After a full year of posting monthly Lending Club updates, I decided to pare it back to quarterly. This allows me to write more non-update posts like recent trades, pursuing freedom with wild abandon, and how I’m reporting my Lending Club charged-off loans. But that isn’t to say that these updates are any less important. Written quarterly, they will provide a smoother look at how my accounts are trending and aging. With that being said, let’s see how the first quarter of 2014 turned out for my two Lending Club accounts.
Lending Club – Roth IRA Account:
After a strong ending quarter to 2013, the first quarter of 2014 has been rough for my Roth account. This however is entirely expected as my account has crossed into the “seasoned” part of its life with an average note age of almost 11 months. Now that the account is maturing, I would expect things to settle down over the next couple of quarters and continue to grow as payments get reinvested as time goes on.
Over the last quarter, my Lending Club Roth IRA earned $317.30, an average of $105.77 per month. Unfortunately, the net interest has declined each of the last three months culminating in a low of $63.28 in the month of March. Much of this decline is from late notes defaulting and being charged-off as the overall account ages. For those pursuing a fairly risky loan profile, this is par for the course. As you can see from the below chart, my overall NAR, both normal and adjusted, reflect the relative position of my portfolio in relation to other investors. Unfortunately, this comparison is only effective for my Roth account given the amount of note trading I’ve done historically in my taxable account. For more information on this investor comparison, you can check out the post I wrote when this feature was released.
I started last year sharing my adjusted net annualized return (NAR) for this account, which is a modification of the NAR seen in the screen grab above. The modification attempts to project the anticipated loss of capital for notes in grace or late status. For my Roth IRA, my traditional NAR is 15.82% and is dropped down to 12.85%.
As of the end of March, my weighted-average interest rate for my invested notes decreased to 17.86% from 17.95% at the end of December. This decrease is expected as the average interest rate of notes I’ve been able to invest in lately are less than 17%.
I am a realist when it comes to my long-term returns for my peer to peer lending accounts. There will be defaults, charge-offs, and expenses associated with this investment which will adversely affect my returns. I expect my long-term returns to stay in the 12-13% range, but would not be disappointed if I only earned a 10 or 11% return every year.
My internal rate of return (IRR) since opening the account, using Excel’s XIRR function, has flattened out as my net interest earned has declined, going from annualized 11.66% in December to 11.60% at the end of March. After roughly 16 months since opening my Roth IRA account, I’ve earned approximately 11.6% in real returns. Not too shabby at all.
Lending Club – Taxable Account:
The first quarter of 2014 has been very different in my taxable Lending Club account than my Roth account. In January, I saw a negative interest amount as I had a charged-off loan, however since then, I’ve seen rising net interest amounts. Overall, for the quarter I earned $35.53 of net interest, or an average of $11.84 per month. I will likely be adding some capital to this account and my Prosper account at some point in the next month.
As I mentioned above, I do not review the investor comparison charts for my taxable account. Since the comparison only compares buy and hold investors and doesn’t not currently have the ability to incorporate the discounts and premiums for those investors buying and selling on the secondary market. I can share my overall adjusted NAR for my account, which at 11.76% is only slightly below the 12.41% shown above.
My overall internal rate of return since inception remained relatively constant, going from 10.85% to 10.79% since the start of the year. Additionally, my weighted average interest rate also stayed about the same at, going from 15.35% to 15.38%. Important to note about this account is that it is the smaller of my two accounts. At its current size, it only takes one default to wipe out the months net interest. This is a clear example of why note diversification is tremendously important as you can overcome defaults through sheer volume of notes and net interest income.
Lending Club Summary:
I do not actively trade notes in either of my accounts at this time. Some folks out there utilize the secondary markets to recapture some of the potential losses from late loans prior to default assuming the amount the sell the note for is greater than the overall principle returned prior to default. I do not pursue this strategy as I am attempting to make this as passive of an investment as possible once invested in a note.
Overall, this wasn’t the most successful quarter for my Lending Club accounts as my Roth IRA continues to age and the returns begin to reflect a more seasoned portfolio. Even with that, combined both accounts earned $352.82 for the quarter. A far cry from where they need to be to hit my goal of $1,950 for the year. I’m hoping some additional capital and some steady returns allow me to catch up and make that goal happen. Below is a chart showing the net interest amounts received by month in the last 12-months.
Isolating the first quarter of the year, my overall internal rate of return came out to be annualized 11.15% across both accounts. This IRR number is variable as my accounts have not achieved a scale or age where they are insulated against defaults. As I said above, my long-term return goal for my Lending Club investments is in the 12-13% range as defaults, late loans, and uninvested cash drag the returns down from their weighted average.
Since the beginning of 2013, my internal rate of return for both accounts combined is 12.69%. The chart below shows my monthly IRR as well as my ongoing trend line since the beginning of 2013.
I have updated my Lending Club page with this information. Please note when tracking my balance and return I do not include the accrued interest in the account, only the interest actually received net of fees, charge-offs, and defaults. Additionally, if you’re interested in seeing how the criteria I am using to invest in these accounts, check out my 2014 Investment Criteria.
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