Lending Club Returns 2014 EOY Update

If you’ve been reading here for very long, you’ll know that I’ve been posting and discussing my Lending Club returns since the end of 2011.  For the first year or so, I updated with quarterly updates.   I didn’t do that in 2014.  Part of the reason for that was that it was a busy year for me, and the time to put together a full post on that every quarter just wasn’t always there.  The rest of the reason was that it was beginning to feel redundant to me, so I slowed them down a bit.  Now, I’ll be doing the updates on a yearly basis (twice a year at most) to hopefully avoid that feeling of repeating myself in each one.  On to the Lending Club Returns 2014 update.

If you don’t know what Lending Club is, the simple answer is that it’s a peer-to-peer lending network where people like you and me can both borrow and lend to people like you and me.  Want a little better explanation?  Head over to my Lending Club page to read more.

Lending Club Adjusted NAR

Beating Broke Lending Club UpdateWhen we left 2013 behind, my NAR on my Lending Club account was sitting at 13.16%.  A full year of lending has passed, and, as I’ll explain in just a bit, there’s been some changes to the account.  At the end of 2014, my NAR is now showing at 9.61%.  Down from 2013’s EOY number, but still a very healthy return on my investment.  For comparison’s sake, the S&P 500 returned about 11% for 2014.  So, ultimately, I could be getting more of a return on my money in an S&P 500 index fund.  The biggest difference for me is that each of the loans I’ve invested in on Lending Club has a set rate of return.  The only thing that changes that rate of return is a default.  I’ll talk about defaults in a minute, but the rate of default is pretty low.  Try and get a set rate of return on an index fund.  Your brokerage will laugh you out of the office.

Lending Club Defaults and Late Notes

As of the time of this writing, there are no late notes listed on my account.  In 2014, three notes went into a default status.  At the end of 2013, only one had gone into default.  It’s a little bit higher rate, obviously, than it had been previously.  But, as my portfolio on Lending Club has grown, the odds of a default here and there also has grown.  The full picture looks pretty good still.  Since I began investing in Lending Club, I’ve invested in 118 loans.  Only 4 of those have gone into default.  That’s a default rate of about 3.4%.  Flip that around, and if the trend holds, 96.6% of the loans I invest in will not default.  96.6% is a pretty good success rate if I do say so myself.

The 4 loans that have gone into default meant a total of $52.17 in written off principle.  Of that $52.17 that was written off, $10.74 has been recovered through collections for a total loss of principle of $41.43.  I’ll go into further detail in the next section, but the interest I make on the non-default loans more than makes up for that lost principle.

Lending Club Income

The biggest reason that I invest in Lending Club is for the higher rates of return and the income that it provides to continue building my portfolio.  I bank the interest payments and then reinvest them into new loans when I’ve passed $25 in available funds.  Those interest payments, after fees, totaled $115.69 for 2014.  That’s up from $109.88 in 2013.  Less of an increase than I expected, honestly, but still $115.69 that I didn’t have before.  And it still leaves me with about $75 in income on the account after you account for the lost principle that was written off.  And that’s $75 that I’ve reinvested into principle and am now earning interest on.  Given my current rate of return, I can expect that to increase by about $12 next year.

Another of the metrics that I like to look at is the average amount of interest earned each month.  I reached point where the payments (principle+interest) each month exceeded $25, and I could make reinvestments each month, but the next benchmark I’d like to reach is to make $25 in interest each month to reinvest.  That’s one new loan to invest in each month.  The average for 2014 was $9.64, so I still have a way to go, but it’s increasing year over year.  It was $9.16 in 2013, $5.94 in 2012, and $1.91 in 2011.

I think the thing that I like the most about Lending Club is the income potential and the growth I’ve managed with my portfolio.  I haven’t deposited any new money into the account since November of 2012.  Through active investing and reinvesting, my portfolio has increased by almost $200.   I think that’s pretty good on deposits of just a hair over $700.

The Future of my Lending Club Portfolio

In the past, I’ve talked about changes I planned on making to my investing strategy in this section.  I’m pretty happy with my returns, and with the numbers that I’ve just shown you, and so there won’t be any immediate large changes.  If the default rate jumps by a lot, there’s a good chance that I might begin investing a bit more conservatively. But, if it holds steady, I see no real reason to do so.  My portfolio is pretty heavily weighted towards the B and C grade loans in any case.  And I don’t know that moving to A grade loans would give me the return I’m looking for.  So, short term, there won’t be any changes to my investing strategy.  I’ll just continue to reinvest the payments and see what kind of growth I get in 2015.

Do you have any questions I can answer about my experience with Lending Club?  Other things related to peer-to-peer lending that you want to know?  Let me know in the comments below, or through the contact form linked in the bar on the left.

Want to open an Investment account with Lending Club?  Click here to start the process.

How to Handle Someone Who Gives Too Many Gifts

First world problems, right?  How can you complain about someone who gives too many gifts?

