Wednesday, May 26, 2010

Reinvested my Lending Club cash flow in a new investment loan at 18.67%

Cash flow from my portfolio of Lending Club investment loans ("notes") over the past two weeks has given me enough cash to invest in yet another consumer loan. My current Net Annualized Return is now at 15.57%, which is finally above my goal of 15.5%, but only by a little, so on Monday afternoon I picked a pre-approved loan at 18.67% that was already 68% funded but with only 22 hours left in the two-week funding period. I was concerned that it might not get fully funded in less than a day, but by Tuesday morning I got the email message from Lending Club confirming that it had in fact gotten fully funded and was issued.

The loan grade for this loan is F2 (on an "A" to "G" scale), which is moderately risky. Lending club turns down 90% of loan applications, which eliminates all of the truly risky loans, so even a "risky" Lending Club loan is not necessarily all that risky. Lending Club says that the historical default rate for loans such as this one is about 6.56%, so that my projected return is about 11.39%. That includes Lending Club taking 0.72% as a servicing fee. My goal of 15.5% should factor in a default rate of about 3.5% or so, giving an expected return of about 12%. That is still quite respectable, especially in this economic and financial environment.

My Net Annualized Return of 15.57% puts me at the 91% percentile, so only 9% of Lending Club investors are earning more than me. I'd like to get that to 95%.

My goal is really a 15% return, but I figure I need a little buffer so that repayments (and maybe even defaults) don't push me below my goal too frequently. I may in fact keep pushing upwards with loans in the 16% to 18% range until I get my return up to 16% and then gradually work the average back to 15.5%.

So far, my Lending Club portfolio has been perfect, with no delinquencies or even late payments. I started investing with Lending Club back in June 2009.

This is still just an experiment for me since I have no prior experience with this type of investment, but so far in has been very encouraging. I intend to double the size of the experiment in July (assuming my work income continues.) I was going to try to double it in June, but I just ordered a new notebook computer (and am currently getting all of my work moved over to it.)

-- Jack Krupansky


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