The last time we reviewed my wife’s Lending Club PRIME account, back in August, we were at an NAR of 9.73%. There were 22 notes that were more than 30 days late and of those 15 have now defaulted. This brings the defaults/charged off number up to 30 which explains the 1% drop in NAR. Here is a link to my original Lending Club PRIME review if you want to find out how PRIME accounts work.
I took the above screenshot last night. For those following along closely, the account total has grown in size around $690 since the last review. There are plenty of late loans so the NAR will likely continue to fall. My real world return is pretty easy to calculate. I have not added to or subtracted from this account at all in the past year. My statement balance at October 31, 2010 was $55,944.65 and at October 31, 2011 it was $60,170.03. This equates to a return of 7.55%.
I am Taking This Account off PRIME
I think a return of 7.55% is decent but I am confident I can do better than that. So, I have decided to take this account off PRIME and manage it myself going forward. I like the Lending Club PRIME service with the hands-off approach but I also want to get the best returns possible.
Having said that, I think it is useful for readers to see the returns of a PRIME account so I am going to leave my wife’s other IRA as is. These two accounts were started as PRIME accounts at exactly the same time (the only difference is one is a Traditional IRA and the other is a Roth IRA) and had the exact same investment strategy initially. Both accounts even invested in many of the same loans.
In April of this year, I decided this was not the best strategy so I switched the Roth IRA, that you see in the screen shot below, to only invest in 60-month notes (the Traditional IRA is invested in only 36 month notes). After reinvesting for a bit over six months this account is now at 72% 36-month notes and 28% 60-month notes.
The NAR trajectory of this account has followed the exact same path as my other PRIME account. It started at around 12% and has fallen to a low of 8.33% achieved last month. The real world return on this account over the past 12 months is also very similar – it is 7.72%.
As I change strategies with my other IRA account it will be interesting to see if I can create some separation between the two accounts. I certainly hope my note picking strategies will outperform the blanket investment strategy of a PRIME account.
Lending Club Changes the Minimum Investment for PRIME
Last month Lending Club changed their policy on the minimum investment needed to open a PRIME account. It was $5,000 and now it is $25,000. The reason for the change, as it was relayed to me, is that they want these accounts to be fully diversified. And they felt that $5,000 just wasn’t allowing new investors to achieve the desired diversification.
The average PRIME account is over $100,000 so for many people this won’t make any difference. But new investors wanting a hands-off approach now need to commit $25,000. If you already had a PRIME account you are grandfathered in (as the account above has been) and can maintain a lower balance.
Lending Club certainly doesn’t appear to be losing much business because of this change – they are having another excellent month.
When were these 2 IRA accounts started??
I’m surprised that you characterize a 7.55% real world return to date on this completely hands off Lending Club Prime account as “decent”. I think it’s outstanding.
Oh & by the way, since you are changing the rules of the game by taking this off Prime, I think it’s only fair that you concede now. Remember back in February of this year when this was returning 10% or so, I predicted that this Prime account would end up with a real world return of 4% by mid 2012. You stated (confidently) that you expected “double that”. Double that, huh? It’s not even double that today. Where do you think it’s going to be 6-7 months from now?
However, because I’ve come to develop a much higher confidence in Lending Club in general & in their competence & abilities these days, I’m willing to concede that 5% real world by mid 2012 would have been achievable………….. maybe even 5.5%. But 8%? Not on this planet. And incidentally, 5-5.5% would have been very good numbers for a hands off account in todays interest rate environment.
Now as for your intent to outperform by self managing, I think that you will be unpleasantly surprised by the difficulty in changing the momentum of that 1000+ note account. I will go on record & say that by end of 2012 you will NOT be able to open a gap larger than NAR 1.5% between the account you’re taking over & the Prime Roth IRA even though you’re already starting out with a 0.22% advantage. Care to wager? Come on, you might win. 🙂
Dan,
If you follow the review links back far enough, it looks like he opened his wife’s account in April 2010. I agree with you, it’s going to take a lot to move the needle on a 1000+ note account. Although, since you weren’t specific, I guess he could always tank the account to get the 1.5% separation 😉
Lou
@Dan, Lou is correct it was opened in April 2010 and fully invested by July. And I think you are right, a real world 8% return will be a difficult target to achieve in 6-7 months, it will probably be in the 5-6% range. But I don’t think it get down below 5%. It will be interesting to see. And you know by now that I am not much of a gambler…
@Lou, It will take a long time to move the needle on a 1,000-note account but I am in for the long haul. My goal is within 12 months to have at least a 2% (real world return) separation between my PRIME account and the one I have just taken off PRIME. One thing I should point out is that this account in only invested in 36 months so within 12 months I should have put another $25K to work or thereabouts just from the repayments.
Peter………..You misunderstand. I’m saying that you will be unable to open a gap of larger than 1.5% by end of 2012 (13 months from now). I said nothing about a real world return of 8% in 6-7 months except that it was your prediction back in February of this year…………..as ridiculous as it now sounds to anyone reading this given the reality, & as ridiculous as it sounded to me when you first said it in February.
And yes, I know that you keep saying that you’re not much of a gambler etc……….The funny thing is that between the two of us you’re actually the much bigger gambler. And you can define that statement pretty much anyway you want & it will still be accurate. 🙂
Lou…………..Thanks for that info. You know, as odd as it may sound, I don’t think Peter could achieve more than a 1.5% separation within the allotted time even if he did try to tank the account just to prove me wrong.
@Dan, I have been wrong before and will likely be wrong again but I do think I will be able to get a 1.5% separation in NAR between now and the end of 2012. I have made a note to write about about this and check in with you then.
And of course, gambling is somewhat subjective. I happily “gambled” $250,000 of my own money in my last company but I would never drop more than $100 on the tables in Vegas nor would I wager anything other than play money on a sporting event.
I find your experience Peter very interesting and am appreciative that you posted them. I try to keep a hands on approach with LC, but it does take a lot of time. When any of my notes are having a problem I unload them on the first sign of trouble on the 2nd market usually for a loss of $2.00 from the current balance. But Like I said, I think sometimes Ive become a money manager at having to do all of this. I think this type of investment has a high learning curve, and Im not the sharpest tool in the shed so I do like to hear from folks like you and Dan. Many thanks !
Ron M…………You’re welcome. Getting rid of problem loans in the manner that you described shows that you’re sharper than you’re giving yourself credit for. Just so that I can put your name with a mental profile, perhaps you’d like to share how long you’ve been investing, how many notes you have & how your returns have been so far. It’ll help me recognize you the next time you post.
@Ron, I echo Dan’s remarks. Unloading loans at the first sign of trouble is a good way to maintain above average returns. But as you point out it is a manual process. I have over 2,500 notes spread over four Lending Club accounts and I have made the decision to not sell every note on the secondary market at the first sign of trouble. I will have defaults, and my returns will suffer because of this, but it allows me to not become the hands-on money manager like you describe.