Believe it or not, that’s something I’ve struggled with this holiday season.  I have one relative who, simply put, is buying too many gifts for me, my husband and my kids.

If this relative was independently wealthy, that would be one thing, but I know that she’s also trying to save money for some home repairs and a trip of a lifetime to Europe.  I wish she would buy each of us just one gift and put the rest of the money in her vacation fund.

Do you also have problems with someone in your life who buys too many presents?

If so, there are things you can do.  (Though you’ll probably want to implement most of these suggestions AFTER this holiday season.)

Too Many GiftsSet a gift giving limit.  Most people buy gifts because they want to be nice, and they want to do something special for you.  However, people can overstep their bounds.  This year between all of my relatives who like to give gifts to our kids, the kids are getting more than enough presents.  Combined with the gifts my husband and I were going to give, my kids were going to have way too many gifts.

I set aside some of the gifts I was going to give; I’ll use them next year.  I also had my mom set aside some of her gifts for birthdays.  I’ve also asked some of the relatives to set a limit of one or two gifts in future years so that our children are not drowning in presents.

Accept and be appreciative.  Another idea is to simply accept the many gifts and be appreciative.  After all, as Trent Hamm, guest blogger on The Christian Science Monitor, points out, “These gifts are given out of love.”  Hamm, who struggles with his family members giving his kids too many gifts, explains, “People give our kids gifts because they love them so much and it’s their way of expressing it.  For me, telling them  not to do so is akin to saying, ‘Please don’t express your love and caring for our children.’”

If someone like a grandparent routinely goes overboard with the gift giving, you can reduce the number of presents that you get your kids and save money.  You can just reap the benefits of saving money, or you can take the cash that you saved by not buying so many gifts and instead give the cash as a present to the prodigious gift giver.  Everything comes full circle this way.

Direct the gift giver’s generosity.  I remember when I was little, my mom’s friend wanted to get me a Christmas present.  I was a prolific reader, and she got me Green Eggs and Ham.  I was well beyond that book.  Too often, people try to be generous by giving a present, but the gift they give is not necessarily what the recipient needs or wants.

You can direct the gift giver’s generosity by steering her to a wish list.  You could create it on Amazon, and then you would be able to keep track of what has been bought, and you could also have some say in the plethora of presents coming into your house.

Do you struggle with well-meaning relatives buying too many gifts?  If so, how do you handle the situation?

 

Have We Lost the Meaning of Frugality?

My grandparents were married during the Great Depression.  Their first few years together were spent in severe economic hardship, and the financial lessons they learned during that lean time never left them.

They always had one car.

My grandma wore the same dresses throughout my entire lifetime.  I think when she died, the dresses she still had were 25 to 30 years old.

They rarely went out to eat, opting instead to cook and eat simple meals at home.

My grandparents did without much of the time, and they were very frugal with their money.

They sold their house when they retired and lived in a 5th wheel trailer parked on the side of our lot, less than 20 steps from our house.  All of their possessions fit in that space, and their home was not cluttered.

Has the Meaning of Frugality Changed?

Lost FrugalityNow, the definition of frugal seems to be different.  People try hard to avoid doing without.

Now, the motto seems to be, “Why do without?”  Live like the Jones’ without spending money like the Jones’.

Whereas my grandparents carefully bought the groceries they needed, today’s frugal zealots clip coupons and create grocery storage spaces out of their garages.  They have rows and rows of processed food that they got for pennies on the dollar thanks to couponing.

Many mom bloggers are making their fortune sharing all the hottest deals available.  Kids’ winter jackets for $8!  Hurry, buy women’s turtlenecks for $4 today only!  Get your child the Barbie princess house for the low price of $48!

Hurry!  Hurry!  Buy the bargain.

Do You Really Need That Bargain?

So many consumers are on the hunt for a good deal that they never stop to ask themselves if they really need the item that is on sale.

What if your child doesn’t need the Barbie princess house?  What if your child has so many toys, she whines about picking them up and doesn’t take care of the ones she has?  Is that Barbie princess house still a good deal?

What if you never even thought about buying that item until you saw it on sale and didn’t want to miss out on the savings?

We’re Overwhelmed with Stuff

Look back at pictures of people’s homes from 60 or 70 years ago.  Their homes were not cluttered.  They were much more like the minimalists’ homes of today.

Now, we take advantage of so many “deals” that our homes are overflowing.  Here in Arizona where there are no basements, and therefore no built in storage, most people can’t park in their garages because they’re stuffed with possessions.

We don’t need all of this stuff.

Snagging a great deal on something we don’t need isn’t a deal.

It’s a waste of money.

Keep More Money in Your Pocket This Holiday Season

We’re entering into the busiest shopping season of the year.  There will be good deals, plenty of them.  You’ll likely be tempted to buy as many gifts for yourself as you will for others.  After all, the prices are so good.

But ask yourself one simple question–Do I need it?  If you don’t, it’s not a deal.

Do you think the definition of frugality has changed?  Do you or someone you know struggle with buying more than you need because something is on sale?