My Quarterly P2P Lending Results – Q1 2013

The main reason most investors have taken the plunge with peer to peer lending is for the excellent returns. For this reason every quarter I post the details of my own returns for all my accounts at Lending Club and Prosper. You can see my historical returns here.

There are a few points you need to keep in mind as you look at the table below.

  1. I do not rely on the return numbers that Lending Club and Prosper provide. Instead I work out my trailing twelve month (TTM) return using the XIRR method. This allows me to take into account cash drag as well as any deposits (and withdrawals if I had any) while providing an accurate return.
  2. The Net Interest number is total interest earned plus late fees less any charge-offs.
  3. The Average Age column shows the average age in months of the loans in my portfolios. I added this based on feedback from my last update and it is useful because as a loan portfolio ages the more impact defaults have on the overall returns.
  4. All the interest and total balance dollar amounts are obtained from the monthly statements, I do not use balances displayed on the websites of Prosper and Lending Club.
  5. The Return on Site number is from the platforms recorded on the last day on the quarter.

Below is the table showing the return breakdown from my six accounts.

AccountBalance 3/31/12AdditionsBalance 3/31/13Net InterestAverage AgeXIRR ROIReturn on Site
Lending Club Main$23,620.71 $3,000.00 $29,591.84 $2,971.13 19 mths9.17%10.65%
Lending Club Roth IRA$5,476.51 $-$6,149.93$673.4215 mths12.30%13.99%
Lending Club Trad IRA$61,689.09 $- $67,357.11 $5,668.02 20 mths9.19%8.96%
Lending Club Roth IRA - PRIME$15,719.98 $-$16,642.50$922.5220 mths5.87%7.60%
Prosper Main$37,765.00 $15,000.00 $59,122.15 $6,357.15 12 mths13.99%15.06%
Prosper - 2$2,394.16 $- $2,767.63 $373.4714 mths15.60%16.59%
Totals $146,665.45 $18,000.00 $181,631.16 $16,965.71 10.79%

This past quarter was a mixed bag for my investments. Some of my accounts were up and some were down. I provide some more detail below.

Lending Club Main

This was my first p2p lending account that I opened in June 2009. All the loans from my initial investment have now matured and this money has been completely reinvested in a new batch of loans. But this account was my biggest disappointment last quarter. I went from a 12.34% TTM return on December 31, 2012 to 9.17% on March 31, 2013. Why the big drop? One word: defaults. January was my worst month ever for this account with around $412 in defaults against $453 in interest earned. February and March were much better and more in line with my historical numbers but the hit in January caused the big drop in my TTM return.

Lending Club Roth IRA

My $5,000 Roth IRA that I opened in April 2011 is now nearly two years old and it too suffered quite a big TTM return drop in the 1st quarter. My ROI dropped from 14.35% to 12.30%. This is my most aggressive Lending Club account, only investing in loan grades D-G and it also suffered more defaults in the latest quarter than ever before. January was also a terrible month here with more defaults than interest, which is the first and only time this account has gone backwards in a month.

Lending Club Traditional IRA

This month marks the third anniversary since opening this account. It was started as a Lending Club PRIME account but I took it off PRIME in November 2011 as I felt I could do a better job cherry picking loans. This is my largest Lending Club account and it is continues to show improved performance. I have gone from a TTM low of 6.45% one year ago to 9.19% today, this is also up from 8.28% last quarter. I continue to focus on grades D-G in this account by investing in my Lending Club Filters 2 and 3 as described in my How I am Investing post.

Lending Club PRIME Roth IRA

My second Roth IRA account (this is my wife’s Roth) is a Lending Club PRIME account. This is my experimental account. While I know I could do better by managing this account myself I like to see what happens when I let Lending Club choose the loans for me. This account has been a PRIME account since I opened it in April 2010. After several quarters of declining return numbers we showed a nice jump from 4.91% to 5.87% in the last quarter.

Prosper Main

I opened my first Prosper account in September 2010 with just $1,000. I have continued to add regularly to this account and today it has almost $60,000. Like most of my older accounts my returns here continue to drop but I am still very pleased with the numbers. My TTM return on March 31st was 13.99% down from 15.34% three months before. This account has the youngest average age of all my accounts at just 12 months so I should expect these return numbers to continue to fall. But I am hopeful that I can maintain returns here in the 12-13% range.

