Today, I am going to open the kimono, so to speak, and provide an inside look at all six of my p2p lending accounts. The question I get more than any other is about the returns I am getting. This is what nearly every investor wants to know. So, today I will answer that question in detail.
The table below shows the beginning balance, additions, closing balances and returns on all six of my accounts. If there is no opening balance this means that the account was opened in 2011.
|Account||Balance 12/31/10||Additions||Balance 12/31/11||Net Interest||XIRR ROI||Return on Site|
|Lending Club Main||$11,470.76||$0.00||$12,192.77||$722.01||6.29%||8.48%|
|Lending Club Roth IRA||$0.00||$5,000.00||$5,302.50||$302.50||9.08%||15.85%|
|Lending Club Trad IRA||$56,847.97||$0.00||$60,823.31||$3,975.34||6.99%||8.85%|
|Lending Club Roth IRA PRIME||$14,487.37||$0.00||$15,640.10||$1,152.73||7.96%||8.71%|
|Prosper - 2||$0.00||$2,000.00||$2,292.12||$292.12||21.78%||20.77%|
Here is an explanation of the above table. I have six separate accounts – four at Lending Club and two at Prosper. All of these accounts are under my name or my wife’s name. I took the balance from the December 31st 2010 statements, I included any additions I made during the year and provided the balance on the December 31st, 2011 statements. Then I used the XIRR() function in Excel to calculate my real world return on these accounts. The Net Interest column is interest earned plus late fees less the amount of principal written off due to defaults. The final column is the return number that Lending Club and Prosper provided on the accounts on December 31st, 2011.
A Note About XIRR() and Real World Returns
I have written extensively about the different ways to measure your p2p lending ROI and why I like to use the XIRR() method. Keep in mind, to get an accurate return at Lending Club you must use the balances from your statements, not what is provided on the screen when you login. When there are no additions to an account (I have never made a withdrawal) it is a simple calculation to figure out the return: net interest/opening balance. With any additions and withdrawals you need to use the XIRR() method. This also takes into account any gains or losses on the trading platforms because these will be reflected in the closing balance on your statement.
Lending Club Main
This was the first p2p lending account I opened back in July 2009. I started out with a more conservative strategy, focusing on A, B and C grade loans and continued with that strategy for two years or so but a few months ago I changed to a more aggressive strategy targeting D, E, F and G grade loans. I made no additions to this account in 2011, but I will add substantially to it in 2012 (I have already added $5,000 in January). My new strategy is already impacting my returns. My annualized ROI for the last six months for this account is 9.59% and for the last three months is 12.9%. But the fact remains that in 2011 I made a 6.29% return on this account.
Lending Club Roth IRA
I opened this new Lending Club IRA in April of this year and took around six months to fully invest the cash. From the start the goal with this account has been to earn the maximum ROI possible at Lending Club. I have only invested in D, E, F and G grade loans from the very beginning. I took so long to invest the money because I was very picky in my criteria and only invested in loans that met all my criteria.
Today, I am very happy with this account. I earned only 9.08% real return in 2011 because I invested my money so slowly, but in the last quarter of 2011 (when I was fully invested) my real return was 14.14%. I had one default in 2011 and I have had two more defaults so far in January. But with just one late loan right now I don’t expect many new defaults for some time. This is despite investing in some of the riskiest notes on Lending Club.
Lending Club Traditional IRA
I rolled over several IRA and 401(k) accounts that my wife had from various jobs and consolidated them into one Lending Club traditional IRA. That was in May 2010. I opened it up as a PRIME account with a medium risk focus which meant notes were mainly grades B, C and D. The total balance I started with was just over $52,000 – I wrote more about this account in my first review of Lending Club PRIME back in February last year. In October, I decided to take this account off PRIME and manage it myself because I believe I can do better with my note picking strategies.
Lending Club Roth IRA – PRIME
My second Roth IRA account at Lending Club is another of my wife’s accounts where I rolled over a Roth 401(k). I opened this as a PRIME account and have kept it that way because I am interested to see how a PRIME account will fare over the long run. Having opened this account in May 2010 the average age of notes here is over 12 months now. I am earning a real world return of close to 8% here which I think is quite satisfactory for an account that is completely on autopilot. I expect this account will probably dip below 7% in real world return this year before settling in to a 7-8% range in 2013.
I opened my first Prosper account back in September 2010 with $1,000. In 2011 I added to this account substantially. You can see this is where the majority of my new money went in 2011 witha total of $29,000 new money invested. I invested $20,000 in October and an additional $5,000 in December so the average age of notes in this account is still very young. I am focused on D, E and HR notes in this account (mainly repeat borrowers) so I expect a large number of defaults here. So far, I have only had two defaults but I expect an annual default rate of well over 5%. You can see a portfolio breakdown of my Prosper account on Lendstats here. My Prosper screen name is SLN-10.
Prosper – 2
I opened my second Prosper account (under my wife’s name) when Prosper ran a special giveaway in April. They were giving new investors $104 to open an account and I couldn’t resist the free money on offer. I have only added $2,000 to this account and I have been focused primarily on new borrowers in grades E and HR (the highest risk borrowers on Prosper).
My goal with this account is to see if I can earn a decent return by investing just a small amount into the highest risk notes in all of p2p lending. My Prosper screen name for this account is green-inspiring-peace. I should also point out a good portion of my returns this year were gained by investing in my own Prosper loan – this was at 31.99% and I invested $750 in that loan. So that definitely skewed my results higher than normal. I paid back that loan in late December.
My Overall P2P Lending Returns
When I do the calculation of my real return across all my p2p lending accounts I come up with 8.12% in 2011. I consider this a decent return but one that I would certainly like to improve upon. My goal for this year is to have this number over 10%. In 2011 my Lending Club strategy shifted to focus purely on the high risk loans (with the exception of the PRIME account) and I expect to have my three actively managed Lending Club accounts showing a real world return over 8.5% this year and my long term goal is get this number up above 12%. I expect my new Roth IRA will do more than 12% this year.
You can also see the large difference between the Lending Club and Prosper return numbers and my actual returns. As I have written before there are two main reasons for this: their ROI numbers do not take into account the amount of cash in your account and they ignore profits and losses from trading activity on the Folio platform.
My Prosper accounts continue to perform better than I expected. However, I am not getting carried away with this success because the average age of my notes in these accounts are still very young. I do anticipate a large number of defaults this year, so I don’t expect 17% and 22% returns in 2012. But my goal is to finish the year with a real world return of 15% or more between both accounts.
Managing Six Accounts
I do spend a few minutes every day logging in to each account and recording various data points such as return numbers, late notes and available cash. Then once a week I invest my available cash in my three Lending Club accounts (the PRIME account is invested automatically). On Prosper, I have Automated Quick Invest setup on each account, so I do only occasional investing outside of this.
It is quite a task keeping track of six accounts and making sure there is no duplication of notes between accounts. How do I do that? Well that is a topic I will cover in a post next week.