My Quarterly P2P Lending Results – Q1 2015

One the founding tenets of P2P lending was transparency. As the industry has matured this tenet has been watered down somewhat but here at Lend Academy we are still 100% committed to it. Which is why every quarter I bring you my quarterly returns post. I have been sharing the details of my Lending Club and Prosper returns for many years and I will keep doing so.

I have continued to add new money into my P2P lending portfolio and this quarter I rolled over a good part of my IRA into the Lend Academy P2P Fund. I now have ten different accounts, which I admit is a lot, but with taxable, Traditional IRA and Roth IRA in both my name and my wife’s name, spread across two platforms, I have found this number to be necessary.

I will go through each one of these ten accounts below and provide you with a screenshot as well as a little explanation of each one. But first, let’s get right to the numbers.

Overall P2P Lending Return Now at 11.34%

This past quarter saw a slight rise in my overall return from 11.11% to 11.34%. One the other hand, the returns for my core six holdings (each one has been open for several years) continues to decline slowly going from 9.59% in Q4 2014 to 9.29% in Q1 2015. While I continue to suffer from a large number of defaults the situation is exacerbated by the decline in interest rates at both Lending Club and Prosper. For this reason, I am now sharing the weighted average interest rate of each investment (where available) so everyone can clearly see how this is tracking.

Now on to my numbers. Click the table below to see it at full size.

P2P Return Numbers Q1 2015

As you look at the above table you should take note of the following points:

  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 Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
  4. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way to determine your actual return.
  5. The four new accounts have been separated out to provide a level of continuity with my previous updates.
  6. I do not take into account the impact of taxes.
  7. The extended chart showing returns displayed at Prosper and Lending Club as well as my adjusted returns can be viewed here.

Now, let me go through each account in turn, to give you some context to the above table.

Lending Club Main

Lending Club Taxable Account Return Q1 2015

This was my first account that has now been open for almost six years. It has gone through several different strategies over the years. I started off in a conservative way like many investors but gradually transitioned to a more aggressive approach. This is a taxable account and I will not be adding to it again – as we explain here a retirement account is the best way to invest in this asset class.

You will see two graphics with this account. I have taken a screenshot of both the standard account screen (above) as well as the screen that shows adjusted returns (below). You can see the difference in the return numbers for both – the adjusted returns looks at all your late loans and adjusts your return accordingly. It is a more accurate way to look at returns particularly for newer accounts.

Lending Club Taxable Account Adjusted Return Q1 2015

Lending Club Roth IRA

Lending Club Roth IRA Return Q1 2015

This Roth IRA account just celebrated its fourth birthday. This is my most aggressive Lending Club account with the highest average interest rate. I have only invested in loan grades D-G pretty much from day one so this continues to be my best performing Lending Club account. While the economy keeps chugging along the way it has I expect this account will continue to do well. After dipping below 10% for a couple of quarters last year my real return on this account is now back solidly in double digits.

Lending Club Traditional IRA

Lending Club Traditional IRA Return Q1 2015

This is my wife’s Traditional IRA and it is also my largest account at either Lending Club or Prosper. I opened this account in April 2010 by rolling over several 401(k)’s and IRA accounts that my wife had accumulated over the years. After many quarters of declines it was good to see the returns for this account reverse direction, they increased from 8.01% to 8.43% in the previous quarter.

Lending Club Roth IRA – 2

Lending Club Roth IRA 2 Return Q1 2015

This account used to be my most conservative in my portfolio. It was originally setup as a Lending Club PRIME account in 2010 and I let Lending Club manage my investments for me investing only in B- and C- grade accounts. I still let Lending Club invest automatically in this account but I now do so using my Super Simple filter.

Prosper Main

Prosper Taxable Account Returns Q1 2015

Switching over to Prosper, we see my original Prosper taxable account. I opened this account in 2010 and eventually invested $50,000 after slowly adding to it over a several year period. This has been my most consistently high performing account, always providing double digit returns since inception. Although my 10.79% real return in Q1 marks the lowest return ever for this account.

