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My Quarterly P2P Lending Results – Q3 2013

by Peter Renton on October 9, 2013

One of the many things I love about p2p lending is the transparency. Any investor can download the entire loan history of Lending Club and Prosper and analyze it for themselves. Not only that but the financials of both companies are publicly available. So, it is in this spirit of transparency that I share my own returns every quarter. You can see all my historical returns here.

Before I get into this quarter’s returns I need to point out that I made an arithmetic error last quarter. I stated my overall returns as 11.09% but when I went back and checked my numbers I realized that I had overstated that number. My actual return for the second quarter was 10.89%. My second quarter report has been updated with the correct numbers.

Total Return for all Accounts is 11.62%

This past quarter was the best ever for my p2p lending investments. My trailing 12-month (TTM) return came in at 11.62% which is the highest it has ever been. Like many investors I started out investing in a conservative way but about two and half years ago I shifted my strategy to focus on the higher yield loans. This has meant that every quarter for the past two years my TTM return has increased.

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

AccountBalance 9/30/12AdditionsBalance 9/30/13Net InterestAverage AgeXIRR ROIReturn on Site
Totals $167,881.40 $5,000.00 $192,851.72 $19,970.32 11.62%
Lending Club Main$28,260.28 $-$31,482.85 $3,222.57 20 mths11.40%11.37%
Lending Club Roth IRA$5,899.12 $-$6,537.16$638.0419 mths10.82%14.21%
Lending Club Trad IRA$64,231.80 $-$72,266.03 $8,034.23 22 mths12.51%10.15%
Lending Club Roth IRA - 2$16,231.96 $-$17,299.27 $1,067.31 22 mths6.58%7.52%
Prosper Main$50,654.07 $5,000.00 $62,340.40 $6,686.33 12 mths12.32%13.71%
Prosper - 2$2,604.17 $-$2,926.01$321.8412 mths12.36%16.38%

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 Main Account

[Update: Accrued interest has now been removed from the Lending Club account page so the following paragraph is now a moot point.]

The first thing I want you to notice about this account is the account total. The screenshot above was taken on the last day of the quarter and you can see that my account total displayed on the screen ($31,873.25) was almost $400 more than what was on my statement (from the table: $31,482.85). This is because Lending Club includes accrued interest in your account total on LendingClub.com but in the statement it does not include this number.

This is my original Lending Club account that was opened in June 2009, back when I really had no idea what I was doing when it came to p2p investing. I did no filtering back then and let Lending Club choose the notes for me with their portfolio builder tool. And I wasn’t very diversified either. About three years ago I started being more selective in my loan picking and for the past 12 months or so I have been using P2P-Picks for most of the reinvestments in this account. So far, I have invested $15,900 in 629 notes through P2P-Picks at a weighted average rate of 18.03%.

Lending Club Roth IRA

Lending Club Roth IRA Account

My first Lending Club Roth IRA was opened with $5,000 in April 2011. One important point to note about this account is that I have only ever invested in high interest loans so I have seen a steady decline in returns as the account has aged. This past quarter saw my TTM fall from 11.62% to 10.82% as I was hit with several more defaults.

What is curious to me is how the Net Annualized Return in the screenshot above is so much higher now than my TTM return. We are talking over 3.5% higher. The main reason is that I am using a very different method to calculate returns. The Net Annualized Return is an annualized number that looks at the outstanding principal of all notes in the portfolio and my calculation is focused purely on net interest earned in the past 12 months. And my Net Interest earned actually went down this quarter over last quarter.

Lending Club Traditional IRA

Lending Club Traditional IRA Account

This was my best performing account this quarter and the main reason that my overall return jumped so much. This is actually my wife’s IRA that I opened in April 2010 when I rolled over several different 401(k)s and IRAs into Lending Club. It was opened as a PRIME account but in November 2011 I took the account off PRIME and began managing it myself. I also decided to get more aggressive with this account.

In the past three months I have gone from a TTM return of 10.57% to 12.51%. I went back and double checked these numbers because I was surprised by such a large jump. It was helped by the fact that the vast majority of my lower interest notes have now been paid in full and the bulk of the outstanding principal is now higher interest notes. In the early days of this PRIME account my weighted average rate was around 12%, today that number is close to 17%.

Lending Club Roth IRA – 2

Lending Club Roth IRA 2 Account

This Roth IRA account is also in my wife’s name and it was opened at the same time as the traditional IRA back in April 2010. It was also setup as a conservative account using Lending Club PRIME. And I kept this account on PRIME until just a couple of months ago. The main reason I kept it on PRIME for so long was that I wanted to see the kinds of returns an investor could expect from a moderate risk PRIME account.

If you have been following along you will have noticed that the TTM returns have been in the 5-6% range for the last 18 months. My experiment has now ended and I will be reinvesting with my higher interest strategy from now on. It will take a long time but I expect in the next 12-18 months I can bring this account into double digit returns as well.

