Every quarter I share in detail the returns I am getting from my p2p lending investments at Lending Club and Prosper. I do this for several reasons. One, return on investment is what interests most readers. I also like to provide a level of transparency so everyone can see that I don’t just write about p2p lending, I am truly committed to it. Finally, it makes me accountable – I know that every quarter I need to display my returns for the world to see.
Earlier this week I gave some detail as to how I calculate my real p2p lending returns with the XIRR function, so I use this same method to calculate my returns across all my accounts. Speaking of which I currently have a total of six different accounts that are detailed in the table below. I provide my starting and ending balances, any additions I made to the accounts, total interest earned and my real return. The Return on Site shows the return that was displayed at Lending Club or Prosper at the end of the quarter.
|Account||Balance 6/30/11||Additions||Balance 6/30/12||Net Interest||XIRR ROI||Return on Site|
|Lending Club Main||$11,635.14||$14,000.00||$27,348.17||$1,713.03||10.19%||10.09%|
|Lending Club Roth IRA||$5,011.70||$0.00||$5,658.63||$646.93||12.91%||15.97%|
|Lending Club Trad IRA||$59,004.39||$0.00||$62,907.46||$3,903.07||6.61%||8.03%|
|Lending Club Roth IRA - PRIME||$15,160.67||$0.00||$15,938.10||$777.43||5.13%||7.62%|
|Prosper - 2||$1,105.76||$1,000.00||$2,485.45||$379.69||20.54%||19.86%|
Below is a brief discussion of each of the six accounts in the table.
Lending Club Main
My main Lending Club account has shown the biggest improvement. This month marks the three-year anniversary since opening this account at Lending Club. For for first two years I had quite a conservative strategy with this account – focusing primarily on the A-, B- and C-grade loans. As I said last year I switched course and started investing only in the D-G grade loans which carry a much higher interest rate. My trailing twelve month (TTM) return has increased from 6.29% in December, 2011 to 8.04% in March, 2012 to 10.19% in June, 2012. At the same time I know this is now a relatively young account because I have more than doubled the amount invested in the last six months.
Lending Club Roth IRA
This account was opened in April, 2011 with the intention of seeing what was the highest possible return I could manage with a Lending Club account. From the start I have only invested in D-G grade loans so this account has my highest average interest rate of 18.51% out of all my Lending Club accounts. The average loan age here is just under 10 months so I know that I will have many more defaults in this account. Right now, I am pleased with the performance here – just five defaults out of 285 notes and only one note currently late. It took me six months to be fully invested in this account so my return of 12.91% includes a period where there was significant cash sitting in the account.
Lending Club Traditional IRA
This account began as a Lending Club PRIME account when I rolled over several retirement accounts my wife had accumulated and consolidated everything in this one account. I decided to take this account off PRIME in November of last year and manage it myself. Since then all reinvestments have been made into D-G grade loans ond the returns are slowly (very slowly) increasing as a result of this change. When I took this account off PRIME it had 1,118 notes and now seven months later the total is 1,392 notes. It is going to take 12 months or more before the majority of my notes are D-G grade and by then I expect that my return will be up close to 10%.
Lending Club Roth IRA – PRIME
This account was opened at the same time as the traditional IRA account above – my wife had a Roth 401k from her last job and so this I rolled into a Lending Club Roth IRA. I opened this as a PRIME account and have kept it that way. Even though I am confident I could do better managing this account myself I have kept this account on PRIME as an experiment. In the latest quarter that experiment has been a little disappointing. This account is around two years old now and the latest ROI number of 5.13% is the lowest ever and down from 7.96% just six month ago. I was hit with 11 new defaults this quarter which is the primary reason the return went down so much.
I couldn’t be happier with my main Prosper account. The returns here continue to be outstanding, much better than I expected. I thought my ROI would be down to around 15% this quarter but it has stayed remarkably steady above 18% despite the eight new defaults. I am under no illusions about this return number, I know this is a young account (average loan age of 7 months) so defaults haven’t really picked up yet. With 33 late loans I expect defaults will at least double this quarter which will see my return drop. When I check my account on Lendstats my estimated return is around 13% which is below my long term goal of 15% but it is probably closer to the real number going forward. We will see.
Prosper – 2
My second account at Prosper is under my wife’s name and I opened that when Prosper ran a special $104 giveaway in April last year. In the last year I added $1,000 and I intend to keep this account small. I want to see what kind of return can be achieved in a small and only a minimally diversified account. I have taken a deliberate high risk approach here with an average interest rate of 29.95%, the highest of any of my accounts. So far returns are holding up well but with an average age of 8 months the account is still very young. Lendstats has my estimated return here at almost 18% but I expect that will drop to the 13-14% range here soon.
My Overall P2P Lending Return
This latest quarter was certainly a good one. I managed to increase my annual real world ROI from 8.58% for the year ended March 31, 2012 up to 9.57% for the year ending June 30, 2012 – almost a full percentage point higher. My strategy change last year in focusing on just the high interest loans is really starting to impact my returns as the average interest rate in my portfolio continues to increase. I am well on track to increase my total returns to over 10% by the end of the year and that may well happen this coming quarter.
While a good return number is nice the net interest amount is what is really important and that grew to over $10,000 in a year for the first time. At $11,434 (with a good chunk of it tax free because it is inside an IRA) this is up more than $2,000 from the TTM number in March. I will update all these accounts again in three months.