Sunday, February 28, 2010

One of my Lending Club investment loans repaid in full early

One of the downsides of investing in any loan is that the borrower might decide to pay off the entire loan much earlier that the end of the term. Then you, the investor, are "stuck" with a pile of cash to reinvest. (Life can be tough sometimes.) One of my Lending Club investment loans was just repaid in full after just eight months. I will simply turn around and reinvest the money in a new investment loan, probably at a somewhat higher rate of interest. Unfortunately, the remaining principal (my slice, that is) was less than the minimum loan amount, so I must wait a week or so until I have enough interest flow in from other loans to make a minimum loan investment.

Coincidently, my Net Annualized Return dropped to 14.37%, which is not shabby, but moved in the opposite direction of my goal.

The repaid loan was at 12.21% interest. I'll target 16.5% interest for the new loan to try to boost my return closer to my 15% goal.

This is one of the annoying "housekeeping" chores of investing in loans, but I suppose I should be gratful that this surprise was "paid in full" rather than a delinquency.

-- Jack Krupansky

Thursday, February 25, 2010

Latest Lending Club investment loan fully funded and issued

Wow, that was fast. Less than twelve hours after I placed my order for a small slice of a new investment loan with Lending Club, the loan went from 74% funded to fully funded. Shortly after 6:00 a.m. I got the status email that informed me that the loan was fully funded and issued.

I am now invested in a portfolio of 31 consumer loans.

-- Jack Krupansky

Wednesday, February 24, 2010

Reinvested Lending Club cashflow in another investment loan

It has only been a few weeks since my last Lending Club investment, but already I have received enough interest and principal repayment from my portfolio of Lending Club investment loans to invest in another loan. My current Net Annualized Return is still only 14.55%, below my goal of 15%, so I picked a pre-approved loan at 16.48% that is already 74% funded with more than half of the funding period remaining. I expect that this loan is likely to reach full funding within a couple of days.

Lending Club says that the historical default rate for loans such as this one is about 3.9%, so that my expected return is about 11.83%. In truth, my goal of 15% should factor in a default rate of about 3.5% or so, giving an expected return of about 11.5%. That is still quite respectable, especially in this economic and financial environment.

I thought of holding off on this investment until I had twice as much cash flow to make a larger investment, but I decided to just get it out of the way. Since I more than doubled my portfolio a couple of weeks ago, I expect that next month I will start seeing enough cashflow to support a larger reinvestment every month or so.

Come April, I am still expecting that I will double the size of my investment portfolio again.

-- Jack Krupansky

Tuesday, February 23, 2010

Made my 2009 SEP IPA retirement contribution to Fidelity Freedom Fund 2025 (FFTWX)

Being self-employed, I set up a SEP IRA retirement account last year. My accountant is finishing up my taxes and finally gave me "the number" for my maximum SEP IRA contribution for tax year 2009. I transferred the money yesterday from my Fidelity core brokerage account and this morning placed the order to use the fresh cash to buy more of the Fidelity Freedom Fund 2025 (FFTWX) target date fund.

I am not entirely thrilled with this fund (expenses, performance, overhead, allocation, etc.), but it does meet my primary objective of being an investment that I can "fire and forget" and "leave on autopilot". It will incrementally (and automatically) shift the asset allocation from stocks to bonds and cash as I progress towards retirement age.

For now, that works fine for me. My retirement portfolio is still quite modest in size, so it simply doesn't warrant a major investment of my time to manage it at the present time. Maybe five or ten years from now (assuming I continue to get work) it will finally be a large enough "nestegg" to be worth me managing the money and asset allocation myself.

I also put money into my ROTH IRA account, also in the Fidelity Freedom Fund 2025 (FFTWX) target date fund.

I am presently 55 (almost 56) and expecting that I will need to work until I am 70 to have even a minimal "nestegg" to live on as a supplement to my Social Security income. I have a spreadsheet that tells me that I can retire in... 5,176 days (14.18082 years.) That would be in the year 2024.

-- Jack Krupansky

Monday, February 22, 2010

How is Net Annualized Return calculated for Lending Club?

Lending Club uses a rather sophisticated formula for calculating Net Annualized Return for an investor's portfolio of loans. It has some complexity to it that is not easy to explain, but the basic answer is that you need to keep reinvesting to keep your net annualized return up. Otherwise, you quickly accumulate cash that earns no interest.

