Getting closer! We are now in the fall as I catch up from on my monthly updates after this summer’s blogging break.
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! Now let’s take a look how September turned out.
Roth IRA Account:
After two lower months of net interest registering in the mid to low $120 range, my Roth IRA bounced back with a solid month of $138.16 in net interest. My net interest amounts per month seem to have stabilized, even though the defaulted and charged off loans are coming in quite regularly, with another one this month. Of course, with several loans in the pipeline and various stages of lateness, this will only continue.
This is of course expected, given my risk tolerance, and reflected by my current weighted-average of 17.94% as of the end of September. A good sign for now is that as of the end of September, there were three charged off loans, one in default, and seven in the pipeline as late, which matches the total number in August. I’ll be happy if this stays level for a while without adding any more to the pipeline! Although, it won’t be all that disappointing considering the fact my expected returns are nowhere near the weighted average of the notes I’m investing in currently. One strategy for some investors is to utilize the secondary markets to recapture some of the potential losses from late loans. 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 $138.16 of net interest in my Roth IRA account. My internal rate of return since opening the account, using Excel’s XIRR function, continued to increase as it went from 10.19% to 10.73%. Pretty spectacular that this account has overcome the huge cash drag from spending four and a half months becoming fully invested from the original $10,000 investment. I am expecting that my actual return for this account stabilizes in the 12-13% range.
September was a big bounce back for the normal lending activity in my taxable account after my net loss of $4.93 in August. With $15.02 in net interest earned, this was the second highest month I’ve had in 2013. In case you missed it last month, I had a credit to my account due to a calculation error found during an internal audit. I have more details about this in the August Lending Club update.
Fortunately, this account did not have any defaults or charge offs, however they are coming, as there are now three notes in the late note pipeline. Again, this is all part of the understood risk of peer to peer lending, especially given a riskier investing strategy.
With a great month for net interest, my overall internal rate of return since inception increased from 10.52% to 10.63%. Matching the trend of increasing, my weighted average interest rate again started increasing from 15.05% to 15.14%. I would expect this to very slowly continue to increase until somewhere in the 17-18% range.
Lending Club Summary:
My Lending Club accounts ended up having a very nice month, bringing in a total of $153.18 in net interest. This was an increase of $17.74 over Augusts’ $135.44 of net interest and good enough for the second highest total in 2013. Check out the chart below to see my net interest amounts received by month in 2013.
Isolating the month of September, my overall internal rate of return came out to be annualized 16.00%. Moving forward this monthly IRR number will vary as notes get charged off. My long-term return projections for my Lending Club investments is in the 12-14% range as defaults, late loans, and uninvested cash drag the returns 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!