Mr.Frugality

Lending Club – Long Term Investment Review and Update

Reading time: 5 minutes.

Let me first start with a referral link. If I am the one that convinced you to open an account with Lending Club, please support me by following this link. I get a bonus, which is good because I don’t make any money at this. Please note that this blog post is my analysis for information purposes only. Your results might be different, hopefully, better. 

I have two separate accounts with Lending Club. The first account I opened in December of 2014. The second account  I opened in October of 2015 and it is dedicated for our children (We retain the control just in case.).

My overall investment strategy:

  1. First Rule – Never lose any money, and Second Rule – Don’t Forget about the first rule. Thanks – Warren Buffet.
  2. Very conservative loan criteria.  
  3. All of the previous year’s interest income earned not accounting for losses due to write-offs is withdrawn. Distribution takes place annually around October. The money is further invested in various Vanguard funds directly at Vanguard.com or I spend it on whatever I want. I follow the same rule for kids accounts except that all interest income is deposited for further investment at Vanguard. This way I systematically pull out the money and send it over to a different marketplace for compounding to start working again. The goal is to always have money make more money at different places. However, in few years when my kids are old enough, I will let them spend all of the earnings from Vanguard on whatever they want. I want them to learn delayed gratification and this will be good practice. 

Data/Account History:

As of the writing of this post, I have accumulated 41 months worth of personal data, which is good enough to get a decent picture of what is going on with income, losses, account value, and my overall micro-investor experience. I do realize that we didn’t hit a recession/slowdown in the overall economy just yet. Frankly, I am not concerned if the recession will happen, mostly because of my very conservative investment criteria.

Background Information:

I started super slow with an initial investment of $600.00 (December 5, 2014). In the subsequent period’s my investment was increased to the total amount of $4,250.00 for my personal account. My kids’ investment account, we funded their account fast, to a total amount of $5,287.42 (October 31, 2015). This was done mostly due to my good experience with the first account. The grand total investment in two accounts was $9,537.42. 

Distribution history: 

Personal Account – 2015 – $128.77, 2016 – $272.69, 2017 – $293.69, 2018 (So far earned interest – $150.93, projected 2018 $301.86). Total distribution including accumulated distribution up to June of 2018 – $846.08. 

Kids Account – 2015 – $42.44, 2016 – $337.74, 2017 – $505.51, 2018 (So far earned interest – $243.75, projected 2018 $487.50).  Total distribution including accumulated distribution up to June of 2018 – $1.129.44. 

I say these are pretty damn good results because of only $4,250.00 invested withdrawn earnings $846.00 and similar $5,287.42 and withdrawn $1,129.00. Cheers.

Results – Account Standings:

Return on investment and account value of personal account
Return on investment and account value of kids account.

 

 

 

 

 

As you can see the accounts are doing well. Recap – Initial Investment $9,537.42, Current Account Value after distributions of a total of $1,580.84 is $10,005.27. They are slightly higher ($467.85 or 4.9%). The annualized returns are decent as well 5.31% and 5.52%. I expect the returns to be around this level for a very long time, if not better. I doubt very much I will ever get below 4.00%, which of course would be unacceptable. 

Investment Strategy:

For my personal account, I have set up a dozen general filters and within those filters, I have many more specific limitations. I won’t reveal my filters at this time because I have spent lots of time and energy on getting them just right, however, I might sell them if someone wants to buy them. For that reason, my deployment of cash is very slow. My limited criteria causes probably only to invest in .01% of total loans offered.

For my kids I use LendingRobot.com. Click on this link to get free $10,000.00 worth of funds management. My kid’s account is doing slightly better than I am but the variance of 0.21% of annualized return on investment is immaterial to worry about. 

I did that mainly to see which account will do better. I will do another analysis in a couple of years again to ensure that everything is on track. 

Analysis of account value after distributions, moving average of interest income, and moving average of loan losses. 

The basic premise of this analysis was to see how is my account doing after distributions? Basic answer: Good.

Here is a detailed analysis that I performed on my account that convinced me that in the near future I will invest more money. Again, I am looking for modest long-term results. 

Account Value Trend:

Account value of personal account over 41 months.

The long bolded vertical lines in this graph indicate distributions. It is nice to see that even though the interest was earned from January through December of the previous year and there is some compounding effect through October. Note that the overall account value has recovered nicely. The last part of the graph shows a spike, this is due to my recent $800.00 investment. 

Monthly – 3-Month Moving Averages Income and 3-month Moving Averages Losses:

The basic questions that I wanted to answer:

  1. Are my losses rising? Was there a peak?
  2. What is my average monthly interest income?
  3. I also wanted to see what are my moving averages as it relates to income and loss on defaulted loans?
Graph showing 3-month moving average of interest income as well as a 3-month moving average of losses on defaulted loans.

 

 I am glad that right around month 25 my losses peaked and average income has very little gyrations after a nice climb. Everything looks good here as well. 

Accounting for losses:

I would have loved to have zero losses, but that is simply not a reality in any investment. I don’t get hang up on modest losses too much mainly because IRS allows me to write them off up to $3,000.00 per year. So, I indirectly recover a portion of those losses by paying less income tax.

Final Word:

I feel confident that in time I will take out my entire micro-investment while still have an equivalent amount left over. Lending Club is going nowhere, plus since going public there are doing a very good job even after various drama. I like their comprehensive quarterly email that tells me roughly what is going on in the marketplace. 

I don’t believe what is commonly called “aggressive investment strategy”. I believe in being “assertive” but not aggressive.  Mainly because it is implied that by being aggressive, I will overlook a critical part that will create losses. Aggressive investment implies fast and there is nothing fast in ensuring that I will keep what I have. 

I have many micro-investments in various investment platforms. I will write about them as this blog develops and takes on life on its own. Money should be always working because either you are adding or subtracting from it. Having money invested somewhere is a good way to live because you create multiple streams of income that eventually will eclipse other income sources. Too much money sitting around and doing nothing other than being slowly eaten up by inflation is a poor habit. I have extra money laying around, so why not send it to someone that is willing to pay for it through interest.

Is peer to peer lending safe? Yes, but one must be conservative.

Hourly wage perspective:

How much do I make per hour doing this? Not much maybe three hours on a quarterly basis. So, 846 divided by 3 equals $282.00 per hour. That’s pretty damn good, now I need to turn this to 2,000 hours per year -:).

Question to readers: What is your thought on my analysis? Are you successful in peer to peer lending?

Thanks for reading, Mr.Frugality