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Nothing like losing your job to make you appreciate your investments ever so much more so.  Especially your P2P investing.

On the plus side, it’s a excellent opportunity to expand your investments when rolling over your 401k.  In my case, splitting it between new IRA accounts with Lending Club and Prosper.

Let’s dig into the results and see how it all went down.

Doubling Down With My Peer 2 Peer Investments

While a job search is no fun, being unemployed is great!  More time for friends, my boys, and catching up on the backlog on the to-do list, whether it’s books to read or repairs around the house.

And in the case of investing, it was time to roll over my ex-employer’s 401k into something new!

After considering all my options, I decided to roll over the majority into self directed IRA accounts – $45K at Lending Club, and the same at Prosper.  At the same time, I had to add an additional $5500 to my existing Lending Club IRA to avoid the annual maintenance fee.

All in, I’ve now invested $101K in P2P loans via Prosper and Lending Club.  I’ve now reached my personal limit for how much I’m willing to risk in this asset class.

Going forward, I’ll be reporting combined performance results, and calling out any provider-specific differences as needed.  Given the differences in reporting between Lending Club and Prosper, I’ve simplified my performance report to focus on what matters – the returns.

Summary

  • Original Investment: $101,000
  • Current value: $102,125.27
    • $629.06 growth since last quarter
  • Notes Targeted
    • Filter: debt consolidation, home owner, 0 credit inquiries in past 6 months
    • Note terms: 3 year & 5 year
    • $25-$50 per note

On the surface, that appears to be less than 1% return for the quarter compared to the expected ~2.5%, but appearances can be deceiving.  Between the delays opening the new accounts and transferring funds, and the delays finding enough notes to purchase, it’s impossible to accurately measure returns for the quarter.  In fact, while my Lending Club account is almost completely invested, my Prosper account was only 65% invested at quarter-end and as of this writing still isn’t fully invested yet.  Needless to say, Prosper is a much smaller, and hence slower, market.

We can dive into the details below, but should have slightly more accurate performance metrics next quarter, and going forward, since I don’t plan to invest any additional money into peer to peer loans at Prosper or Lending Club (after all, there’s always real estate crowdfunding!)

P2P Loan Performance: Q1 2017

  • Opening Balance: $5,996.21
  • Interest Earned: $629.06
  • Write-offs: $162.60
  • Recoveries: $5.23
  • Net Cash Flow: $472.23
  • Ending Balance: $102,053.84
  • Return since inception: n/a due to additional investments
    • Expected Return: 5.5%-8.5%

Exciting times, my first recovery!  At least that’s what I thought when I first saw the entry in January.  However, my excitement dimmed when I saw the almost 20% recovery fee.  Understandable, since any recovery comes through a collection agency, and they have to be paid, but it’s never fun to see the money coming out of my pocket.

The Loans

Here’s the current state of my investments.

The Good

Automated investing continues to do well for me both at Lending Club and Prosper.  Any new money in my account gets invested automatically according to my criteria – people requesting loans for debt consolidation with 0 credit inquiries in the past 6 months.

  • Current Loans: 2,033
  • Completed: 39

Always nice to see people paying off their loans early!  Always makes me wonder why they took the loan in the first place, but serves as a reminder than not everyone makes rational decisions when it comes to money – myself included!

There has been a bit of a learning curve with Prosper.  For example, they have two methods of automatic investing – “Recurring Investments” and “Auto Invest”.

Recurring Investments you can enable by searching open notes with certain filters, e.g. zero credit inquiries, zero delinquencies, debt consolidation, and then placing a standing order to purchase those notes when you have cash available.  However, you can’t set targets, e.g. equal split 3 yr and 5 yr notes, or risk allocations, e.g. 20% C grade and 30% D grade.

Auto Invest on the other hand, lets you set targets for note grades, but not filter based on home ownership, or credit inquiries.  So it’s pick your poison at the moment.  For now, I use a recurring investment, but may switch to Prosper’s Auto Invest tool in the future.

The Bad

Like Lending Club, Prosper peer to peer borrowers don’t always honor their debts.  This shows up in late, and eventually defaulted, loans.  These loans go into collection, and some will be repaid and caught up, others will be completely written off.  For the moment, I’m just tracking late loans in total to simplify tracking.

  • Late loans: 12

I expect this number to increase as my Prosper P2P account matures.  For some reason people seem to default around 9 months, so the returns always look great until then when they level out to more predictable returns.

