Last month, I provided you with an inside look at my p2p lending accounts at Lending Club and Prosper. I manage six accounts in total and with each account I have a slightly different investing strategy.
Now, some might think that six accounts is overkill, and to many people it is. I started out with just one account for the first several months. But then I was so delighted with my returns that I added two new accounts when I rolled over my wife’s traditional and Roth retirement accounts. Then I opened a Roth IRA account in my own name and before I knew it, I had four accounts at Lending Club.
Prosper has just recently added the IRA option but right now I have just two taxable accounts there, one in my own name and one in my wife’s name (I will be opening an IRA account there later this year). Many investors will have one IRA account and a taxable account and even investing with just two accounts can bring complications.
The Problem of Duplicate Notes
The p2p lending statistics site, Nickel Steamroller, has an excellent utility for Lending Club investors. You can download a CSV of your Lending Club account and then use their portfolio upload tool to run some analysis on your portfolio. One of the things I find most useful with this tool is the ability to see duplicate notes. You can even combine portfolios from different Lending Club accounts to see duplicates between your accounts.
I have spoken many times about the benefits of diversification. But when you invest in the same note twice you are not maximizing your diversification. If you are not paying attention you can easily make this mistake.
Lending Club provides a little warning for you if you try and invest in a note that you have already invested in. Prosper has no such mechanism but if you use Automated Quick Invest it will keep track of the notes you have already invested in and ensure you don’t accidentally reinvest in them.
That is all fine, but what about when you have multiple accounts? Lending Club will not warn you when you are about to invest in a note that you already hold in another account. And Prosper will happily invest in the same loan through the Quick Invest feature on two different accounts – there is no way to link your accounts in any way. So, you need a way to remove the possibility of investing in duplicate notes.
Use Mutually Exclusive Filters
In my Lending Club and Prosper accounts I run different exclusive filter sets. What I mean by this is that these are different sets of filters that will have no crossover whatsoever in the groups of notes they produce. In other words each note in a filter set cannot appear in any other filter set. This is best illustrated with an example.
An easy way to use mutually exclusive filters is to choose different loan grades. So you could run a filter set for loans grades A and B and on the other account you could choose C, D and E. This will ensure that you never have any overlap between accounts. But what if you only want to invest in C, D and E grade notes in both accounts. Then you must choose another criteria. You could use number of inquiries, states or loan terms to name a few. By choosing a different range for each account you will end up with no with duplicate notes in your accounts.
In an upcoming post I will take you through the criteria I am using right now in my six accounts to make sure I never invest in a duplicate note. But before then I am interested to hear from other investors who have multiple accounts. What criteria do you use to avoid investing in duplicate notes? Please let me know in the comments.