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Lending Club Increases Minimum Investment to Open an Account to $1,000

Individual investors now must deposit $1,000 in order to start investing on Lending Club

May 17, 2017 By Peter Renton 3 Comments

Views: 692

Until today new investors at Lending Club could open an account with as little as $25. This has now changed. Going forward to open a new account at Lending Club you must deposit $1,000. The $25 minimum investment per loan still applies but you will no longer be able to start an account with less than $1,000.

Now, people who have accounts with a balance of less than $1,000 are grandfathered in. They will be able to continue to invest as before. The new requirements only applies to people opening new accounts or those who have yet to make an initial deposit.

The reason for this move can be explained in one word: diversification. We have written many times before about the importance of diversification and Lending Club has a page on their site dedicated to this topic. With $1,000 investors will be able to invest in 40 notes; while that is still not very diversified it is a lot better than investing in, say, four notes when someone starts with $100.

My Take

This is a good move from Lending Club. My only concern is that the minimum is still not high enough. I would like to see a $2,500 minimum that will allow investors to start with 100 notes. But I understand where they are coming from. They don’t want to set the bar too high so that people will be reluctant to give them a try.

In my own example I started with a $500 investment in Lending Club back in 2009. I wanted to test them out and wasn’t sure what to expect so I wanted to start out small. Would I have invested $1,000? Yes. I probably would have done $2,500 as well but the bigger the minimum the fewer new investors they will get willing to give Lending Club a try. So, $1,000 is probably a fair compromise.

Filed Under: Peer to Peer Lending Tagged With: diversification, individual investor, Lending Club

Views: 692

Diversification and P2P Lending – Part 2

May 26, 2015 By Ryan Lichtenwald 11 Comments

Views: 674

[Editors Note: This is a guest post from Christian Hamson. Christian is the Chief Credit Officer at NSR Invest. He has 20 years experience underwriting and building predictive models specificly for unsecured consumer installment loans. He is now using his expertise to guide the NSRInvest Fund and managed accounts.]

An important and seemingly simple question is how many loans should an investor buy to lower the variance on their expected return to a tolerable level. Part one addressed this issue using the information readily available from Lending Club and Prosper. Several blogs and other posts have also addressed this question.

A few examples of blog posts that have addressed diversification:

  1. Lending Robot calculates this number to be 146, using Lending Club historical data and a Monte Carlo methodology.
  2. Peter Renton at Lend Academy calculated a number of ~500 using Prosper data.
  3. Simon from LendingMemo says at least 200 is best.

What I hope to do in this post is to use traditional statistical methods to estimate the number of loans necessary for adequate diversification. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: defaults, diversification, Lending Club, Prosper, statistics

Views: 674

Diversification and P2P Lending – Part 1

May 22, 2015 By Ryan Lichtenwald 9 Comments

Views: 565

Being diversified across many loans is one of the keys to having a successful experience when investing in p2p lending. As with other investments, diversification will reduce the chances of your investment returns experiencing volatility.

Both Prosper and Lending Club provide statistics on owning at least 100 loans. This equates to a total investment of $2,500 investment across 100 loans ($25 per loan) and should be the bare minimum to start with when opening a Lending Club or Prosper account. Certainly adding more notes would be a wise decision as we will explore in this post and our second, more in depth post on this topic.

Below is Lending Club’s guide on diversification. Note that that the percent of investors who earn a negative adjusted net annualized return decreases significantly when you own at least 100 notes and no one loan accounts for greater than 1% of your total portfolio.  It is important that if you are purchasing just 100 loans, that the investment in each loan is the minimum amount allowed of $25.

Lending Club Loans Diversification [Read more…]

Filed Under: Peer to Peer Lending Tagged With: diversification, Lending Club, Prosper

Views: 565

Is P2P Lending A Low Risk Investment Now?

March 19, 2013 By Peter Renton 26 Comments

Views: 900

I have been thinking about this idea for some time. With Lending Club now profitable and growing like gangbusters and Prosper with a new bankruptcy remote vehicle for all investors I think it is time to revisit the idea of risk.

Despite the question in the title of this post I don’t truly believe that p2p lending is a low risk investment. I think most of us would agree that Treasury bills or an FDIC-insured investment is pretty much all we can consider as low risk.

