Lending Club – October 2013 Update

We’re now working on the last quarter of 2013 and only nine eight more catch-up posts left!

Peer to peer lending intrigued me from the moment I first heard about it, and Lending Club is where I first started investing back in 2009. Each month I plan on updating my Lending Club investments in both my taxable and Roth IRA accounts. Nothing is more exciting than watching my investments compound on a regular basis, and Lending Club gives met that compounding in spades!

Before we look at October, please note that you no longer see the ‘Accrued Interest’ line on the statement images below. Lending Club made this change during October and it is one I support fully. I have never used the accrued number for tracking my returns and found that it only led individuals to assume their account balance was higher than it actually was. If you are still interested to see you’re your accrued interest number is at any given time, click on the ‘More Details’ link on your summary page. Once on the next page, you will find the accrued interest number to the right side of the screen, just below the Weighted Average Rate of your account. Now let’s take a look how October turned out.

Roth IRA Account:
Lending Club Roth IRA - Main Screen - October 2013

Click for larger image

Well after a nice bounce back in September, October came back and smacked me right in the nose! My Roth account not only took a hit, but dropped to the lowest net interest in a month since April, earning only $112.14! And that was back when I was still trying to get fully invested! Disappointing for sure, but that is what happens when you have two notes get charged off. Naturally, with eight more notes in the pipeline, charge-offs will continue. However, given the size of my account, both in dollars and notes, I am well insulated from losing money in a given month.

So while it isn’t great news to only earn $112.14 in October, this is expected, given my risk tolerance, which is reflected by my weighted-average interest rate of 17.95%. I say it every month, but 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.

Again, as a reminder for those new readers, 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.

As I said above, I earned $112.14 of net interest in my Roth IRA account during the month of October. With one more month in the bag, my internal rate of return since opening the account, using Excel’s XIRR function, continued to increase as it went from 10.73% to 10.86%. I would expect to cross the 11% return in the next month or two depending on the number of charge off s or defaults in those months. Of course, it is important to note that these returns include the cash drag incurred from spending four and a half months becoming fully invested from the original $10,000 investment as well as the time any cash is sitting waiting to be invested.

Taxable Account:
Lending Club Taxable - Main Screen - October 2013

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While October was a tough month for my Roth account, my taxable account maintained consistency and generated $14.78 of net interest. In addition to maintaining a solid return, I invested an additional $270 in my taxable account in the last half of the month, and was able to get all of this invested or pending issuance prior to the 31st. This contribution should help increase my monthly returns by a few dollars a month, on average. Given the date of issuance, I would expect to see most of the benefit of this begin in December.

Fortunately, as with last month, this account did not have any defaults or charge offs, and even improved over the prior month, given there are only two late notes in the account, whereas September had three. This is not surprising and matches my explanation for my Roth account; this is all part of the understood risk of peer to peer lending, especially given a riskier investment strategy.

With a consistent month of net interest, my overall internal rate of return since inception increased from 10.63% to 10.69%. Matching the trend of increasing, my weighted average interest rate again started increasing from 15.14% to 15.30%. I would expect this to very slowly continue to increase until somewhere in the 17-18% range.

Lending Club Summary:

Overall this was a disappointing month for my Lending Club accounts, bringing in a total of $126.92 in net interest. This was a decrease of $26.26 from September’s $153.18 of net interest. Check out the chart below to see my net interest amounts received by month in 2013.

Lending Club - Net Interest by Month - October 2013

Isolating the month of October, my overall internal rate of return came out to be annualized 12.37%. This monthly IRR number is extremely variable as my accounts have not achieved a scale where they are insulated against defaults. As I said above, my long-term return projections 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.

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.

Have questions about peer-to-peer lending? Just ask!

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Comments

  1. Nice to see you progressing well with your Lending Club accounts.

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