Put another way, the borrower only pays interest on the principal remaining, so as the principal remaining declines over the 3-year term, the interest paid each month declines as the amount of principal repaid on the loan rises rises each month.

Basically, the Net Annualized Return calculation is based on the principal REMAINING at the start of the period (month), which excludes any principle repaid in prior months.

Another way of thinking about it is that it is the mirror image of compound interest, but in a negative direction rather than a positive direction. But it is only negative if you fail to reinvest in a timely manner. That does not mean you need to reinvest every single month, but I would advise reinvesting at least quarterly. It is mostly a matter of how much attention you want to give your account.

Another way to look at monthly principal repayment (and interest) is simply as cash flow. Sure, you can invest or reinvest that cash flow, but you may also have other uses for it such as spending it for expenses or other purchases. For example, if you are wealthy or retired, you could invest the money you need to live over the next three years and then simply "clip coupons" and live off the monthly cash flow.

Either way, Lending Club offers you flexibility with strong cash flow, either to use it as cash or reinvest for compounded returns.

-- Jack Krupansky

Just made another down payment on the public debt of the U.S. government

I just made my second monthly payment to pay down the public debt of the U.S. government. Not much, just $25, but it is a matter of principle. It may take me another 50 billion years to pay it all down all by myself at this rate, but, as I said, it is matter of principle.

What I wrote last month when I made my first donation/gift/payment:

Everybody is whining and complaining about the ballooning debt of the U.S. government, but who is actually doing anything about it? Well, for starters, ME! Yes, that's right, I, Jack Krupansky, just did something to reduce the U.S. government debt. Really. No kidding. I actually paid down a small slice of this debt. Granted, it was a rather small slice, but a slice nonetheless. Okay, sure, it was only $20, but the point is that at least I am one of the very few people willing to stand up and DO something about the problem, rather than be one of the whiners and complainers who refuse to acknowledge that it is their debt and their problem, not just the fault of mindless politicians in Washington, D.C. After all, every politician ultimately answers to voters and most of the so-called wasteful spending of the U.S. government is simply politicians responding to the demands of their consistituents (voters.) Maybe my one small contribution to paying down the debt won't really make any difference to any of those whiners and complainers, but for me it is a matter of principle. I consciously choose action rather than the inaction of the whiners and complainers.

If you have any sense of principle, you too can pay down a slice of the U.S. government debt yourself at You can pay via credit card or debit transfer from a bank account.

So do the right thing and show all those whiners and complainers (including so-called "tax protesters") how mindless and spineless they really are. PAY DOWN THE DEBT! And that has to start at the grass roots with us individuals before politicians will ever pick up the lead.

-- Jack Krupansky

Wednesday, February 17, 2010

Latest Lending Club loan payments completed in four business days

Just to confirm  something I said in my previous blog post on how long it takes for borrower payments on Lending Club loans to be credited to the investor's Lending Club account, I just checked again and my most recent two payments have completely posted as "Completed" sometime this afternoon or earlier this evening, exactly four business days after the payments were due from the borrowers -- due on the 10th, completed on the 17th, with an intervening weekend and a holiday.

My Net Annualized Return inched up to 14.49%.

-- Jack Krupansky

How long does it take for a Lending Club loan payment to get credited to my account?

Someone writes wondering how long it takes for borrower payments on Lending Club loans to be credited to the investor's Lending Club account. Short answer: four business days, and then allow another business day for the account display to update reflecting the credit.

So, for example, one of my loans had a payment due date of 2/9/2010. I see that payment today (17th) and its completion was dated yesterday (16th.) Note that Monday was a holiday. So the four business days from the due date of the 9th were the 10th, 11th, 12th, skip the weekend and Monday, and the 16th. I did not see that payment earlier yesterday (the 16th), but I probably would have seen it later in the evening on the 16th. In fact, I now see that payment in my account.

I had two other payments due on 2/10/2010. Adding four business days (and skipping the weekend and Monday holiday) puts the completion date on the 17th, which is today, with the four business days being the 11th, 12th, 16th, and 17th. Right now, the Lending Club screen still says "Processing", but sometime this evening or overnight processing will complete and tomorrow morning (18th) I will see that credt in my account and the screen will say "Completed" with today's date (17th.) There may have been a couple of times where an extra day was needed, but I have gotten into the (good) habit of not watching this stuff on a daily basis, so other than checking today to answer this question, I normally would not notice or care.