Prosper Main

Prosper Main
My first Prosper account is now three years old. I opened this account with $1,000 back in September 2010 and have added to it steadily over the last three years. I have invested a total of $50,000 into this account now but that is all I will be doing. Any new investments in Lending Club or Prosper now will be coming through an IRA.

Returns have been in the mid-teens for this account for quite some time but the TTM has stabilized in the 12%-12.5% range for now. I will be very happy if it stays that way. My weighted average rate of notes in this account is 24.2%, it is primarily invested in grades C, D, and E.

Prosper – 2

Prosper - 2

My smallest account has been my best performing account every quarter since it was opened back in April 2011. Back then Prosper ran a promotion where they gave away $104 to any investor who opened an account. So, I had my wife open an account then and have since added $2,000.

I have been wondering when these lofty 16% returns were going to adjust to a more normal level and it appears this quarter was it. My TTM has dropped from 15.87% down to 12.36% in the past quarter thanks to several new defaults. The weighted average rate on this account is 27.74%, the highest of all my accounts. I should also note that both my Prosper accounts have an average age of around 12 months so they are the least seasoned of all my accounts. This could mean my returns here will continue to drop. We will see.

Final Thoughts

I couldn’t be happier with the overall performance of my p2p lending investments this past quarter. My goal has been sustainable double digit returns and I am confident I have achieved that now. Of course, who knows what the future holds but this now marks my fifth consecutive quarter of real world double digit TTM returns. It also marks my 8th consecutive quarter of TTM return increases. I don’t know how much longer I can keep that streak going because I don’t think my overall returns will head over 12%.

Finally, I always like to focus on the Net Interest number because, while returns numbers are nice, it is only the net interest number that shows you the real dollars earned. This number is now almost $20,000 up from $18,000 in the previous quarter. I will update these accounts again in three months. I am happy to respond to any questions or comments you have about these numbers.

{ 20 comments… read them below or add one }

Dan B October 9, 2013 at 10:24 am

So, I guess my prediction of a long term return in the 5-6% range for the average Prime Account was right huh? A prediction I made “several” years ago, might I add. What was the number you predicted? Was it 8 or 9%, I forget? :)

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Peter Renton October 9, 2013 at 4:20 pm

Yes Dan, you were right and I was wrong. I can’t remember exactly what I said but I think it was around 8% that I expected to receive from the PRIME account.

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Dan B October 10, 2013 at 4:29 pm

That’s 2-0, buddy.

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Dan B October 17, 2013 at 3:09 am

To show you what a good sport I am & to allow you the opportunity to finally get on the scoreboard, I’ll be suggesting a new p2p prediction challenge soon. Stay tuned! :)

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Simon Cunningham October 9, 2013 at 12:37 pm

Nicely done Peter. What a marvel. I’m interested in the XIRR vs on-site for your two Lending Club IRAs. For the Traditional, the XIRR is fairly higher than the on-site number. For the Roth, the XIRR is fairly lower. Any ideas how this happened?

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Peter Renton October 9, 2013 at 4:27 pm

Thanks Simon. I can only theorize on the answer to that question I might take that up with Lending Club because it is a little odd. And considering there were no additions of subtractions from this account it is a very simple calculation to work out the trailing 12-month return.

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Jim October 12, 2013 at 9:20 am

Peter,

Thanks for keeping up the reporting of returns. 20k is a great return on less than 200k investment.

I would be interested in knowing the parameters you used for your Prime account. When I set mine up, they let me state the loan grade and gave me about 1 line of notes for other parameters. I used something in the C1 range and basic investment parameters (loan purpose, inquiries, etc.) that I got from one of your articles. I’ve let IR take over investing in this account, but the original group of Prime selected notes has done quite well so far (>12% at average age of 9mos.).

Also, how is NSR premium working for you? I really have to scrounge for Prosper notes, but don’t have near enough Prosper investment to justify the fees.

Thanks.

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Peter Renton October 12, 2013 at 10:44 am

Hi Jim, When I opened my LC PRIME account back in 2010 there were only three options for choosing an investment: high, medium or low based on target interest rate. I chose the medium option. No other choices were allowed although I did add loan term selection once 60-month loans were introduced. I can tell you that after 12 months my NAR was still over 10%, so it takes a while for defaults to bring it down.

NSR Premium is going very well for my Prosper investments. I am staying fully invested and am finding all the high yield notes I need.

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Rob Ure October 13, 2013 at 9:42 am

Hi Peter – I really appreciate your insights. Been investing P2P for over a year, in both LC and Prosper for diversification. I have been “testing” with about $15K in each account, but am now considering adding another $100K in each account. I’ve been getting about 10% combined, which I am happy with. I have 2 questions: (a) Do you have any strong thoughts on 5 yr loans? I’ve avoided them generally in principle, thinking that int rates may climb and being in 3yr notes provides for more rapid turnover. No data to back that up however! I am open to new thinking and appreciate your insight. (b) I am thinking of using your “Simple” filter allowing me to on-board new notes more rapidly… for probably 50-75% of my cash, and then more specific filters for the balance. Any suggestion here? Feel free to point me to past posts if youve already written on these. THANK YOU and keep up the great work!

