Prosper Marketplace – December and Year-End 2013 Update

As with my recent Lending Club post, it is time to review how December and the entire 2013 turned out for my Prosper account. This past year was the first year of having my Prosper account, opened in May with an initial $1,000 investment. I opened this account after investing with Lending Club for four years, with a look to diversifying my peer-to-peer lending asset class across the two major players in the industry. As with my Lending Club investment, if you have any questions, please feel free to ask!

Prosper – Taxable Account

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During November I began to see some of the results of my additional contributions this fall, with my net interest bumping up over six dollars to $24.44. Continuing that trend of increasing, December jumped another $3.46 to $27.90 of net interest! One thing to note, is unfortunately I took the above screen shot a day late, and my actual year-end balance was $2,034.49 instead of the $2,036.09. With only $13.41 of interest needed to obtain my 2013 goal, I easily exceeded this with my December net interest.

All is not peachy however, as my available cash has risen after another month where very little has been invested using my auto invest. During December I had only two successful auto invest transactions while 149 notes were issued that met my criteria during the month. Needless to say, it is time I start exploring some alternative means of keeping my account fully invested by either changing my criteria, logging in during release times, or seeing what third party resources might be available.

Naturally this is a frustrating aspect of peer to peer lending, and one that has become common with the many investors as the industry’s popularity has exploded this past year. Prosper specifically has rebounded quite strongly under new management and institutional demand is absorbing most of the loans. During December, institutional and other large investors snapped up 70.7% of issued loans as whole loans, up from 63.5% in November (Lend Academy: US P2P Lenders issue $2.4 Billion in Loans in 2013).

Prosper has provided an all notes return figure of 18.57%, which is up slightly from last month’s 18.46%. Given my anticipated returns of around 15-16% based on my historic analysis and investment criteria, I am assuming this number will ultimately decrease as the account matures and 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. With an average age of approximately five months, this account has a long way to go before any return numbers are legitimized.

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

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Currently, I have available cash of $430.99, an increase of $61.28 over November, with one note pending issuance. My account currently holds 70 active notes with two late notes, and five now paid in full. As I’ve mentioned previously, having notes pay off early increases the note churn in the account and increases the idle cash in the account, lowering my returns.

My average yield at acquisition is now 21.49%, and has been decreasing slowly the past couple of months. 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 notes go into 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

As I said above, during December I earned $27.90 of net interest, bringing my 2013 total to $134.49, which exceeded my 2013 goal of $120. After the December, my internal rate of return (IRR) since opening the account increased from 15.49% to 15.88%. I calculate my IRR using Excel’s XIRR function. The below chart tracks my monthly net interest from Prosper.

Isolating the month of December, my overall internal rate of return came out to be annualized 17.65%. While that level of return sounds high, this is just 150 basis points or so above the upper end of how I hope my returns end up with this account. Given the continued drag from uninvested cash, I am glad to still have achieved such a high return in such a short window of time. Below I’ve begun tracking my monthly IRR and providing a running average since the account opened.

I would anticipate my overall IRR to begin to dip as time goes on and the account faces the challenges of late and defaulting notes. However, 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 am looking forward to 2014 where I will have a full year to accumulate interest and see the continued growth and compounding within my account.

I have updated my Prosper page with this information.

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?