This quarter I really started to feel the power of compounding. While I contributed a solid $3,900 to my account in new money, I had another $614.98 in returned principle and interest! I definitely noticed the slow trickle of payments each day, and felt that I started to accumulate funds at a higher rate. This is my 3rd quarterly update on my Lending Club returns, but it really feels like my first because of how much money I added to my account in my 2nd update, and how little I really had invested those first two quarters. I started this blog, and I feel like I’m even starting to get the hang of things.
From an aging point of view, even though I’ve been investing with Lending Club now 9 months, the average loan age in my account is only 4.1 months which means I’m just at the cusp of where most people start to see the first defaults. I’ve actually already started to see them come in; the first note went late early in the quarter and is now sadly in the 31 – 120 day period, where I’ve only got a 28% of recovering it per Lending Club’s statistics.
In total though, I had issues with four notes this quarter. The first was the one above, is sitting in the 31 – 120 day category and expect will be a total loss. The second note entered its grace period in November, and I sold it for 60% of par through the FolioFN platform. In hindsight I think I probably could have sold it for more, and I’ll try to discount as close as possible to the statistical risk guidelines that Lending Club publishes on it’s statistics page. And now, just a few days ago, I saw two more notes go into grace period as well. These I think I’m going to wait on just a little bit, as they are higher grade notes, and their payment dates were Christmas. I can see people being distracted by holiday travel, so I’m holding out hope to some degree. If I don’t see their situation improve in the next few days though, they’re off to the trading platform.
|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|
From a strategy point of view, I’ve been spending more time on Nickel Steamroller, and reading some of the other quality blogs out there, like Lend Academy for tips. I’ve created a new filter that looks for verified income, and I’ve started to become stricter in the ‘Debt-to-Income (DTI)’ level I’ll allow, cutting it back to 20%. Additionally, I’m starting to pay more attention to the ‘Inquiries in Last 6 Months’ as well, and typically don’t look at anything with more than 1. That said, it’s really hard to say what’s working and why – the notes I’ve had issues with are actually some of the lower risk notes I’ve invested in. Two were higher grade C notes, one was a high grade B note, and another was a grade A note!
My first wave of defaults is starting to come in, and I have to say that it’s making me think a lot more about diversification. I’ve been thinking about not just what to do with Lending Club in Q1, but all of 2014 lately, and I came up with a few goals based on what I’ve learned so far in my social lending resolutions for 2014 post you can read elsewhere on the blog.
For Q1 though, I’m going to consider increasing my automatic $200 / month contribution, or adding a one time block of funds. The impact of compounding is really powerful on my Lending Club returns, and the earlier I can get into notes, the higher my monthly income will be from my portfolios, and the more notes I’ll be able to purchase from interest and returned principle through the course of the year. For example, my current monthly income of interest and principle is about $220 right now. If I keep contributing $200 / month, and stay diligent about putting that money to work in new notes, I could theoretically raise the income stream to about $370 / month by this time next year. But, if I were to take 50% of the $2,400 I expect to add next year and add it all in January, I can generate another $275 in additional returned capital and interest with the same total investment, simply by adding it earlier.
Of course, the huge assumption here is that I don’t lose any income from defaults, which is obviously wishful thinking and won’t happen. So I’m contemplating basically whether to go for it now, or wait another 6 – 7 months for my account to age past the most painful period of defaults and see how enthusiastic I am about Lending Club then.