Lending Club automatically debits loan payments from the borrowers bank account using what is called an ACH debit. ACH stands for Automated Clearinghouse and is an electronic funds transfer system that permits companies to debit and credit customer bank accounts. Although electronic transactions theoretically happen virtually instantly, the ACH system is a batch system where each payment in the batch has a settlement date. ACH debits occur at 11:00 a.m. Eastern Time, and credits occur at 8:30 a.m. Eastern Time. Direct deposit of paychecks is an example of an ACH credit. Some banks may in fact process credits and debits much earlier than the 8:30 a.m. and 11:00 a.m. deadlines.

One part I am a little fuzzy on is that there is some sort of grace period during which the debited bank (known as a receiving depository financial institution or RDFI, the borrower's bank) may decide to cancel the transaction and take the debit money back from the debiting bank (the bank issuing the debit order, known as the originating depository financial institution or ODFI, Lending Club's bank.) I vaguely recall three days as the grace period, but I could be mistaken or it could have changed. Fraudulent ACH debits are a prime reason for a holding period. In short, Lending Club gets the money quickly, but they need to wait a short period to assure that the money will not be yanked back.

Although it may be tempting to assume that ACH transfers happen instantaneously or at least overnight, the biggest benefit to Lending Club investors is the certainty that payments can be debited on a reliable basis.

Note: Loan payments are credited to your Lending Club account, not you bank account. This money is then available for re-investment in new loans, or you can separately initiated a transfer to your own bank account (an ACH credit to your bank account.)

-- Jack Krupansky

All of my recent Lending Club investment loans have been issued

Two more of my recent investment loans with Lending Club reached full funding and were issued on Monday, and then overnight the remaining one of the batch of twelve was issued. All twelve have been issued. That is the best of have done since I started using Lending Club last June. Usually, there are a couple which run into some sort of trouble, such as failure to get the paperwork in order for income verification. This time, I chose only loans that had already been "Approved."

My current Net Annualized Return with Lending Club is 14.45%, but that is before the latest batch of loan notes begins to make payments. My target is to be in the 15% to 15.5% range, which is where I perceive the "sweet spot" to be between too-conservative and maybe a little too-risky. To-date, I have had zero delinquencies, zero missed payments, zero late payments.

All Lending Club loans are for three years, with thirty six monthly payments which are made automatically via ACH transfer from the borrower's bank account. These are primarily consumer loans, but some are for people starting small businesses. Personally, I stick with the pure-consumer loans - starting new businesses is a very risky proposition, more risky than justified by a 15% return, in my opinion.

I am still treating my "investment" in Lending Club loans as an experiment, and a very small experiment at that. It is a form of investing with which I have no previous experience. To-date, my experiences with Lending Club have been entirely positive, but I need to experience a longer portion of the full lending cycle, not to mention the risks inherent in this shaky economy. That said, I intend to increase the size of my experiment in the coming months. My next milestone will be the see each of the latest batch of loans make their initial payments by about a month from now. At that point I may consider doubling the size of my experiment again, depending on my own outlook for work in April.

-- Jack Krupansky

Wednesday, February 10, 2010

Two more of my recent Lending Club investment loans have been issued

In the past twenty four hours, two more of my recent investment loans with Lending Club have reached full funding and been issued. That make seven out of twelve in the batch, leaving five remaining to be fully funded. One is already at 74% funding. The rest are only at roughly 54% to 65% funding with about four to seven days left to be funded. That is actually okay and par for the course - I've gotten spoiled by the minority of loans which get funded very rapidly. After all, it has been less than a week since I placed orders for the batch. The only one I am a little worried about is at 58% with only four days left for funding, but even that one is probably okay.

All of the consumer loans in this batch have already been approved, with income verification, so that they will be issued as soon as they reach full funding (and the borrower provides a verified bank account for ACH transfers for payments.)

All Lending Club loans are for three years, with thirty six monthly payments which are made automatically via ACH transfer from the borrower's bank account.

