Sunday, July 10, 2011

June Lending Club Income Update

Lending Club update time!  I’m going to show two different ways of calculating returns.  The first is already done for me, by the Lending Club website. 

Sweet, a 15.52% return!  How do I stack up against other Lending Club lenders?

Alright!  My rate of return is better than 91% of Lending Club lenders.  However, this should be taken with a handful of salt.  These Lending Club loans are a fixed income instrument.  That means that my return of 15.52% on these loans will almost certainly go down over time as some of my loans default (hopefully a small percentage, loans on the site average less than a 3% default rate since inception).

Furthermore, as mentioned in my May update, my returns are primarily so great because I received a $100 bonus for being referred to the site by a friend.  So I won’t go patting myself too hard on the back yet.

Lending Club calculates their net annualized return using a fairly complicated formula, as explained here.  It makes since to me, but has some drawbacks.  On Social Lending Network, it is pointed out that the Lending Club formula assumes that all your money is 100% invested in notes all the time. 

Obviously this is not the case.  And even if the Lending Club formula was perfect, I would still perform my own calculations to verify that each month.  The second way to calculate my returns uses the monthly statements generated by Lending Club.

So, as of 6/30/2011, I have $5123.19 total in my Lending Club account.  Note: this amount is smaller than the one reported at the top of this post.  This is because the June monthly statement was generated a few weeks ago, so the payments I’ve received since then are not reported.

I then simply use the XIRR function in Excel as explained on Social Lending.  I put the amounts I’ve deposited into Lending Club and the current total to find

So my calculated NAR is 15.10%, slightly different than the Lending Club results.

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