Saturday, January 03, 2015

My Lending Club return for 2014 was 11.69%

I have been investing in Lending Club (LC) loans since May 2009. Lending Club reports that my Net Annualized Return is 9.40%. My manually calculated total return for 2014 is 11.69%. I had 3 loans default and charged off in 2014, compared to 7 in 2013 and 12 in 2012.

I enter the new year with 137 loans that are current and only 3 loans that look likely to default. That's a very solid start.

I only invest in 3-year loans - 5-year loans feel too risky for me, with a credible chance that two recession-like episodes might be encountered in that more extended period. I also only invest is loans with a credit score of at least 700, or maybe 695 on rare occasion. I don't invest in small business loans due to their high risk. I invest in all geographic areas of the country and all types of employment. I don't discriminate on loan purpose - most loans are for credit consolidation.

Interest rates for my loans are now typically in the 10% to 13% range. In the old days I was shooting for 15% to 20% with low-end credit scores of 660, but the number of defaults kind of spooked me. I invest with much more confidence now.

Overall I am reasonably happy with my returns. 2011 and 2012 were a bit dicey with actual returns of only 4.43% and 6.04% due to a lot of defaults as employment was still going through a significant adjustment phase during that stage of the economic recovery after the financial crisis of 2008. And I had a lot of loans with relatively low credit scores (660) as well.

My only hesitancy now is that although the near-term economic outlook looks bright for the next year or two, beyond that there is a significant chance that we'll hit a recession, which could put a damper on my returns. Still, I'm happy with my loan portfolio as it is. And I do reinvest 100% of my loan payments.

I still manually select loans, but I am considering the automated plan.

If you hate big banks, this is the best way to fight them - by stealing away their most profitable business of consumer loans and credit card balances.

A Lending Cub loan portfolio could be a great tool for funding your 3-5 year retirement income needs since the loans are both earning interest and kicking off a significant amount of cash flow with principal return. Fund the loans in fat years when other retirement assets are doing well. Or in times like now when interest rates on CDs are so low.

The stock is bouncing around - much as the entire market is - and will be volatile for the next year and a half, but I have great confidence that it will be a real financial powerhouse in the years to come. I'll be buying more next week.

-- Jack Krupansky

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