Prosper – 2

My smallest account also happens to be my best performing account out of all six. It is also my most aggressive account. I have only ever invested in grades E and HR in this account and so far it has paid off. I opened this account in April 2011 during a promotion where Prosper gave away $104 for every investor who opened a new account. My TTM return number of 15.60% does not include this bonus. While that number sounds impressive, it is down from 17.09% the previous quarter.

My Overall P2P Lending Return

My overall TTM return remained steady at 10.79% up just 0.02% from the previous quarter. My goal this year was to get my overall real world return to 12% by the end of the year. If I don’t add to any accounts I think that would be difficult. Long term, I may have to settle for returns in the 10-11% range.

I have decided to stop adding new money to my taxable accounts at Lending Club and Prosper. The advantages of earning interest in tax-deferred accounts are simply too great. I am going to add no new money this quarter at all but in the third quarter I am rolling over a six-figure IRA and investing it into both Lending Club and Prosper. This will give an initial boost to my return numbers but the average age of these accounts will drop dramatically.

The Final Word

While studying return numbers is interesting the most important number in my table is total interest earned. This is the money you have earned and can withdraw at any time if needed. My total interest earned continues to steadily increase now just under $17,000.

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Dan B
Dan B
Apr. 11, 2013 5:58 pm

As always, thanks for sharing your results.
Regarding your LC Main Acct & LC Roth IRA…………..how far off would I be if I were to take a wild guess & say that these 2 accounts are invested heavily (50% or more) in 5 year loans?

Dan B
Dan B
Apr. 11, 2013 7:08 pm
Reply to  Peter Renton

As I suspected, thx.

dontvote
dontvote
Apr. 12, 2013 11:48 am
Reply to  Dan B

I suspected something similar but am curious what your reason was for thinking Peter bulked up on the long plays?

dontvote

Dan B
Dan B
Apr. 13, 2013 6:24 pm
Reply to  dontvote

Dontvote…………..Peter & I have had various discussions on 3 yr. versus 5 yr. loans, stretching back all the way to their initial introduction, so that was actually not as brave of a guess as I may have previously suggested. I’ve always argued that the higher interest offered on 5 yr. loans did not sufficiently compensate for the risk & that defaults, (both in terms of actual numbers as well as when they’d occur) would not be consistent with the 3 yr. loan experience. Therefore I’ve always limited my exposure to 5 yr. loans to no more than 10-15% in all my accounts.

Peter, on the other hand, embraced 5 year loans & responded to my arguments with a more neutral or non-committal stance, suggesting in his almost trademarked manner, ( as he often does 🙂 ) that no one knows what will happen & that it’ll be interesting to see how it all plays out. (or words to that effect) Well Peter, I think it’s starting to play out. Oh & of course……………I told you so. 🙂

All joking/ribbing aside, it is instructive to note the damage that can occur within a short period of time…………….even to highly diversified portfolios. Even though nothing in these results have surprised me, I wouldn’t have predicted that an account would ever show a loss like the Roth IRA apparently did, albeit thankfully for just that one month so far.

Dan B
Dan B
Apr. 16, 2013 6:53 am
Reply to  Peter Renton

It’s quite easy to suggest that a house is unstable………….,,,,, after part of it has collapsed. It’s quite another matter to make that same suggestion when things “looked” ok. A few of us recognized the situation back then & made educated forecasts back then. Some of us may not require 3 years of payment history in order to “start to make some educated forecasts”. Perhaps our minds just work differently or perhaps at different speeds. 🙂

Jack
Jack
Apr. 11, 2013 6:00 pm

Awesome job….. both from an analysis and from a return perspective. Are you still averaging @ $60 per loan or have you changed your dollar amount based on the credit grade?

Fred
Fred
Apr. 12, 2013 7:42 am

“… in the third quarter I am rolling over a six-figure IRA and investing it into both Lending Club and Prosper.”

Hopefully you are not putting all you retirement eggs in this P2P loans basket. 🙂

dontvote
dontvote
Apr. 12, 2013 12:00 pm

I’m not sure I understand your comment about being able to withdraw your interest at any time. I understand this number as your total investment return (in dollars) but if you have reinvested this amount you will only be able to withdraw (to another IRA for most of your accounts) the cash generated by these loans (probably about 25K/yr and immediately probably about $2500).

dontknowhatyoutalkinboutwillis

Fred
Fred
Apr. 12, 2013 3:21 pm
Reply to  Peter Renton

” … once I do hit retirement age … I intend to in part live off the interest from my p2p investments.”

