Beating Broke

Lending Club Returns 2014 EOY Update

January 12, 2015 By Shane Ede 20 Comments

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

When 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.

Have We Lost the Meaning of Frugality?

December 17, 2014 By MelissaB 23 Comments

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?

Now, 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?

Do You Compare Your Finances to Others?

December 8, 2014 By MelissaB 9 Comments

I belong to several Facebook groups, and recently, a woman in one group asked the seemingly innocent question, “What do you pay for cell phones and car insurance?” She added, “We pay $180 a month for our cell phones and $345 a month for our car insurance.”

Say what?

When you read that number, you automatically think one of two things–“Wow, she’s paying a fortune for cell phones and car insurance!” (that was my initial thought), or, you think, “Sounds about right.”

A few of you may even think she’s getting a good deal.

My husband and I each carry a cheap cell phone from Tracfone that is for emergencies or occasionally checking in with one another. We don’t spend any more than $10 to $20 a month on them. Our car insurance is about $55 per month. (We only have one vehicle.)

After reading how much this woman spent, I was feeling pretty good about myself. But why? I really don’t know her situation. Her cell phone plan might include cell phones for the whole family. Her car insurance is likely for multiple cars. Maybe she has teenage drivers, or maybe she or her spouse has gotten a ticket recently.

Besides, I have no idea how much money she makes. These bills might not be that extravagant in relationship to her income.

There’s really no point comparing my situation to hers. To do so would invite complacency toward my own budget at best, and a loosening of the purse strings at worst because, hey, other people are spending a lot more than me.

The Only Time You Should Compare Your Spending to Others

Generally, I try not to compare my spending or budget to others. Circumstances vary widely, and knowing another person’s exact financial situation is difficult. Too often, especially online, we get a snapshot of someone’s finances and think we see the whole picture when we don’t.

We make assumptions of our own financial situations based on others.

Ultimately, we need to strive to do the best we can do with our own budgets. To beat ourselves by spending less and/or saving more than we did the month before or the year before.

The only time it makes sense to look at someone else’s finances and spending is when they are doing considerably better than you, and you want to learn from and emulate them. For instance, I knew my husband and I were spending too much for groceries. One blogger I read has grown a large garden and planted fruit trees so that she can feed her family of 9 for less than $300 per month. (Yes, you read that right.)

I know I won’t ever have a grocery budget of $300 per month, but reading her techniques and strategies has encouraged me to cut my grocery budget and try to spend less. It’s even inspired me to try out once a month shopping to reduce costs.

Ultimately, we shouldn’t compare our finances to others, but if we’re going to, we should only compare to those we wish to emulate.

Do you look at other people’s spending to make you feel better about your own or to motivate you to improve your finances?