But let’s look at the mainstream investments for a moment. The stock market is at an all time high and yet everyone remembers that it has had two major corrections in the past 13 years where values went down roughly 50%. The bond market has had a great run for many years now but at some point in the next couple of years that run will likely be over. Both those investments represent a real risk of principal loss going forward.

Lending Club in a Very Strong Financial Position

Now, let’s consider an investment in Lending Club today. In February it issued $120 million in new loans and is now running at a profit. It is safe to say that loan volume in March will be north of $130 million and increase steadily from there. Returns to investors continue to be strong and there is an IPO looming on the horizon where it will pocket a huge cash war chest.

There is very strong demand from institutional investors with new large investors coming on board all the time. But in recent conversations I have had with Lending Club management they say retail investor demand is also growing very strongly. When their IPO happens this will become even more pronounced as investors from all 50 states will become eligible to invest. Suddenly investors from large states like Texas, Ohio, Pennsylvania and New Jersey will come flooding in to Lending Club.

The future is indeed very bright for Lending Club and it would take an unforeseen calamity to alter their growth trajectory now. With a well-diversified investment there is little risk of principal loss at Lending Club and the potential return is 10% or more.

Prosper Offers Additional Protection for Investors

Taking a look at Prosper they are clearly not in as strong a position as Lending Club. In recent months they have been reduced to a tiny market share but there are early signs of a resurgence. They are going to post a better month in March (month to date volume is up 73% over last month) and all signs point towards a record month for them in April.

Even though Prosper is clearly the number two player and they are in a weaker financial position they have implemented a bankruptcy remote vehicle for all investors. This provides an added level of protection for investors that offsets the increased platform risk in my opinion. With a new management team and their recent large cash infusion they are also in a relatively good financial position.

Now, anyone who has been reading this blog for a while knows I am a big cheerleader for the industry. I do not pretend to be completely objective in my coverage; I invest a lot of my own money in Lending Club and Prosper and plan on investing a lot more. I want the industry to continue to flourish.

So, while I don’t really believe that an investment in p2p lending is a low risk investment I think we can all agree that it is a lower risk investment today than it was two or three years ago. I would also propose that today it is also a lower risk investment than an S&P 500 index fund or a total bond market index fund.

But what do you think? Am I crazy to even suggest this? As always I am very interested to hear your comments.

Filed Under: Peer to Peer Lending Tagged With: diversification, Lending Club, Prosper, risk

Views: 900

Prosper Showing the Importance of Diversification

December 12, 2011 By Peter Renton 14 Comments

Views: 4

In this blog post earlier today, Prosper laid out the case for diversification of your p2p investment among many different loans.

As long time readers will know I have been preaching about diversification now since I started blogging here. I see many investors making the big mistake of not being fully diversified, so when Prosper put out this post I immediately wanted to highlight this information.

On Prosper 100 Loans Provides Good Diversification

Prosper has taken a look at all the “seasoned loans” (loans that are at least 10 months old) issued on their platform from July 2009 – January 2011. Prosper looked at the accounts of the 14,140 investors who have invested in some of the 7,700 loans originated during this time period. They excluded notes that were bought and sold on FolioFn, the Prosper trading platform and created the graph and table below showing the impact of loan diversification. [Read more…]

Filed Under: Investing/Lending Tagged With: diversification, Prosper

Views: 4

How Much Diversification is Enough?

July 22, 2011 By Peter Renton 27 Comments

Views: 191

Lending Club diversification of investor notes

On Lending Club’s home page they talk about the 800 Club (as you can see in the graphic above) – those investors with 800 or more different notes. They proudly state that no investor with at least 800 notes in their portfolio has lost money.

Prosper makes no such claims but because of the way they record their loan and investor data we can actually work this out for ourselves. I fired up Lendstats and ran an analysis on every investor to see the impact of diversification on ROI. Keep in mind that these numbers are only for Prosper 2.0 loans – only investor results for loans invested in from July 2009. The table below shows the results. [Read more…]

Filed Under: Investing/Lending Tagged With: diversification, Lending Club, Prosper

Views: 191

What are the Risks of Peer to Peer Lending?