Nice. I think every serious P2P investor can aspire to do the same.

I have entertained an idea that by the time I am retired my P2P interest income is as much as my social security benefit.

Sheldon
Sheldon
Apr. 12, 2013 1:45 pm

Peter are you at all worried that in the near future given this country’s 17 trillion dollar deficit and growing, that the government will seize retirement accounts?

I currently have a main account with Lending Club, but I’m very hesitant to open an IRA or Roth. I’m curious as to your thoughts to my question.

I got concerned after reading this…. How they intend to steal your retirement…..https://market-ticker.org/akcs-www?post=219536

Matt
Matt
Apr. 12, 2013 8:54 pm

Peter,

I also hope to use my Propser and LC accounts as annuities upon retirement. How much interest do you currently generate on a monthly basis?

Additionally, what line of work are you in?

Congratulations on your lofty P2P returns.

Jim
Jim
Apr. 13, 2013 8:31 am

Peter – any thoughts on the 1st quarter defaults? I know you started to invest more aggressively on the risk side. Do you think that explains it all? I have a bubble of bad loans that started to hit my account in Q1 and will continue into Q2, but the default rate seems to have dropped back down for now.

Rob
Rob
Apr. 29, 2013 12:42 pm
Reply to  Peter Renton

One factor could have been the expiration of the payroll tax holiday the first of the year. That took a 2% bite out of take home pay starting in January and may have pushed some struggling borrowers over the edge. FWIW, I just discovered P2P lending a couple of days ago so I’m at the zero point on the learning curve and trying to move up. Thanks for a most interesting website.

White Coat Investor
Apr. 17, 2013 12:49 pm

Surprised it took you this long to quit screwing around with your taxable accounts. Not only are your returns highly taxed, but doing taxes with a taxable P2P account is a pain. It’s fine for a tiny account to check it out, but if you’re going to get serious about P2PL, you really need to do it inside a retirement account.

SJM
SJM
Apr. 18, 2013 11:30 am

Peter – The decline in yields appears to be a long-term trend, albeit a slow one. My theory is that yields will continue to decline as P2P becomes more mainstream and lenders demand lower risk premiums. After all, the enormous delta between P2P and other investments (bonds, CDs, etc.) seems unsustainable and ought to decline as P2P becomes more predictable. What do you think?

Bernd
Bernd
Apr. 25, 2013 10:09 pm
Reply to  SJM

While i agree with your prediction, i expect an increase in the general interest rate level (effectively near zero today) to go nowhere but up — which may more than compensate for the downward trend.

Brian
Brian
Apr. 22, 2013 6:42 pm

Hello Peter, thank you for this article. I am new to P2P lending and would like to know how much did you add a month to your first Prosper account that you started with $1,000?

Harry @ PF Pro
May. 2, 2013 3:51 pm

Thanks for the info Peter. My Roth IRA with LC finally funded(5k). I really like your idea of breaking down into incremental investments: $100 for your strictest filters, $75 for your less strict and so on. Is this what you do or did I just see it mentioned somewhere on your site before?

But I’ve been having trouble in my small after-tax LC account finding loans that meet my criteria. I used to always be able to find loans even with my strictest filters. And am I reading this right? At this exact moment, when I log in to my account and browse notes, there are only 167 total loans in funding at all of LC? That seems way too small…

Harry @ PF Pro
May. 3, 2013 3:22 pm

Wow, thanks for the time tip. I just went on and found a bunch of new loans right at 2 pm. Looks like it won’t be as hard as I thought it would be to fill up my 5k Roth IRA now.

Carol
Carol
May. 6, 2013 3:55 pm

Great website Peter.
I signed up for both LC and Prosper last Friday and am trying to be patient waiting for the investment money to show up. I have been looking at the available notes all weekend and was getting very concerned at how few notes there are. Just did a refresh after reading this comment about the 6, 10, 2 and 6 loan updates and LC went from 81 to 180. Now I now why have an alarm clock on my cell phone 😉

Question: I have some small basic IRAs just lying around out there collecting dust. From the comments here it sounds like I can roll them over into LC and just slowly fund it?!! Can you point me to somewhere I can get all the details.

I found myself retired about 2 weeks ago (I’m 58) and decided I should start doing something with my money. Thanks in advance!