Getting closer! I only have four more catchup posts after my summer’s blogging break.
After investing with Lending Club for four years, I decided to diversify my peer-to-peer lending asset class and make an investment with Prosper. Having been bullish on peer-to-peer lending since opening that Lending Club account back in 2009, I am excited to see how my investment in Prosper grows over the next several years. In order to bring some level of transparency to my investments, each month I plan on providing an update on how my Prosper investment is performing. Let’s see how November turned out.
Prosper – Taxable Account
Finally! After some additional investments over the course of the fall, the product of those investments is now starting to show up! During November, my Prosper account increased the total net interest income earned to $24.44, a full $6.43 increase over October. Even with the positive net interest news, I have noticed some issues with my available cash getting invested in a timely fashion. I still have almost $370 of available cash to invest, and that appears to be growing as my auto invest is struggling to get loans.
This is of course not unexpected given the rapid rise of peer to peer lending during 2013. Prosper specifically has rebounded quite strongly and institutional demand is absorbing most of the loans. During November, institutional and other large investors snapped up 63.5% of issued loans as whole loans (Lend Academy: LC and Prosper Top $280 Million in New Loans in November).
As noted last month, I appear to be in good shape to exceed my 2013 goal for Prosper, as the one late note I have will probably not charge off until 2014, if at all. It is important to note for those interested in investing in Prosper that you are unable to sell late notes on the secondary marketplace within Prosper. While this doesn’t affect me because of my buy and hold strategy, it is important to realize this if you have an affinity for trading or dumping notes that begin to sour. As of right now, I only need $13.41 of net interest in December to exceed my 2013 goal.
Prosper has provided an all notes return figure of 18.46%, which is a big jump from last month’s 16.87%. 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.
Currently, I have available cash of $369.71 with two notes pending issuance. My account currently holds 69 active notes with one late note, and three 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.
Given my overall risk of the notes in which I’ve invested, 21.72% at acquisition, there will most certainly be additional late notes in this account. Naturally 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.
As for my earnings, during November, as I said above, I earned $24.44 of net interest, increasing internal rate of return (IRR) since opening the account from 15.33% to 15.49%. I calculate my IRR using Excel’s XIRR function. The small increase is due to receiving more in loan payments from the additional investments made, while still factoring in some cash drag.
I’ve now added the below chart to track my monthly net interest from Prosper.
Isolating the month of November, my overall internal rate of return came out to be annualized 16.08%. While that level of return sounds high, this is just 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. I am looking forward to growing this account so that the compounding will be much more noticeable, as well as the ability to absorb late loans and defaults.
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 questions about peer-to-peer lending? Just ask!