Beating Broke

Personal Finance from the Broke Perspective

Lending Club Returns 2014 EOY Update

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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.

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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 Find the Best Financial Planner for You

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My husband and I were on the hunt for a financial planner for years.  We started out using one at our local credit union, but that one seemed to talk (and talk, and talk) more than he liked to invest.  Every time we saw him, the visit would last well over an hour as he chatted about everything under the sun, except investing.  When our investments with him remained stagnant over a two year period, we decided to move on.

Over several years, we interviewed several different financial planners and received either terrible advice (like investing all of our rollover retirement money in an annuity despite our relative youth) or didn’t feel comfortable with the planner.  Finally, last summer, we found a financial planner who gave his advice based on our unique situation and the goals that we have.  All our hard work searching for a planner finally paid off!

If you’re searching for a good financial planner, here are some things you might want to ask yourself:

Best financial plannerDoes the planner come recommended? Stumbling upon a good financial advisor independently may be possible, but our planner came highly recommended from several people in our neighborhood.  In fact, one had been working with him for over 10 years!

Does the planner give advice based on your own financial situation? Some planners have stock and trade investment advice that they never deviate from regardless of your situation.  (Think of how Dave Ramsey always gives the same advice regardless of the caller’s unique situation.)

Ironically, one thing that made us go with our current financial advisor is that he disregarded the traditional advice that one should NEVER take money out of a retirement account to pay off debt.  Because we couldn’t seem to get out from under our debt no matter how gazelle intense we were, our advisor recommended that we pull out enough to pay off the debt in full.

Doing so was scary, but he was right–the tax implications were not as terrible as we had thought and being free of that debt gave us energy and confidence to achieve our financial goals including adding to our retirement every month and creating a good size emergency fund.

Is the financial advisor a teacher? Of course, I don’t mean teacher in the traditional sense, but does he take the time to explain why he is recommending specific actions?  Does he want you to understand basic investments so you feel more comfortable with his advice?

Our first planner never did this, and we were quite clueless about why he made the financial investments he did.  Our current planner will take the time to explain, and if necessary, explain again until we understand why he is suggesting the investments he is suggesting.

What are the planner’s credentials? Every planner should have some initials after his or her name.  Look these up on the web to see what obtaining them entails.  CNN Money suggests, “The ones you want to look for are the ones that take a significant amount of time and expertise to master before the designation is awarded.  These include the CFP (certified financial planner), the PFS (personal financial specialist) and the CFA (chartered financial analyst).”

How is the planner paid? There are several ways planners can be paid, but in general, be cautious with those who are paid on commission based on what products they sell to you.  While there are honest planners paid on commission that care about you and your interests, many are interested in selling the product with the fattest commission regardless of whether that product benefits you or not.

Do you use a financial planner?  If so, what criteria did you use to find the planner?

Lending Club Returns Update 4Q13

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Another quarter has come and gone, so it’s time for an update on the Lending Club returns I’ve been getting on my account.  At the end of the third quarter, my account was sitting at a return rate of 14.69%.  It’s actually improved a bit since then, but Lending Club has also added the ability to adjust the displayed NAR, which does some funny stuff (see below) and reduces the rate a bit.  I think that’s a good thing (again, see below) and that’s the rate I’ll likely be using for future updates.

Lending Club Adjusted NAR

A few months back, Lending Club introduced what they’re calling an adjusted NAR.  Basically, it uses the historical charge off rates of loans at the different stages of delinquency.  Obviously, the current loans have a historical rate of charge off of 0%.  Once they go into the Grace Period, about 23%, 16-30 days late, about 49%, 31-120 days late, about 72%, and in full default, about 86%.Beating Broke Lending Club Update

As an example, my portfolio currently has two notes that are in the 31-120 days late category.  So, when Lending Club is adjusting my NAR, they use the 72% figure and assume that 72% of the principle will be lost.  Using that number, they then calculate the new, adjusted NAR.  With the two notes late, my adjusted NAR is currently showing as 13.16%.  Still a very healthy number, and likely a more realistic number.  I like the new adjustment, as it should give investors a more realistic number to look at.

Lending Club Defaults and Late Notes

As I mentioned above, my portfolio currently has two notes that are 31-120 days delinquent.  And, if you go by the historical numbers, those two notes have about a 72% chance of eventually going into collections.  I’ve been lucky enough to only have had one note actually go that far to date, and the collection agency was able to get a bit of that money back for me.  It wasn’t the entire amount owed, but a significant portion of the principle, which I was happy for.  I could try and sell off the two delinquent notes, but at this point, I wouldn’t get much out of them, so I think I’ll just ride them out and see what happens.  The total principle involved is only about $35, so it would mean about a month and a half of lost interest payments.  That’s a risk I’m willing to take.

The Future of My Portfolio

With the rates I’m getting, I don’t foresee stopping my investing through Lending Club.  I may even start putting some more money into the account sometime in the future.  At the moment, I’m content to just leave it and reinvest the payments each month.  I’ve seen a few other investors that have either significantly changed how they’re using Lending Club, or have begun backing out of it altogether.  I think it’s something that you need to be able to change how you do it, but I also believe that backing out altogether is a mistake at this point.  The technology is still relatively new, and many of the changes that we’re seeing Lending Club make have been for the better.

I’ve created a page that consolidates all of the posts I’ve done on Lending Club, as well as the quarterly updates since I began doing them.  If you’re interested in starting to invest in Lending Club, you can read more on my Lending Club page, or you can sign up for an account and give it a go.