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Peter Renton October 14, 2013 at 11:13 am

Thanks Rob. The jury is still out somewhat on five year loans because no 5-year loans have reached maturity yet. They began in 2010 so it will be another 18-months before the first batch matures. But looking at all 2010 loans on Nickel Steamroller issued by Lending Club you can see the estimated ROI at 6.74% for 36 months versus 7.4% versus 60 month. Personally, I don’t think there is a big yield advantage in 60-month loans but I try to keep a 75%/25% split between 36-month and 60-month loans. You have to decide for yourself whether the interest rate risk on these long duration loans is worth it.

Regarding my super simple filters I think they are a great way to put new money to work. I have used them myself for that purpose and then switching to more selective criteria when I have my money fully invested.

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Rob Ure October 14, 2013 at 1:13 pm

Thanks Peter – I appreciate the insight.
-Rob

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Glenn October 13, 2013 at 8:14 pm

Hi Peter,

Great inside look on how the numbers actually pan out. Thanks for sharing!

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Harry @ PF Pro October 16, 2013 at 10:32 am

Hey Peter, thanks for the update. I’m thinking about opening a Roth IRA in my wife’s name too to get another 5k in there this year. You mentioned you used P2P-Picks, I looked up the site, so it’s completely free? Can you explain a little more how you use it, would it be a good idea for automating the process? I don’t want to have to check for LC notes every day at 10 am like I did with my last roth ira that took me 5 months to fill up :)

One of my readers commented on my article today and mentioned peerlendingserver.com

thoughts?? Thanks bud!

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Peter Renton October 17, 2013 at 10:10 am

Hi Harry, Yes P2P-Picks is completely free for now. Bryce Mason, the guy behind the service, is currently looking at automating the investing and is running a pilot on Bluevestment.com. The way I use it today is to try to login at the times when loans are added (6am, 10am, 2pm, 6pm PT) and run the picks as soon as the loans hit the platform. It is a somewhat laborious process which is why Bryce is looking at automation.

I have not used peerlendingserver.com but I know many of my readers do. There is a board dedicated to that service on my forum where you can find out more: http://www.lendacademy.com/forum/index.php?board=21.0

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Rob Ure November 30, 2013 at 6:27 pm

Hi Peter – I have a question for you, regarding calculating earnings and cashflows. Have you run across any tools or Excel methods to help manage multiple cashflows and ROI forecasting? I wanted to create a sheet that tells me where I am at in any given month… where I have:
1. Money I owe to my bank, for $625k for 360 months at 4.75%
2. Money I lend in an account with $100K for 36 months at 10% return
3. Money I lend in an account with $100K for 36 months at 10% return

I can easily calc the amortization schedule for each of these and do the math to understand monthly cashflow. Lets say that the net difference per month is $1000 positive. My question, how would I estimate re-investing this $1000 each month? And then tie it into the over all ROI effect over time?
Hopefully Im not making this sound harder than it it… anyway, Ive tussled with this on and off for several hours… so I thought I’d ask you. Thanks for any suggestions…

Rob

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Peter Renton December 3, 2013 at 7:15 am

Hi Rob, I have not come across any Excel tools to help with this process. I do any calculations like this manually. Sorry I can;t be of any assistance here.

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Ravi January 14, 2014 at 10:18 am

Your question is flawed since you can’t have a net return between a debt and an asset. Maybe you’re looking to find out your net interest cost between your mortgage (I’m guessing?) and your investments (outbound loans)?

In your amortization schedules, you’ll be able to calculate your interest vs principal cost by month. In your mortgage, this is basically your interest expense –> note that this will decline over time.

For your issued loans, you can do the same from the amortization schedules (i.e. calculate the interest vs principal.

The problem here is that you can’t really consider the $1,000 positive as a full addition, since this is a cash flow figure, NOT an interest figure (part of $1k is interest exp/income and part is principal paid/received).

A simple calc would show that you are borrowing at an interest cost of $29,688 (in yr 1) and earning interest gain of ~$20k.

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Rob Ure December 3, 2013 at 10:00 am

NP – thought I’d ask! Thank you…

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Ravi January 14, 2014 at 10:09 am

Shouldn’t you shift your strategy in ROTH to be high risk? Since this is a tax-free account upon retrieval, you have the most to gain here from the compounding. Perhaps your taxable account should be the lowest risk (or prime notes) in order to lower your taxable income and thus your tax outflows over the next X years?

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Peter Renton January 14, 2014 at 10:21 pm

My Roth IRA accounts are investing in the high risk end of the pool. But it is a good point to consider adjusting the taxable account to be in the lower risk part of the pool because of tax implications. I will give it some thought.

Reply

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