Prosper – 2

Prosper 2 Returns Q1 2015

This is my most volatile and least diversified account. It has always been something of an experiment for me as I like to see what happens when you only have 100 notes or so invested. And I have only invested in the most aggressive notes as you can see by my 24.19% weighted average interest rate. What happens in an account like this is that defaults have an outsized impact. Just six months ago real returns on this account were under 5%, today they are back over 9%.

Prosper – Roth IRA

Prosper IRA Returns Q1 2015

I opened this account a little over a year ago with a slightly different intention. All of my other P2P lending accounts have been invested aggressively in higher risk loans, so I wanted this new account to take a more conservative approach. I rolled over $50,000 from a Roth IRA account and I have my own firm, NSR Invest (formerly Lend Academy Investments), manage this account with our balanced portfolio. It invests primarily in A, B and C grade loans at Prosper using our own models.

Lending Club Traditional IRA – 2

Lending Club Traditional IRA New Returns Q1 2015

This account was opened out of necessity. I needed to do a re-characterization of my Roth IRA because of income limitations. I had to move $5,500 from my Roth IRA to a Traditional IRA, a process that Lending Club made very easy. This is a new account and like all new accounts the Net Annualized Return number that Lending Club provides is pretty meaningless. I like that Lending Club includes the Historical Returns range on new accounts now – that gives a much more accurate picture. I expect my long term returns here will fit somewhere within that range.

Direct Lending Income Fund

Direct Lending Income Fund Returns Q1 2015

I am still a big fan of the Direct Lending Income fund mainly because it continues to be the best performing investment in my entire portfolio. It has been over two years now since I opened this account and the returns have been very consistent. I think Brendan Ross, the fund manager, has done an excellent job on delivering on his promise to investors and this is one of the success stories of this industry. The focus of this fund is in short term high yield small business loans through a variety of online platforms.

Lend Academy P2P Fund – Roth IRA

Lend Academy P2P Fund Returns Q1 2015

You may remember that last month my investment management firm Lend Academy Investments merged with NickelSteamroller to create NSR Invest. We offer a private fund for accredited investors and late last year I rolled over part of my Roth IRA into this fund. In March, I rolled over another part of this Roth IRA so I now have almost $200,000 invested in our fund. It invests in the loans issued by Lending Club, Prosper and Funding Circle with a small position in Upstart as well. Unlike your portfolios at Lending Club and Prosper these kinds of funds value every loan at fair value at the end of every month, writing down the value of any late loans.

Final Thoughts

As I said last quarter I think it is more difficult to earn 10-12% returns than it used to be. Most of my Lending Club and Prosper accounts are fully seasoned now, having gone through more than one complete cycle as loans I invested in three or even five years ago are fully repaid. I think the new normal for serious P2P lending investors is 8-10% returns rather than the 10-12% returns we have enjoyed for several years.

At the end of every quarterly update I like to highlight one number: Net Interest earned. This is the money that shows the actual gains in your account (before taxes). I always like to see this number grow because eventually, when I retire some day, I want to live off the interest generated by these investments. As I continue to add to my investments I expect this number to keep growing – it was at a record $45,935 for the year ending March 31, 2014.

Let me know what you think. I am always happy to discuss these numbers with you.

Subscribe
Notify of
18 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Jacob
May. 21, 2015 8:57 am

Peter,

Thank you so much for continuously providing these updates. Your transparency has been what has given me more confidence to step into the marketplace lending waters a bit more with my much more limited investments as a small, retail investor.

I wonder if there would be a way for you to provide some sort of metric that for each account that accounts for the weighted age of the portfolio. In my personal experience, the best returns that I have are always at the beginning before defaults start to occur. Since your multiple accounts were all started at different times, judging % returns (even if computed using XIRR ROI) doesn’t fully take into account the temporal aspects of one portfolio being closer to maturity vs. another portfolio.

