Lending Club Update 3Q2012

Lending Club is a great tool for making some very nice passive income.  I’ve been using my account to invest some funds and see what I can do as far as a return, as well as to learn more about the service and what can be done with it.  As someone who lives in a state where the direct investing isn’t allowed (state laws that need changing), I use the FolioFN trading platform within Lending Club to make my investments.  This eats into my return a bit, as I pay a small premium to the original investor when I buy the investment.  However, I’m finding that even with that small premium, my return is still far above what I am making in any savings account.  If you’d like to start at the beginning of the year, you can read my 1Q2012 and 2Q2012 updates first then come back to this one.

Lending Club Returns Growing

After the last update, in July, I made the decision that I could increase the risk level a bit on the my portfolio and still safely be in a place where it wasn’t too high.  While I don’t have a direct history of working at a commercial lender, I did work in I.T. at a Credit Union.  (Also, I did not sleep at a Holiday Inn Express last night.)  In my position there, I learned a few things about the way the backend of an institution works.  And, what I can tell you is that the credit scores that are getting C and even D ratings on Lending Club would be the average borrowers at a commercial brick-and-mortar institution.  What that tells me is that even the C and D rating loans at Lending Club are still a pretty safe investment.  After all, if the banks and credit unions couldn’t make money on them, they wouldn’t loan to them.  So, I increased my lending in the C and D ranges and have now moved the middle of my portfolio into the C/C- range.  It’s weighted a bit riskier, but the reward is a bit higher as well.  At the end of 2Q2012, my rate was stated on my dashboard as 13.58%.  At the end of 3Q2012, that rate has increased to 14.08%.

Lending Club 3Q2012 Returns update

A half a percent increase doesn’t sound like much, but it’s twice what my local savings account pays!  If I’d have dumped that money into my savings account instead, I’d be making half of just the increase I made last quarter.  Sad, no?

Delinquencies and Diversification on Lending Club

If you read the 2Q2012 update, you’ll know that I had two loans that have entered into the delinquency statuses.  One of which, I was able to immediately sell on FolioFN for the outstanding principle.  I lost the interest, but also lost the risk of it becoming a written off loan.  The other had a very low principle balance on it, so I decided to keep it to see what would happen, and to force myself through the collection process should it have gone that far.  It did not.  The loan went so far as to become 31-120 days past due and then a payment was made that brought it current.  It has remained current since then.

This is a good time to talk about diversification too.  As you can see from the above screenprint, I have just under $700 in my Lending Club account.  Nearly all of that (except the $17.72 in available cash) is invested into loans.  All told, I have investments in 37 loans currently.  That’s an average investment of about $18.50 per loan.  Obviously, some of them are nearing payoff, and others are nearer funding, so the actual amount per loan varies wildly between $0 and $25.  I do try and keep each investment to about $25-$30 to maintain that diversification.  If any one of the loans were to go into collections and then be written off, I’m only loosing a small fraction of my overall portfolio, and the hit would be minimal.

Much like any other investment, whether it be in stocks, real estate, etc, diversification can greatly improve your risk tolerance.  The risk of having one or two loans that go bad is far outweighed by the fact that you’d still have 10, 20, 30, or more loans that are in a current status.  I’ll continue to monitor for loans that go past due and then decide individually whether to keep them or to try and liquidate them through the FolioFN trading platform.

Other notes

Over the last quarter, my Lending Club account has reached a point that the principle payments combined with the interest payments exceed $25 a month.  What that means is that part of my experiment is complete.  I’ve been able to create a portfolio of self-sustaining investments.  I can stop putting any new funds into the account, and be able to reinvest the returns each month without having a whole lot of dead money sitting around waiting on me to invest it.  At most, any funds from payments should only sit around for a maximum of about 30 days.  It’s not ideal, but it’s far better than it could be.

I don’t intend to completely stop adding funds to the account either.  I want the portfolio to grow at a slightly faster clip than it would with just the returns and payments, so I’ll continue making deposits into it.  I like the way the portfolio is currently balanced, so will likely try and keep it that way.  What that likely means is that I shouldn’t expect to see any major movement on the rate of return.  I’m happy with the 14% I’m currently getting though, so that isn’t really a problem for me.

How many of you have not invested in a P2P lending account like the mine at Lending Club or at Prosper?  Why not?

20% Off Quickbooks 2013 – Limited Time

Intuit, the company that makes Quickbooks, has just released the newest version of their Quickbooks software, Quickbooks 2013.  To celebrate the release, they’re giving everyone 20% off.  You don’t need a coupon code, or any sort of rebate, just go over and buy it directly from them, and they’ll give you 20% off.  It’s a limited time deal, and I don’t know how long they’ll keep the deal going.

