The last week has been a banner week for those wanting to find out details of how successful p2p investors put together their portfolios. We have had three leading personal finance bloggers share intimate details of their returns on Lending Club. Here is a quick analysis.
Steadfast Finances – first cab off the rank was Matt with Steadfast Finances. He also has the best return on his investment of the three bloggers with a 15.64% NAR. Matt has a strict investment policy of only investing $25 per loan and looking for borrowers who have job security. His portfolio consists of 279 loans with grades primarily C, D and E, but he has a renewed focus on loans with a NAR of 15% pre more so new loans are mainly grades D, E, F and G. He is adding to his portfolio to the tune of $100 to $150 per week and he spends 1-2 hours a week scouring loans to invest in. He has been an investor for 18 months and has no defaults as of yet, although there are five loans running late. But even that has changed as he shared on Twitter yesterday with two of his late loans returning to current status. Here is one of Matt’s helpful hints:
Don’t invest too much too fast. I know the temptation of investing in something new and cool is difficult to fight, but as with most things in life, exercise some patience by easing into P2P lending. Learn the ropes, get comfortable with the concept of investing in P2P lending before investing $10,000 into your account and end up investing $1000 per person. In my opinion, that’s the wrong way to go about it.
Bible Money Matters – Peter Anderson has also had zero defaults and just one out of 79 loans is running late. That is an impressive effort after almost two years on Lending Club. His NAR is running 9.64% and his focus is on smaller loans, those under $10,000. He has mainly invested in Grade A and B loans but after he has read the updates from Matt with Steadfast Finances he has decided to stray into the higher risk loans a little bit. He believes in investing in borrowers with a low debt-to-income ratio and also looks for loans that are over 60% funded. Here is another helpful hint from Peter:
I like to ask questions from potential borrowers. You can tell a lot about someone, and about how they’ll do repaying the loan, by how they answer the questions.
Investor Junkie – the return for Investor Junkie (IJ) fits between Steadfast Finances and Bible Money Matters. IJ (the blog author doesn’t reveal his name) is currently enjoying an NAR of 11.42%. He has one default in about 18 months on 189 loans (graded primarily B, C, and D), and there is one note that is currently late. IJ’s philosophy is to only invest in 36 month notes and because of his strict criteria he only invests small amounts at a time. It took him over six weeks to invest the $2,000 he recently added. Here is another great tip from IJ:
I have very few ‘A’ rated notes. I’ve deemed them actually riskier for the rate of return than the lower grade notes. I would rather take risk on a higher NAR loan with what Lending Club deems riskier and has a higher rate of default. If you look at the statistics this is what they show.
Just one point I want to make about these NAR’s. These p2p investors have all been investing in Lending Club for less than two years and because they add new money regularly the median age of the loans they are invested in is likely to be well less than a year old. So while it is very impressive that there is only one default between them, most of their loans are still relatively new and have not had much of a chance to default. So my guess is defaults will rise for all three but with their stringent investment criteria they should be able to keep the number of defaults low. But any default will negatively impact their NAR.
I appreciate these three gentlemen sharing the details of their investments, it helps the entire p2p lending community. I will be keeping a close eye on them as they to continue to report their progress. Speaking of NAR, stay tuned for tomorrow’s blog post for an in depth look at NAR and how Lending Club and Prosper’s stated NAR differs somewhat from the actual real world return.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.