to diversify between LC and Prosper (such as risk of going bankrupt), I don’t understand why you keep the investing strategies that produce low returns when you have found strategies that produce high returns. For example, why keep the account that brings only 8.07% per year when you have found a strategy that brings 16.72% per year?

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Peter Renton November 6, 2012 at 12:20 pm

Mark, That is not a dumb question at all. I keep my low yielding account for a couple of reasons. First, I am running an experiment to see what long run returns are possible with a medium risk PRIME account. Second, I think it is good to diversify a little into various loan grades. If we have another deep recession then I expect the highest risk notes will be hit the hardest, so having some exposure to a range of loan grades may lessen the overall account volatility.

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Chad November 28, 2012 at 8:22 am

Peter,

You said in one account you are using your “very best selection criteria” may I ask what this criteria is for you? You may have this posted on your website already so please forgive me! :)

Thanks

Reply

Peter Renton November 28, 2012 at 1:37 pm

Chad, If you look at the Lending Club Filter 1 in my post here – these are what I consider to be my very best selection criteria:
http://www.lendacademy.com/p2p-investing-2012

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Matthew Allen December 31, 2012 at 7:48 am

Hi Peter! Just bought your Lending Club Story book and read the entire thing yesterday. Loved it. I’ve been an investor at Lending Club for only two months now. I live in Michigan, so I can only invest via the note trading platform. NAR 22.38% so far! Working through some strategies as we speak… glad I found this blog thanks to your book! Looks like a very valuable resource. I’ll be following.

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