After posting Part 1 yesterday, here is Part 2 of my Beat-The-Market experiment one-year update. In order to test out P2P lending, I started with $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest with an 8% target net return.
I tried to keep these portfolios comparable in terms of risk level, while still trying to maximize overall return net of defaults. I reinvested any new money from interest and early loan payoffs regularly for the first several months, but recently I stopped reinvesting my money as aggressively as I was thinking about selling everything (also LendingClub inventory was a little sparse at times). I ended up with $1,044 of idle cash at LendingClub and $862 at Prosper. More on that later.
$5,000 LendingClub Portfolio. As of November 1st, 2013, the LendingClub portfolio had 218 current and active loans, 28 loans that were paid off early, and none in funding. Two loans are between 1-30 days late. 6 loans ($126) are between 31-120 days late, which I will assume to be unrecoverable. Three loans have been charged off ($69, two A-rated and one C-rated). $1,044 in uninvested cash. Total adjusted for late loans is $5,304.
$5,000 Prosper Portfolio. My Prosper portfolio now has 209 current and active loans, 40 loans that were paid off early or payoff in progress, and none in funding. 7 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am going to write off completely (~$127 in remaining principal). 8 have been charged-off ($186, 4 A-rated, 4 C-rated). $862 in uninvested cash. Total adjusted for late loans is $5,300.
Which one is better? Both my LendingClub and Prosper portfolio ended with essentially the same balance of $5,300. That works out to an annual return of 6% for both, net of fees and assuming all currently late loans will be charged-off. Overall, Prosper paid slightly higher interest rates but also had slightly more defaults. My loan selection filters were on the conservative side, which may have been a mistake. Most of my defaults have been from A-rated loans! I would say that my lack of timely reinvestment also lowered my potential returns by roughly 1%. Here’s a chart tracking the LendingClub and Prosper adjusted balances over these past 12 months:
I’m still undecided as to what to do next. Now that I’ve held them for a year, I could try and liquidate all my loans this month and see what my final “market” price would be. But if I held longer and started reinvesting again, perhaps more interesting wrinkles would appear and I could make some stronger conclusions. That would also mean another year of dealing with the minor-but-present tax return hassles.