If you’re not familiar with Quickbooks, it’s the premier accounting software for small business.  It makes it super easy to keep the books of your small business, while keeping you from getting bogged down in all the really technical stuff in the background.  It also happens to be the software that most CPA firms use and can export your file for sending to your CPA, which can make for some pretty easy tax accounting come tax time.

I’ve been using it for several years to keep the books of both my eBay selling business and the books of all my online business.  I’ve got it down to a science (nearly), and am able to just enter the data as I go along, then print off the reports as needed by the CPA for taxes.  It makes it super easy to keep the books, and report that income on my tax return.

While they release a new version every year, I don’t think that you’ll feel the need to upgrade as often.  I think if you were a small business, in the 50 employee range and a pretty sizable amount of revenue, you might think about it, but for small-timers like myself, upgrading every year is a somewhat expensive endeavor.  My needs are simple enough that I’m still running the 2009 version on my machine, and it works just fine.  The only thing I really have to worry about is that Intuit will stop supporting the older versions after a certain amount of time.  Luckily for me (and not for them), the software is pretty solid and doesn’t require a whole lot of support.

If you’re looking for a good small business accounting software, I’d certainly give Quickbooks a look. (Click here to check it out) The 20% off drops the price on the Quickbooks Pro 2013 package down to right at $200.  Given that you could probably run it for 4-5 years, $50 a year is a pretty good deal.

What are YOU Working For?

What are you really working for?

We all work, in some way, shape, or form.  Many of you, when asked the question, “what are you working for”, will likely give the easiest answer.  Money.  That’s what we all work for, right?  We need it to pay our bills, buy our food, and do many of the things that we choose to do.  But, one of the things that I’ve contemplated for some time, and that helped me make the decision to quit my job last year, was the furtherance of that question.  Sure, we all work for money.  But, is that all we work for?  And, if so, should it be?

The conclusion that I came too, as you can probably guess, is that money isn’t everything.  We do need some, but if that’s all we’re working for, it quickly becomes less of the tool that it should be, and, instead, becomes something that makes us feel trapped where we are.

Not All Work

Primal Money

One of the popular diets, recently, is the Primal Diet.  It’s a diet of foods that our primal ancestors (the hunter-gatherers) would have eaten.  Mostly meat, and readily available nuts and fruits.  The idea is that the human race has been around for thousands of years, but only been farming, and eating what we farm, for a fraction of that time.  Proponents think that we haven’t evolved sufficiently enough to properly handle the abundance of grains and other “farmed” foods in our diets.  (sidenote: the increase in Celiac disease over the last few decades might point to them being correct)  Because of that perceived evolutionary gap, they’ve taken up eating what our kind would have eaten before the rise of farming.  The movement made me think, though.  What of money?

For centuries, we’ve used money as a means of trade.  I give you a coin, you give me goods and services.  If I run out of coins, I have to find a way to make more.  I trade my surplus goods and services to someone, and they give me coins.  We repeat that cycle, and we have an economy.  Slowly, coins become the only way to attain goods and services, and we all depend on them.  And the more we depend on them, the more of them we need.  And the more we need, the more we have to sell our goods or services to get more.  Eventually, we end up where we are now.  We all work in order to gain more coins.  Our economies have evolved.  But, if that’s the case, what were they like in the Primal era?

Before we all became obsessed with coins, and money, our ancestors hunted for their food.  They didn’t need to buy it, they just went out and trapped or shot it.  Or they scavenged it off of the tree it grew on.  Or dug it out of the ground where it grew wild.  The work they did wasn’t for a new tv, or a new car, it was for survival.  If they didn’t do the work, they would starve.

If you don’t do the work, you get fired (if you work for someone), or you just don’t make any money.  And, yes, you still might starve.  Eventually.  But, food wasn’t the only thing that many of them worked for.  They worked to help their family survive.  They worked so that their children would grow up healthy and strong.  Their children were their legacy; what they would leave the world when they passed on.

Legacy.

Now, we’ve found the real purpose of work, I think.  That’s why I work, now.  It isn’t about the money, although money can have a place in legacy, but about what I leave the world when I leave the world.  The example that I set for my children, the good works I do, the changes I make in my world that make it better, and the life I lead, are my legacy.  Money is merely a tool, like the bow and arrow for our primal ancestors, to help me do those things.  And, here’s the funny part.  Looking at that list of things, it’s a tool that I don’t need that much of.  I set a better example for my children by being conscious of the things that I do, and by what I teach them.  Donating money to charity is a good work, but there are just as many good works to be done through volunteering your time and skills.  And, I can certainly make changes for the better in this world without money.  My legacy doesn’t need money.  I’ll use what money I have to give it a boost now and again, but it doesn’t need it.

I’m working for my legacy, not for a new tv or a new car, or even a new house.  The realization of that is what helped me make the decision to leave my job.  There will always be other jobs that I can get that will help me pay the bills and put food on the table, but I don’t need one to help me do my work.

What are YOU working for?

photo credit: The Marmot