Lending Club Returns Update 3Q13

Another quarter has come and gone.  We’re bracing ourselves for the coming winter.  It’s also time for a check-up on my Lending Club account, and the returns I’ve gotten.  In my 2Q13 update , my account was showing a return of 14.08%.  Keep reading to find out if I’ve managed to maintain that rate.

No More Defaults

One of the other things that I wrote about in last quarters update was that my portfolio finally suffered it’s first defaulted loan.  In this quarter, I had a few loans that went into the late categories, but ended up coming back to normal.  I’m still a little surprised that I haven’t had more defaults.  I’m glad that I’ve been lucky enough to only have the one default since January, 2010.

Active Passive Income

Beating Broke Lending Club UpdateThe closer you get to true passive income, the less work you have to put into it.  Lending Club portfolios are not true passive income.  I’ve discussed it before, and it bears reiteration.  They are awful close though.  In all, I spend about 20 minutes a month to reinvest the payments and interest that have come in.  It’s not all at once, usually.  With the $9-$10 in interest that my portfolio is earning each month, that’s a pretty good wage.  Maybe it’s an active passive income stream.  Oxymoron for the win!

Lending Club Return Rate

Now, for what everyone has been waiting for.  (Or scrolled down really quickly for)  Without any further defaults, and staying on top of reinvesting the funds as they come in, I’ve been happy this quarter with my return.  As of 10/4/13, my current Lending Club returns rate displayed is 14.69%!  It’s bounced back nicely from the default.  I’ve been investing the funds a little more aggressively over this quarter which helps explain some of that.  At this point, my reasoning is that I’ve been investing with Lending Club since 2010 and have only had one default.  The risk is still there, I think, but I don’t think it’s quite as bad as some would like to make it sound.

Where will my rate be at the end of the year?  I’m hoping it will remain steady.  I’ll be maintaining the same Lending Club investing filter, and hope that doing so will maintain the low default rate I’ve been lucky enough to have.

How is your Lending Club portfolio doing?

5 Ways a Better Credit Score Leads to Better Finances

BookkeepingEverybody knows that you want to have the best credit score you can.  Why?  Because the better your credit score, the better the rates you can get on your loans, of course!  But, did you know that there are other reasons to try and improve your credit score?  In fact, here’s five ways that having a better credit score can lead to better finances.

  1. More money.  This is the obvious one.  A better credit score leads to better rates on loans (see above), and better rates lead to less interest paid over the life of the loan.  And less interest paid leads to…  (wait for it) a  better bank balance!
  2. Better rentals.  It’s a sad fact that many landlords are doing credit checks on prospective tenants these days.  They’ve got assets to protect, so it’s a smart move for them, but the fact that there are so many landlords out there getting burned that it’s become necessary is sad.  But, having a good credit score can help make sure you don’t get turned down for that great apartment down by the beach!
  3. Quicker payoff.  This one goes really closely with the first point.  With those lower rates, and lessened interest also comes the ability to pay the loan off quicker.  And, of course, a quicker payoff means a much better financial situation.  Especially if you avoid any new loans afterward.
  4. Any loan you like.  If you must loan money, at least do it smartly.  With the current state of affairs, you can’t just walk in and get a loan that has a pulse as it’s only requirement.  In fact, many banks and credit unions are cutting way back on their sub-prime lending for anything.  (P.S. the term “sub-prime” doesn’t just apply to mortgage loans) If you have poor credit, it’s much more likely, today, that you’ll get turned down for a loan altogether.  Better credit means that if you really need a loan, you probably can have one.
  5. Less fees.  We all hate fees.  Well, all of us except the financial institutions.  A growing number of them are making a growing amount of their revenues from fees.  And many have moved to an account structure that is based off of risk.  And risk is determined by credit score.  A lower credit score could mean an account with higher fees, or with monthly fees that some accounts might not have, while a higher credit score might qualify you for a different account without those fees.

So, you see, having a good credit score can really send your finances in the right direction.  And, having a bad credit score can really send them into the dumps in a hurry too!  Unless you’re very dedicated to the extreme frugaler lifestyle, and never plan on really using money, it still pays to have a good credit score.  It doesn’t take much to build it, and you might be glad you did someday.

photo credit: o5com

Embrace Peer to Peer Lending

Imagine it is Monday morning. You just had a great Sunday with your family, doing chores around the house and watching a movie together. But now you are back in the literal driver’s seat, and on the drive to work your mind begins to wander, cataloging the day’s tasks.

And then the urge hits you, that tempting nagging gently haunting concern about your retirement account. “Has it gone up?,” you think to yourself. “Oh no, maybe it is down.” You know it really makes no difference, but you realize you have not checked the mutual fund you are invested in within the last three days. You know things are probably fine, but you can’t help but wonder. After all, you and your spouse’s well-being for the next forty years is wrapped up in those tiny digits on your browser screen.

You sigh, wishing there were another way to do this whole investment thing.

The Toll of Volatility

The headache in the first section is the price we pay for trusting our future in the US markets. This is because the market contains what investors call volatility; it can dramatically rise and fall within hours or minutes of breaking news. The supposed benefit of this volatility is that, in theory, things eventually become more steady. Millions of people trust these markets to give them an eventual positive return on their investment. “Give the market patience,” common wisdom says. “Trust your hard earned savings 30 years at a time.”

Then you turn on the evening news and watch channels like NBC Nightly News devote weighty portions of their show to how the market is faring. “The DOW rose/fell today by 1.4%…”, a report will start. Why do they talk about it every day if long term returns are all we should focus on? Because of volatility; because they lack trust. The 2007-2008 financial crisis five years ago was the largest since the great depression, even causing something as steady as copper to rise and fall like a ship in a storm.

Copper Price History

[source: Wikimedia Commons]

When looking at the graphic above (the price of Copper over the past 25 years), it is no wonder that people struggle with checking their retirement fund throughout the week!

The Peace of Peer to Peer Lending

There are many non-volatile ways to invest outside the US markets, and peer to peer lending is one of these. Instead of being tied to the global market, rising and falling on a whim, peer to peer lending returns just steadily trickle in throughout the day.

Of course there remain some risks. Some have lost money. But if a lender remains diversified in at least 200 peer to peer loans, there is an extremely low chance they will experience a negative return. In a study I did in February, only four diversified peer to peer lenders out of 3800 have lost money on Prosper.com.

In contrast, you can bump up your returns by using savvy filters on the available loan pool. Examples of good filters to use target borrowers with are:

  • No past bankruptcies
  • 10+ years of credit history
  • 5+ years of consistent employment
  • 10+ total credit lines on their report.

Lenders who compile a diversified peer to peer lending portfolio out of borrowers like these experience much less volatility than investing in the stock market.

My Experience

I used to be like those folks who was tempted to daily check the status of my retirement mutual fund. Articles kept telling me not to, but I could barely help myself. Checking my account was like a financial version of pornography; it was a need that could not be satisfied.

Then I discovered peer to peer lending. Since then, I found the emotional ease I had been looking for. I am diversified in 200+ notes across both Lending Club and Prosper, so I worry little about the state of my accounts. My returns are refreshingly boring in contrast to the US stock market: they neither rise nor fall by the day, staying at a healthy 13% or more every single day of the year.

Yesterday was Monday, and (against my better judgment) I logged into my peer to peer lending accounts to see how things were faring.

Nothing had changed. I closed my browser window and called my Mom.