-- Jack Krupansky

Tuesday, February 09, 2010

Three more of my recent Lending Club investment loans have been issued

In the past few days three more of my recent investment loans with Lending Club have reached full funding and been issued. That make five out of twelve in the batch, leaving seven remaining to be fully funded. One is already at 94% funding. Unfortunately, the rest are only at roughly 44% to 68% funding with about five to eight days left to be funded. That is actually okay and par for the course - I've gotten spoiled by the minority of loans which get funded very rapidly. After all, it has been less than a week since I placed orders for the batch.

All of the consumer loans in this batch have already been approved, with income verification, so that they will be issued as soon as they reach full funding (and the borrower provides a verified bank account for ACH transfers for payments.)

All Lending Club loans are for three years, with thirty six monthly payments which are made automatically via ACH transfer from the borrower's bank account.

-- Jack Krupansky

Friday, February 05, 2010

Invested in three more loans with Lending Club

I just selected three more investments in consumer loans with Lending Club to finish deploying the fresh cash that I transferred to Lending Club just under a week ago. I made nine investments yesterday, so this brings my latest batch up to an even dozen investments. The average interest rate for these three is 17.81%. That is a bit high and a little riskier, but my overall average rate will be around 15%, which is reasonably conservative.

Two of the loans I invested in yesterday have already reached 100% funding and have already been issued since they had previously been approved in terms of income verification. All of my remaining "In Funding" investments have already gotten income verification approval, so I just need to wait for the loans to reach 100% funding by investors.

-- Jack Krupansky

Thursday, February 04, 2010

Invested in another batch of loans with Lending Club

I just completed some work for a client and will be off (at their request) for the next two months before restarting work in April. But since I do in fact have a tentative commitment for work in April, I finally feel comfortable with expanding my very modest experiment with investing in consumer loans with Lending Club. Saturday I initiated a transfer of some cash from my Fidelity account to my Lending Club account. Nominally, the transfer is supposed to complete in five business days. I just got an email confirmation from Lending Club for the completion of the transfer and that the money was ready to invest. I more than doubled my previous investment balance to about 250% of the prior balance. This is still a rather modest experiment and now only barely enough to show up at the very bottom of my overall investing radar. If all goes well, in two months I'll double it again, but it would still be a very modest investment.

I also decided to double the size of my individual loan investments from $25 to $50. I almost went right for $100, but decided to continue being conservative. I could have stayed with $25 "tranches", but with the larger amount of money that would have meant a lot more loans, which means a lot more due diligence, or a lot more risk of making a bad or risky investment.

I actually only invested three-quarters of the fresh cash. That worked out to nine new loans. Honestly, I was tired after all of that intense focusing on which loans seemed attractive and which loans seemed unattractive or too risky. My target was for a 15% rate of return. I screened the available returns for that rate and after a pass through the notes I had nine hits. I could have gone with a lower rate of return and found another three loans, but I decided that there was no harm with simply waiting a couple of days and taking a crack at some fresh loans. Investment rule #1: Whenever you are reaching for higher return, try to be conservative whenever the opportunity presents itself.

One of the reasons I came up short on my target of number of loans was that I personally only consider loans that have already been fully approved with full income verification. A lot of loans are still "under review", which is not bad per se, but it runs the risk that the loan may ultimately be denied if the borrower fails to come up with the required income verification by the two-week deadline. If that happens, your investment order gets kicked out and you have to start over. By selecting only approved loans, I eliminate that uncertainty and extra work. And, it just feels better that the borrower has been so diligent with getting all of the paperwork taken care of in a prompt manner.

My new batch of loans has an average interest rate of 15.42%, which is a little higher than the current rate for my full portfolio of 14.26%. I am trying to nudge my rate up to about 15%, which seems to be about the sweet spot, balancing higher return and higher risk of default.

Some of the new loans still have another 12 days (about of 14 days) left in their funding period, so I might have to wait almost two weeks before my investment orders are fully accepted or get rejected. A bunch of them had only 7 days or less left. In any case, since they all have approval already, they will be "issued" as soon as they reach 100% funding.

I have been experimenting with Lending Club since June 2009 and have had absolutely no bad experiences. Zero defaults, zero delinquencies, zero late payments. So I am very pleased with Lending Club so far.

My next step is that sometime over the next week I need to browse through the loans again to invest the remaining 25% of my fresh cash.

-- Jack Krupansky