For example, a portfolio fully comprised of 5-year notes that is on its 58th month has only 2 months remaining for defaults. Therefore, the likelihood of returns changing much for that particular portfolio would be much different than for a portfolio that is brand new which has its entire lifecycle ahead of it. Hopefully what I’m saying makes sense!

Jacob
May. 22, 2015 7:13 am

Thank you for the response Peter. It seems to me that the average age of a portfolio probably matters a good deal more for portfolios that contain a disproportionate number of lower grade notes, since these portfolios will most likely have a higher number of defaults than a portfolio with higher grade notes.

Since most of the high returns seem to involve taking a bit more risk with regards to credit worthiness, I think it would be useful to see the average age of portfolio. I appreciate your consideration and I enjoyed watching your testimony before congress. Thank you for all your site brings to us “small fry” investors!

CA-Lender
CA-Lender
May. 27, 2015 11:00 am

Peter,

I always enjoy getting these updates. I am competitive by nature, and always try to see how my numbers compare to yours. You’ve been outperforming me by 1 or 2 points every quarter 🙁 Congrats.

I’ve been meaning to ask you if you’ve looked into RE Crowdfunding sites yet? They are still much newer then P2P, but I’ve gotten slightly better returns there, and so far many of these sites are still at 0 defaults (obviously, that could change quickly, if the RE market sours).

CA-Lender

David Breen
David Breen
Jun. 2, 2015 2:26 pm

What percentage of your entire portfolio is comprised of P2P lending?

David Breen
David Breen
Jun. 2, 2015 4:14 pm
Reply to  Peter Renton

Thanks, Peter.
When you refer to P2P as a liquid asset how easy is it to convert loans back to cash?

david breen
Jun. 8, 2015 8:28 pm
Reply to  Peter Renton

Where can I learn more or get training on how to cash out notes on the secondary market?

Wright
Wright
Jul. 6, 2015 8:57 am

I really enjoy this site and I employ lots of the strategies you use and also some of the Penny Note strategies used by New Jersey Guy. I live in a state that does not yet allow trading new notes on the platform, which is unfortunate. That said, I almost prefer the secondary market because of many of the reasons New Jersey Guy mentions in his articles. I do buy new notes on FolioFn on occasion(only if they are discounted), but I invest the majority in notes with a track record of on time payments (notes that are at least a year old) and smooth (ish) credit score history. The returns have been great, from 12-13%, according to the XIRR method. I have not done a detailed analysis about the age of these notes, but I estimate that I purchased 90% of them when they were 13 months old, or older . I also reinvest my profits 2-3 times a week Do you think the new normal for returns will be 8-10% for already seasoned notes purchased on the secondary market? Or do you think that will only happen to new, unseasoned notes purchased on the platform?

Hrant
Hrant
Jul. 23, 2015 7:17 pm

Thank you Peter for your always insightful information you provide unselfishly.
As I had the pleasure and fortune of meeting you many, many years ago, I always look forward to your sincere input, and unbiased guidance to all, including myself.
It is a pleasure to be able to read summaries of information, in this ever fast growing field, and to take advantage of your insight, and transparency as always.
Since this field is growing at an exponential rate, perhaps you may want to consider making a chart of any and all investment vehicles available, with their summary of returns, requirements, minimums, lockups, etc. on an updated basis for us investors to follow, and explore.
Since I too am invested in various funds, I do find it quite time consuming to review, as each and every one of us has done, the criteria, returns, etc.of each and every fund available to investors, and would love to have at my disposal, a source of “go to” like an Index source and Library of information, which you graciously kind of provide to all already. It would be a perfect fit for you and your company to offer.
Thank you again for your NSR fund, as I have added monies to it after my initial deposit, and believe in it as much as you do!
Everyone should open an account with NSR Invest fund, as we are all trying to get ahead, and should support the people that are doing their best to help us; besides, what are banks paying these days again:)?

James
James
Mar. 28, 2016 4:00 am

Hello
I am 30 years old.
I have about $150K cash in my savings account (1% interest rate).
Is it wise to invest 100K in Lendingclub?