This quarter I got pretty aggressive about adding new funds to my account, mainly with the goal of achieving the diversification I was after. I’d love to have the cash to add $4K every month, but for now that’s not realistic. As of this quarter I should have about 226 different notes in my portfolio once all notes in funding are issued, which makes me feel much better about my risk profile, and the impact that any one note going into default might have on my returns. As a consequence though, I put myself in much the same position as last quarter from a metrics point of view, when a ton of capital was idle, waiting for notes to issue. The result of that is my XIRR is more depressed than it should be longer term, and my NAR is way higher than it should be longer term, since notes almost always make their first few payments.
|Total Invested This Quarter||Total Interest Paid This Quarter||Total Fees Paid This Quarter||Total Charged Off This Quarter||Account Balance at End of Quarter||ROI using XIRR||ROI using NAR|
I do like seeing that my interest payments are starting to come in, though, and that I’ve built up portfolios that should start to pay nearly $200 a month in interest, which is basically what I’ve set aside for automatic deposits from my checking per month. That means I’ll be able to invest $600 of new money, about $450 or so of returned principal, and $200 in interest, for a total of $1,250, or 50 new notes. Once I get to around 400 notes or so I’ll start to consider upping my average investment per note, but until then I’m going to stick with $25 per note.
This quarter was when Lending Club really got addictive – when you see the interest start to come in each day, and the earnings and returned principal start to self-fund your account, even with fairly low balances, it’s pretty hard not to check your account every day. I’m definitely happy with my experience and returns so far, though I’m still very new to the game, and trying hard to set my own expectations for lower returns in the future as notes start to naturally default.
In terms of strategy, I started making some changes this quarter as well. I stopped investing with Lending Club’s portfolio feature, and I started handpicking notes so I could review them for certain characteristics that you can’t filter on, like if the borrower lists a job, and what % of their income their monthly payment consumes. These things I believe are important factors in someone’s ability to pay reliably, though I suppose I’ll only find out over time if I can outperform the community.
Outside of that, I also realized that if I want to achieve the higher returns, I have to start purchasing higher risk notes. I’m still not ready to go for broke an invest in many E, F, or G grade notes given I still don’t have that many notes, but I’ve definitely started to buy more C and D grades, and pretty much stopped buying anything A rated because of the lower returns, and statistically lower ROI.
Next quarter, I won’t be able to add quite as much cash, and given how many notes I have in my account, I don’t think I need to be quite as aggressive in adding funds. Given I’m 7 months in at this point next quarter is going to be all about starting to wait for the first notes to enter a grace period, and probably start to go late. The default curve for Lending Club shows that most loans that will default start showing problems at an age of 5 – 11 months in, so my first notes will start to enter that period in Q4. For the (hopefully) few notes that do show issues, I will likely try to sell them through Lending Club’s FolioFN trading platform, which will give me a good opportunity to review that part of the platform.