May 10, 2011 By Peter Renton 32 Comments

Views: 1,725

I was chatting with a friend of mine over the weekend who has just inherited a small amount from her grandfather’s estate. She knew about my involvement in peer to peer lending and asked me if it was a good place for this money. Of course, I told her it was a great idea.

Then she asked me what the risks were and I rattled off a few of the points I mentioned below. But after our conversation I realized that I had never done a post detailing the risks of p2p lending and it is most likely one of the first questions potential investors will ask. So here it is.

The prospectuses of both Prosper and Lending Club go into great detail (over 20 pages each) about the potential risks of p2p lending. While I encourage everyone to read these prospectuses I realize that few people will take the time. So, here are the five main risks as I see them:

1. Borrower Defaults

When you invest in borrower loans these are unsecured loans, meaning there are no assets backing the loans (such as a house in a mortgage loan). So, if a borrower defaults on the loan there is little an investor can do. You just take the loss of whatever amount of principal is left unpaid. With p2p lending default rates averaging around 3% a year, most investors will encounter defaults at some point. [Read more…]

Filed Under: Investing/Lending Tagged With: diversification, interest rate, Lending Club, mistakes, Prosper, sec

Views: 1,725

How to Get Started with Peer to Peer Lending

February 16, 2011 By Peter Renton 20 Comments

Views: 1,215

Getting started with peer to peer lending can be a bit daunting for new investors. Lending Club and Prosper offer hundreds of loans to choose from and a myriad of ways for you to invest your money. Some people, eager to get started, jump out of the gate without thinking through their options and end up disappointed with their investment returns. The shrewd investor does some initial planning and research in order to get off to a great start. Here are a few points to consider to help you do just that.

Cherry Pick or Auto Plans

The first decision you need to make is whether you are going to invest in loans individually or go with one of the automated plans offered by Lending Club and Prosper.  If you have a large amount to invest ($10,000 or more) I recommend you consider starting with an automatic plan or you can look at Lending Club PRIME if you prefer a completely hands off approach. If you choose to invest in loans individually, and this is really the only way to obtain above average returns, then you need to pay close attention to the points below. [Read more…]

Filed Under: Social Lending 101 Tagged With: diversification, Lending Club, Prosper, statistics

Views: 1,215

Top 10 Reasons to Invest in P2P Lending in 2011

January 3, 2011 By Peter Renton 18 Comments

Views: 5

Peer to peer (p2p) lending had a great year in 2010. Well over $150 million in loans were originated by the top two p2p lenders in this country, Lending Club and Prosper, the most ever. Tens of thousands of investors enjoyed returns in the double digits. Now, 2011 is shaping up to be even bigger. Here are the top 10 reasons you should jump on the bandwagon and invest in p2p lending in 2011.

1. CD’s are still paying less than 3%

According to bankrate.com, the maximum return you can get on a five year CD right now is 2.61% (for three year CD’s the maximum is 2%). Sure, your deposit is insured by the FDIC but there is a good likelihood that you will lose money to inflation before the five years is up. With interest rates at record low levels the best you can do with CD’s is simply protect your capital, you really can’t grow your nest egg.

2. The stock market is fickle

The stock market had a decent 2010, but with the memories of a disastrous 2008 still fresh on everyone’s mind, we all know the stock market can be fickle. Not even Warren Buffet knows what the market is going to do in the near future. There are some commentators saying that stock market returns over the next ten years will be sub-par. [Read more…]

Filed Under: Investing/Lending Tagged With: diversification, investing, Lending Club, Prosper

Views: 5

Number of Loan Listings Plummet at Prosper.com

December 29, 2010 By Peter Renton 13 Comments

Views: 972

Last week I discussed the changes that happened at Prosper on December 19th. So, here we are 10 days later and I thought it was time to update everyone as to what has been happening. It has been a very interesting holiday season for everyone at Prosper I am sure.

If you look at the numbers below you can see the total loan origination numbers for the last couple of weeks. By the way, these numbers are all publicly available in the statistics section of Prosper’s site (you gotta love the transparency of p2p lending). As you can see things were going along just fine for the first week after the new lending model was introduced. They had a blip just after Christmas but it looks like things may be back on track now. The December 29th data is as of 4pm EST and it may actually increase.

[Read more…]

Filed Under: News Tagged With: diversification, Prosper

Views: 972

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ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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