Lending Club P2P Portfolio Update: May 2016

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text definition of Loan

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You’ve heard of peer-to-peer (P2P) lending, yes?

A long time goal of mine has been to start investing in P2P lending via Lending Club or Prosper.  Wow, was that really 2 years ago?  Amazing how much your life slows down (and speeds up) when the first (and second) baby arrives.

Well, I finally did it!

This past March I opened a Traditional IRA with Lending Club with my IRA contribution for the 2015 tax year.  Stay tuned for a later post with a deeper explanation of peer-to-peer lending and my rationale for choosing Lending Club and a tax sheltered account to start with.

This is the first of an ongoing series of updates of my P2P portfolio performance.  If you’re considering investing in Lending Club, hopefully this data will give you some additional insight into how a real portfolio is performing.  And if you do decide to join, you can sign up here to get an extra $150 bonus.

P2P Loan Performance: May 2016

  • Opening Balance: $5502.45
  • Cash Flow: $55.50
  • Ending Balance: $5606.70
  • Annualized Return: 15.92%
    • Expected Return: 6%-9%

For the number crunchers out there, the return figure above is given by Lending Club, and incorporates writeoffs for bad loans based on their calculations of similar portfolios.  However, it takes time for the bad apples to fall out and start pulling that annualized return number down.

You’ll also notice the opening balance plus earnings does not equal the ending balance.  This is due to service fees and write offs for bad loans

The Loans

Here’s the current state of my investments.

The Good

I’ve been using the automated investing tool at Lending Club to automatically reinvest any new money, be it from earnings, paid off loans, or loans that didn’t get issued.  Here’s the breakdown so far.

  • Current Loans: 176
  • Issued Loans: 47
  • Not Yet Issues Loans: 5
  • Completed Loans: 3

The Bad

Any investment has risk, and the risk with Lending Club is that a borrower fails to repay their loan.  These loans go into collection, and some will be repaid and caught up, others will be completely written off.

  • Late loans: 0
  • Defaulted loans: 0
  • Written off loans: 0

I was surprised that 3 loans have already been completely paid off in the first 3 months.  Also pleasantly surprised that no loans have yet fallen into the late, defaulted, or written off categories.

Only a matter of time!

Portfolio

Here is the current composition of my portfolio by loan grade and loan term.

Note Grades

lending club portfolio loan grades

Unlike many peer to peer investors, I avoid the high risk grades and invest a small amount in the safe loans.  As I become more comfortable with the risks and writeoffs, I’ll likely become more aggressive.

The majority of my investment is in C, D, and E grades.  As an additional filter, I only invest in loans for borrowers who have had 0 credit inquiries in the previous 6 months.  This weeds out the more risky borrowers who are coming to peer to peer lending as a last resort.

 

Note Terms

lending club term traditional ira

Many P2P investors seem to prefer the shorter term notes – lower risk of default, and receive their original investment back more quickly.  Given my long time horizon, I’m comfortable investing in the 5 year loans as well, for the higher return.

Over time, my target allocation is 50/50 for short vs long term, and I will revisit each year.

 

In The End

Time will show the long term success, or failure, of this investment experiment.

Next month, I’ll create a page with the historical data for my portfolio performance, so check back periodically to see how it’s performing.

What’s your peer to peer lending story?  Are you a borrower, investor, or want to be one or the other?  Or just researching the possibilities for future action?  Comment below and tell me how your P2P lending experience has been so far.

Image of loan definition courtesy of Blue Diamond Gallery.

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