Prosper Marketplace – 2014 First Quarter Update

With any dividend growth portfolio, taking a look at how the income looks on quarterly basis allows you to smooth out the timing trends that are associated with companies that pay their dividends quarterly. With my peer to peer lending accounts (Lending Club and Prosper), there isn’t any set timing variables, but with accounts the size of mine, any defaulted or charged-offs loans will swing the monthly income fairly significantly. With that in mind, I decided to move to quarterly updates on my peer to peer lending investments to better gauge the trending income. As such, let’s take a look at how my Prosper account faired over the first quarter of 2014.

Prosper – Taxable Account
Prosper Marketplace - Main Screen - 2014 First Quarter Update

Click for larger image

After cruising past my net interest goal for Prosper in 2013, I suffered my first set back with a charged-off loan in February. While not yet a seasoned account, my first notes have now hit that point as I began investing in May of 2013. For those not aware, the term “seasoned” in peer to peer lending refers to notes that are at least 10 months old. This is roughly the point in which the default curve of loans (36-month notes) has already been seen and returns start to stabilize.

For the first quarter of 2014, I earned $66.18 of net interest, a monthly average of $22.06. However, looking past the charged-off loan, my monthly net interest is reaching new highs with March coming in at $34.89. With a goal for 2014 of $400 for the year, I’ve passed the monthly average, but need to push further given the likelihood for defaults and further charged-off loans.

One issue that was presenting itself at the end of 2013 was the struggle to keep my account fully invested. Over the last quarter I’ve been able to eliminate most of the available cash in the account and will hopefully see the increased interest amounts as a result. Prosper is continuing to try to balance institutional demand and the retail investors and back in February asked that those institutional investors investing on the retail platform to limit themselves to 10% of a loan.

Prosper has provided an all notes return figure of 16.98%, which is down 18.57% at the end of 2013. Given my anticipated returns of around 15-16% based on my historic analysis and investment criteria, I am assuming this number will continue to decrease as the account matures and additional late notes start to hit and go into default. The anticipated return based on my investment criteria does not factor any idle cash or loan fees charged by Prosper, so my actual returns will probably end up a point or two lower than the filter presents. With an average age of approximately seven months, this account has a long ways to go before any return numbers are legitimized.

Looking below now, take a look at the details of the account as it stands now.

Prosper Marketplace - Details Screen - 2014 First Quarter Update

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Currently, I have available cash of $32.78, a decrease of $398.21 over December, where I had some challenges maintaining a fully invested account. My account currently holds 94 active notes with two late notes, one payoff in progress, and 10 notes now paid in full. Unfortunately, having notes pay off early increases the note churn in the account and increases the amount of time there is idle cash in the account, lowering my returns.

My average yield at acquisition is now 20.37%, and is continuing the trend of decreasing over the last six mouths. With the higher interest loans getting grabbed quickly, often the ones my auto invest is able to select are in the C or D range. Even with the slowly dropping rate, there will most certainly be additional late notes in this account. I would expect to see a few of them reach default during 2014, offsetting my interest income. As I continue to track the performance of this account, you will see how these notes perform and what my default rates end up being.

Prosper Summary

During the first quarter of the year, my net interest earned was $66.18, or just 16.5% of my 2014 goal. My internal rate of return (IRR) since opening the account decreased from 15.88% to 15.18%. I calculate my IRR using Excel’s XIRR function.

I’ve now added the below chart to track my monthly net interest from Prosper in the past 12-months.

Prosper Marketplace - Rolling 12-Month Net Interest - 2014 First Quarter Update

Isolating the first quarter of 2014, my overall internal rate of return came out to be annualized 13.86%. This level of return is just about where I believe this account will end up over the long-term. Hopefully now that I am past some of the drag from uninvested cash, I would like to see the return level tick up to better account for late and charged-off notes. Below I’ve begun tracking my monthly IRR and providing a running average since the account opened.

Prosper Marketplace - Internal Rate of Return by Month - 2014 First Quarter Update

I am looking forward to growing this account so that the compounding will be much more noticeable; as well improve my ability to absorb late loans and defaults. I will be adding some capital to this account throughout the course of the rest of 2014, which should hopefully allow me to hit my 2014 goal.

I have updated my Prosper page with this information. If you’re interesting in the criteria I am using for this account, check out my 2014 Investment Criteria. If you’re having trouble finding notes with a filter that tight, my Simple Filters should provide you with plenty of investment options.

Interested in investing (or borrowing for that matter) with Prosper? Feel free to check them out!

Have you considered investing/borrowing with Prosper? What is holding you back if you haven’t made the leap just yet?

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  1. Do you prefer Lending Club or Proper? I haven’t really looked at either, but I am curious as to which one you would start with if you had to make a choice.

    Keep up the good work!

    • I actually enjoy investing in both, however if I had to make a choice, I would pick Lending Club at this point for the ability to put money to work in a timely fashion. I will probably end up earning higher returns at Prosper, but I’m fine with getting a +10% return on however much I can put to work, be it $5,000 or $25,000.

      Thanks for stopping by ILG!

  2. Good stuff, W2R. After that hiccup in Feb, looks like you are back in business in March. Keep it up.

    Its always good to see how there are so many options to generate passive income. P2P lending is somethign not availabel here in Canada (atleast the last time I checked), so I just watch it from sidelines for now.


    • Thanks R2R! I certainly think things are looking fairly solid with my Prosper account and should continue to improve as I add funds and reinvest the earnings.

      As for Canada, I would anticipate you having an option sooner or later. Given the rise of P2P lending globally, it is only a matter of time.

  3. Great job improving this income stream…Our family also invests in both Prosper and Lending Club. I am hoping to one day replace my emergency fund with these two accounts and thereafter invest the money from our emergency fund to build the dividend income portfolio.

    • I generally consider my P2P lending investments to be just that, investments, and count them separately from my emergency fund. However, if that is something you are comfortable with doing, than that should help accelerate the growth of your passive income streams.


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