Sunday, August 14, 2011

July Lending Club Update

Lending Club update time!  After discussing strategy with Peter from Social Lending, I am revising my Lending Club investment strategy.  Peter pointed out that #9 in my list of Lending Club filters (remove loans of borrowers with more than 5 credit inquiries in the last 6 months) was not a great filter.  First, it wasn’t really removing any borrowers from my investment pool.  Second, after reviewing past loans and their performance on Lend Stats, it became pretty clear that by actually limiting number of inquiries less than or equal to 1, you could pretty dramatically improve results. 

So, that’s what I’ve done.  I’ve changed this filter to remove borrowers with more than 1 inquiry in the past 6 months.  On a related note, Peter explains why credit inquiries is his favorite P2P filter here.

As I did last month, I’ll show you my investing returns two ways.  First, what Lending Club calculates for me:

Pretty consistent with last month.  Interesting to note that I had one note already paid in full, which will happen.  For an investor like me, this is not what you'd like to happen but it's certainly better than a default.  Now how do I stack up against other Lending Club lenders?

Also pretty similar with last month.  Now let’s calculate my returns using the Lending Club monthly statements.

As of 7/31/2011, I have $6665.0 in my Lending Club account.  Using the XIRR function in Excel, I get a calculated NAR of

Hmm… my calculated 12.86% is pretty different from the 15.42% calculated by the Lending Club website.  Why is this the case?  Well, as I mentioned before and as Social Lending reiterated this week, the Lending Club formula doesn’t properly account for money sitting as idle cash.  I believe the NAR discrepancy is from when I deposited $1,500 on 7/18/2011 and didn’t immediately invest all the cash into loans.  If you look at my NAR using the account total for today, you find

This 14.92% is much closer to 15.42% generated by the Lending Club website.

Finally, I’d like to mention how I’m depositing money into Lending Club.  After some thought, I’ve decided to schedule a recurring monthly transfer of $1,500.  With my investing strategy of $50/loan, this gives me 30 loans to pick during the month, or about 1 per day.  Picking one loan per day on average is something that I can keep up with.  In fact, I prefer it that way over just dumping in a lump sum of money that I won’t immediately invest.

Furthermore, Lending Club offers a recurring transfer bonus program bonus of up to 1.5%.  If you set up a recurring transfer of greater than $500, you get 1.5% back about three months after investing the funds (for transfers between $200 and $500, the bonus is 1%).  That almost immediate return beats almost all saving account returns out there.

Sound too good to be true?  It just might be.  While this recurring transfer cash bonus definitely existed at one point, it may not any longer as I can’t find it on the Lending Club website.  I have emailed the Lending Club support to find out if the program is still in effect.

The information available at Michael Grabowski is for your general information only and is not intended to address your particular requirements.  This information is not any form of advice by Michael Grabowski and is not intended to be relied upon by users in making any investment decisions.  Michael Grabowski is not liable for any loss or damage which may arise directly or indirectly from use of or reliance on such information.

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