Archives for December 2012

As the last part of my ongoing Beat The Market Experiment, here’s the December 2012 update for my consumer loan portfolio. See also my $10,000 Benchmark and $10,000 Play portfolio updates for December 2012.

On 11/1/12, I deposited $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest. Here’s how I’m doing it:

1. 8-10% target return, net of defaults and fees. Each site provides an estimated return based on the interest rate and expected delinquency rate, but I am also using specific filters to try and maximize my return. Overall, I would say my risk profile is moderate/conservative. If I can get an 8% net return over the next 3+ years in the current interest rate environment, I’ll view the portfolio as a success.
2. Minimal time commitment. I’ve done the manual loan-picking thing, and I’m over it. 400 loans at $25 a pop would take forever. Both sites allow you to save customized loan filters and use an automated investment algorithm to pick a portfolio for you.
3. Loan Filters. I’m constantly tinkering with the loan filters, but you can get a good idea of what I am using by reading this best Prosper filters post and this older LendingClub filter post. Nothing too fancy, just some broad filters based on historical inefficiencies that may or may not persist.
4. Loan term lengths and reinvested interest. I thought about only buying loans with 3-year terms in order to have a clean ending timeframe to this experiment, but in reality that would leave a lot of cash at the end as many people pay off their loans early. Also, higher rates are found in 5-year loans. Given the ample liquidity I found in secondary market, if I wanted to end the experiment I could just sell all my loans and cash out. (In October, I sold all of my existing loans on the secondary Folio market in a matter of days, quite easy as long as you’re willing to sell at a discount.) This way I will reinvest any additional cash into new loans maximize return.

LendingClub Details
Below is a screenshot of my LendingClub account as of 12/3/12:
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As part of my Beat the Market Experiment, I started three portfolios on November 1st, 2012:

1. $10,000 “Good Boy” Passive ETF Benchmark Portfolio that would serve as both a performance benchmark and an example portfolio that would be easy to build and maintain for DIY investors.
2. $10,000 “Bad Boy” Beat-the-Benchmark Portfolio that would simply represent the attempts of an “average guy” who is not a financial professional and gets his news from mainstream sources to get the best overall returns possible.
3. $10,000 Consumer Loan Portfolio – Split evenly between LendingClub and Prosper, this portfolio of peer-to-peer loans will have a target return of 8-10% net with the goal of beating the Benchmark portfolio over the long run.

This is the monthly update for $10,000 Play Portfolio as of December 1, 2012. I have to admit upfront that I haven’t devoted much time into this portfolio. I am no wannabe-Warren Buffett, as he would read the financial statements and 10-Ks of any company before buying in. Still, I am serious about trying to beat the market, as this is my own hard-earned money I’m using. I am using a TradeKing account for this portfolio, and here is a screenshot as of close 11/30:

(click to enlarge)

Here’s a pie chart of my holdings:

Details below:

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As part of my Beat the Market Experiment, I started three portfolios on November 1st, 2012:

1. $10,000 “Good Boy” Passive ETF Benchmark Portfolio that would serve as both a performance benchmark and an example portfolio that would be easy to build and maintain for DIY investors.
2. $10,000 “Bad Boy” Beat-the-Benchmark Portfolio that would simply represent the attempts of an “average guy” who is not a financial professional and gets his news from mainstream sources to get the best overall returns possible.
3. $10,000 Consumer Loan Portfolio – Split evenly between LendingClub and Prosper, this portfolio of peer-to-peer loans will have a target return of 8-10% net with the goal of beating the Benchmark portfolio over the long run.

This is the monthly update for the $10,000 Benchmark Portfolio as of December 1, 2012. I opened an account at TD Ameritrade due to their 100 commission-free ETF program, including the best low-cost, index ETFs from Vanguard and iShares. I funded it with $10,000 and bought all the ETFs required to be fully invested on 11/1/12. Due to simplicity and small portfolio size, I am going with 100% stocks and no bonds. My target asset allocation is below.

Here are the ETF components that represent each asset class:

Here are my holdings and their market value as of the end of day 11/30/12 (full screenshot):

Here’s the asset allocation:

Total value of stocks: $9,982.21
Cash balance: $24.18
Total portfolio value: $10,006.39

Not too much to talk about this month, I bought everything in a matter of minutes with no commissions at all, and a month into the experiment our total return to date is a snoozefest 0.06%. The Play Portfolio update will be up tomorrow.

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Here is my monthly update of the trailing total returns for the major asset classes that I find useful. I am using passive ETFs to track asset classes, as they represent actual investments that anyone can buy and sell. Return data was taken after market close at the end of November 2012.

Here is a chart of the 1-year trailing returns for the major asset classes above, which I use to help decide where to invest new funds and for rebalancing. Note that I do not necessarily invest in all the listed asset classes, see my personal portfolio for details.

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