This is the second guest post from long time reader, Josh Brooks. His first post was one year ago and here he provides an update on his Lending Club portfolios as well as some more discussion points.
One year ago, Peter was nice enough to let me submit a guest post titled Four Thoughts on Consumer Debt Notes. That post generated a lot of good discussion and debate from Lend Academy readers. One point offered was that the rates of return I presented were characteristic of young portfolios, and were not sustainable. It was suggested that I provide an update in one year, so here it is.
We (my wife and I) still have three Lending Club accounts (that I manage): one regular account, her Roth IRA, and my Roth IRA.
Note: Lending Club’s Net Annualized Return (NAR) calculation accurately reflects my own internal Rate of Return (RoR) calculations, and is therefore, I think, an accurate metric for measuring investment effectiveness for the purposes of this post.
|LC NAR Oct 2012||LC NAR Oct 2013||Account Age||Average Note Age|
|Regular Account||16.3%||15.6%||32 mths||12.9 mths|
|Wife's IRA||18.5%||17.8%||21 mths||8.0 mths|
|Josh's IRA||17.7%||16.5%||27 mths||12.2 mths|
As you can see, the NAR decayed over the last year by 0.7%, 0.7%, and 1.2% respectively, but remains above 15% in all three accounts. This decay in NAR is in all likelihood the result of an increase in the total number of defaulted notes in the portfolio (as the portfolio ages, the total number of defaulted notes will increase, even if the default rate remains the same). Also, using the portfolio analysis tool at Nickel Steamroller, we can see that my three portfolios are still young, so further NAR decay can be expected. However, assuming a NAR decay of 1.0% per year, I still believe that a long-term, stabilized NAR of 13.0% or 13.5% is possible.
Four More Thoughts on Prime Consumer Notes
In addition to an update on my portfolio, I wanted to also offer the following thoughts, for readers’ consideration: