I have been thinking lately that there are really two kinds of investing when it comes to peer to peer lending. When you transfer money in to Prosper or Lending Club you have a large amount of cash waiting to be invested. Then once this cash is invested you will get repayments coming in regularly that will slowly build your cash reserves for reinvesting.
This difference is highlighted when you put in a large amount of money, say $5,000 or more. Now, staying diversified (at the $25 minimum) this will mean you will invest in 200 notes or more. But once you are fully invested, an account of $5,000 will only generate $50 – $100 per month depending on the terms of the loans in the portfolio. So you go from investing in 200 notes in one hit to reinvesting in around 4 notes a month. Clearly a different approach is needed.
When Investing New Money in P2P Lending
With new cash in your account you have to balance putting your money to work quickly versus refining your filtering criteria. With my new Lending Club Roth IRA, I started investing back in May and I am only two-thirds of the way towards full investment. I have decided I would rather take additional time to invest in just the specific loans I want rather than investing my money quickly. This money for the Roth IRA came out of a money market account earning 0.08% so I feel that I am not missing out on much by investing slowly. [Read more…]