Investing With Lending Club (Dec '13 Update)

by Michael on Jan 22, 2014 · 2 comments

Lending Club Logo

I’m a bit late with this, but… It’s time for another Lending Club update. As a reminder, I started this account with an initial deposit of $1,500 last summer and have contributed $1k/month since then.

At the end of December, I had $6,291.14 in outstanding notes, another $250 (5 notes worth) committed to loan in the process of being funded, and about $130 in cash waiting to be invested.

During December, I continued to receive payments from borrowers that I had back with my earlier investments. And, as that money accrued, I re-invested it in more $50 notes, just as I do with the $1k/month in new investments.

Looking inside my portfolio, I had 133 active notes, which included mostly Grade C notes (88), with fewer Grade D (39) and E (6) notes. This reflects my overall strategy of targeting somewhat riskier notes though, to the extent possible, I’d like to tilt even further toward the lower grades.

Related: Here’s an overview of my loan selection strategy.

The average interest rate of these notes was 16.42% and my net annualized return (NAR), as estimated by Lending Club stood at a bit over 16.6%.

Lending Club Returns

While I’ve seen some notes slip into the grace period in the past couple of months, which dropped my adjusted returns into the 14-15% range, all have recovered and my adjusted NAR has bounced back to match my NAR.

As for real-world returns, my own calculations have me with a 15.37% annualized return, which is a bit lower than my stated NAR. This is primarily due to the effects of idle cash, which Lending Club ignores when estimating returns.

So… All is well with my p2p portfolio. Yes, I’m sure that some (hopefully small) fraction of my loans will ultimately default. But for now, at least, I’m on track to meet (if not exceed) my goal of 10-12% annual returns.

If you’d like to play along, you can get started here.

1 Mark January 22, 2014 at 10:53 pm

I tried out Lending Club from 2009 to 2011. Overall I think its a good concept and a great way for investors to make decent returns and also to help those looking to borrow money. In 2.5 years I think I only had two notes default. My problem was with the taxes and that is why I withdrew my money. You have to wait for a special document from Lending Club and that comes very late. Secondly, all the interest you earn requires an additional form as part of your 1040 return. The interest is not reported on a 1099 INT. Lastly, and really most importantly I recall that it was all treated like income thus no tax savings like long term capital gains. For me, I found it was better to buy stocks and ETF’s in my taxable account and then I can control what tax events I have each year. I also invested in a little bit better grade of notes than Michael, so it will be interesting to see his default rate in another year or two. The economy is a little better now, so maybe default rates have dropped. Good luck to all those that try this investing approach.

2 Michael January 23, 2014 at 8:08 am

You are correct that earnings from Lending Club are taxed as ordinary income. And yes, that’s a bit of a bummer.

Also, having invested with Lending Club in the past, I agree that the tax situation can be a bit complicated. But I never found it to be that much of an impediment. That’s actually a good topic for a future post. Thanks!

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