Portfolio

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

Note Grades

With 3 different accounts across two platforms I’ve diversified across providers, and have expanded the grades of notes I’m purchasing.  I’m still focused more on the C & D grades but have expanded down into the lower grades to a small degree.

Since I’ve started with Lending Club, I’m using Lending Club grades (A-G) for my reporting purposes rather than Prosper’s AA-HR rating scheme.

pie chart of P2P note grades q1 2017

Note Terms

Many P2P investors have a stated preference for the shorter term notes – lower risk of default and easier to liquidate.  Given my long time horizon for this money, I’m comfortable investing in the 5 year loans as well, for the higher return.

Again, with multiple accounts and provider, I’m tracking my note terms in aggregate so I can keep track of how I’m invested in total.  I’m not overly concerned about note terms, but my bias is a little towards the 5 year notes for the higher return.  Time will tell if I see a higher or lower default rate on these notes.

See that my notes are heavily skewed towards the 3 year term, I’ll need to modify my automatic investing to try to balance that out a bit more.

pie chart of P2P note terms Q1 2017

Closing Thoughts

It’s been a year since the kerfluffle at Lending Club and the CEO stepping down.  Things seem to have calmed down since then, and the money keeps changing hands.  I’ve heard anecdotally that there has been a steady decline in returns over the years, but I’m still too new to the game to have noticed.  But I’m keeping a sharp eye on the returns this year and hope to see them steady out once my new accounts have seasoned.

That said, I’m still very happy I got started with P2P lending.  If you want to get started, sign up with Lending Club now and you’ll get a $150 (or more!) bonus.

Now that I have some hands on experience with Prosper, I admit I’m a bit disappointed.  Between the smaller market, the limited automatic investing, and the less informative account statements, Lending Club looks that much nicer in comparison.

I’d expected that lively competition between LC and Prosper would have kept their markets and their features comparable.  That definitely isn’t the case.  Lending Club is clearly ahead in market size and features.  But when it comes to investments, the proof is in the long term performance – of my returns, which depend heavily on their borrower risk assessments.  Time will tell if my decision to split my P2P investing between Lending Club and Prosper was a wise one.

Given the limitations at Prosper, I may end up simplifying my automatic investing there and switching to Auto Invest.

Unfortunately, I still haven’t created an historical P2P performance page as planned, but it’s high on the list with the time not spent on the job search, or playing with my little ones.

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.

4 COMMENTS

  1. Um, congratulations on your unemployment?

    I have both Lending Club and Prosper, but I have less than a tenth invested as you do. I think you are right to do both companies. After all, it’s two different set of loans, so using only one company means you are shutting yourself out from thousands of potential loans.

    I started with Prosper and opened a LC account afterwards. While I stayed with safer loans on the Prosper side, I went with C-G loans on LC, with most of my portfolio in D loans. Unfortunately, I took a hit when a wave of charge offs occurred and changed my investment preferences accordingly. You live and learn.

    Good luck on the job hunt!

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted Here’s Why Financial Literacy Is Important And Here Are Three Colleges That Are Doing It RightMy Profile

    • Thanks, ARB!

      Given the inherent platform risk of trading in P2P loans, I like the additional diversification of being on both Prosper and LC. That said, it was a little disappointing to have to open a second account with Lending Club. I wanted to have two IRAs in the same account, but they don’t support that. As a result, I have two accounts, two logins, two IRAs with SDIRA all for Lending Club. The other obvious drawback to this is that since I’m using the same criteria for both LC accounts, I run the risk of investing in the same note twice.

      Long term, I should split my note grades across accounts, so I’m investing in A-B notes in my smaller account, and C-G in the larger one, or whatever makes the most sense. This way I’ll never end up investing in the same note twice. There’s always something more to do when it comes to investing in any asset. I just modified my autoinvest to focus more on 5 year notes, and I can worry about the double-investing next.

  2. Oh, an idea just came to me! You know what you should do to evenly balance the risk? Have one account invest in A, B, F, and G loans, and the other account invest in C, D, and E.

    This way, you don’t invest in the same note twice while keeping both accoubt’s risk profiles relatively even.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted Crazy Eights: EIGHT Crazy Customers In One Crazy DayMy Profile

    • That’s close to what I’ve done. I modified my automated investing criteria in all my accounts to focus on 5 year notes to balance out my terms. To avoid duplicates between my two LC accounts, I looked at total amounts I wanted in each grade, then split the grades across the accounts. That’s worked out to my investing just in C grade in my original account, and all the other grades in my larger account. It will take years to transition, but at least going forward I’m not double investing in the same notes.

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