Back in January I opened the kimono and gave you a complete rundown of my p2p returns from 2011. This was one of my most read posts ever so I have decided to make it a regular quarterly feature.
The table below shows my trailing twelve month (TTM) returns for all six of my p2p lending accounts for the year ending March 31st, 2012. You can see my opening and closing balances, additions I have made, total interest earned and my real world return calculated using the XIRR() method. I have also included the return numbers that are displayed on Lending Club and Prosper for each account on March 31.
|Account||Balance 3/31/11||Additions||Balance 3/31/12||Net Interest||XIRR ROI||Return on Site|
|Lending Club Main||$11,584.78||$11,000.00||$23,620.71||$1,035.93||8.04%||9.18%|
|Lending Club Roth IRA||$0.00||$5,000.00||$5,476.51||$476.51||10.40%||16.29%|
|Lending Club Trad IRA||$57,953.84||$0.00||$61,689.09||$3,735.25||6.45%||8.52%|
|Lending Club Roth IRA - 2||$14,827.03||$0.00||$15,719.98||$892.95||6.02%||8.38%|
|Prosper - 2||$0.00||$2,000.00||$2,394.16||$394.16||20.80%||23.57%|
Why I Use XIRR() to Calculate Real World Returns
Last year I wrote about the different ways to measure your p2p lending ROI and why I like to use the XIRR() method. I believe this method provides the investor with the most accurate return for any historical period. It takes into account idle cash as well as trading platform activity, something that the official numbers on Lending Club and Prosper don’t. I have used the XIRR method in calculating my returns in the above table.
Below is a brief discussion and analysis of all six of my p2p lending accounts.
Lending Club Main
My main Lending Club account was opened back in July 2009. I started out with a conservative strategy, focusing on A, B and C grade loans and continued with that strategy for two years or so but last year 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 have added $11,000 in the first quarter of 2012. My new strategy is already paying dividends (literally) because I have gone from 6.29% in the TTM through 12/31/11 to 8.04% for the TTM through the end of March 2012. I expect that ROI number will continue to increase as the year goes on.
Lending Club Roth IRA
I opened this new Lending Club IRA in April 2011 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 strict with my criteria and only invested in loans that passed all my filters. This account is doing very well. My annualized ROI since I opened the account has risen to 10.4% and my goal is to have a 14% return with this account by the end of the year.
Lending Club Traditional IRA
I rolled over several IRA and 401(k) accounts that my wife had accumulated from various jobs and consolidated them into one Lending Club traditional IRA 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. But it is going to take a while to turn this battleship around and my 6.45% ROI reflects that.
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 15 months now. I had 16 defaults this past quarter which sent my TTM real world ROI down from 7.96% to 6.02%. This is not as good as I hoped but I am leaving it on auto pilot to see what happens as the account ages.
I opened my first Prosper account back in September 2010 with just $1,000. In 2011 I added to this account substantially. I am continuing to add new money into this account and you can see that I have added $34,000 in the last 12 months. I had a few defaults this past quarter but I am still maintaining an excellent ROI of over 18%. I expect this to come down to around 15% this coming quarter which is roughly what my account on Lendstats has been showing.
Prosper – 2
I opened my second Prosper account (under my wife’s name) when Prosper ran a special giveaway in April last year. 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. So far, so good as my ROI is almost 21% but I expect that number will come down substantially in the coming quarters.
My Overall P2P Lending Returns
My overall TTM return was 8.58%. This is an improvement from my December return of 8.12% and puts me on track to increase my return across all accounts to over 10% by the end of the year. Most of the gain can be attributed to my Prosper accounts which continues to produce outstanding returns. This is certainly the highest risk part of my portfolio and if we suffer another economic downtown it will likely suffer the worst losses. My Lending Club account has a large portion of medium and low risk notes so my returns there are commensurate with the risk I have been taking.
The net interest number is also important. I have increased the gain generated by my p2p lending investments to $9,107 and this number should be well over $10,000 by the end of June. I will report back in three months.