Prosper vs. LendingClub Investor Experiment: 2 Year Update

1410_prosperlc

lcvspr_clipoIn November 2012, I invested $10,000 into person-to-person loans split evenly between Prosper Lending and Lending Club, looking for high returns from a new asset class. After diligently reinvesting my earned interest into new loans, I stopped my after one year (see previous updates here) and started just collecting the interest and waiting see how my final numbers would turn out at the end of the 3-year terms.

It is now about a week shy of the two year anniversary of this experiment, so here’s another quick update.

$5,000 LendingClub Portfolio. As of October 20, 2014, the LendingClub portfolio has 157 current and active loans. 71 loans were paid off early and 21 have been charged-off ($314 in principal). 3 loans are between 1-30 days late. 5 loans are between 31-120 days late, which I will assume to be unrecoverable. $3,515 in uninvested cash from early payments and interest. Total adjusted balance is $5,392. LendingClub reports my adjusted net annualized return as 5.27%. Here is a screenshot of my account.

1410_lc

$5,000 Prosper Portfolio. My Prosper portfolio now has 142 current and active loans, 85 loans paid off early, 31 charged-off. 6 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am also going to write off completely (~$66). $3,024 in uninvested cash (early payments and interest). Total adjusted balance is $5,334. Prosper reports my net annualized return as 5.56%. Here is a screenshot of my account.

1410_prosper

Recap and Thoughts

  • P2P lending is legit. LendingClub is preparing for an IPO on the NYSE. Institutional investors are buying a significant portion of LendingClub and Prosper loans. This WSJ article says 66% of Prosper loans in 2014 have been sold to institutional investors. What started out as the Wild West of unsecured loans is now accepted by Wall Street. This would suggest that reliable positive returns for investors are more likely, but also that chances for outsized returns will be diminished.
  • If you continually reinvest your interest, the return numbers you see will be higher than your actual long-term returns. Due to how they are calculated, your reported return will deteriorate as your loans age and more borrowers default. After two years, Prosper reports my annualized return as 5.56%. 4 months ago, it was 5.76%. 8 months ago, it was 7.55%. LendingClub reports my annualized return after 2 years as 5.27%. 4 months ago, it was 5.94%. This doesn’t mean you shouldn’t invest and your returns may better than mine, but be aware of this pattern if most of your loans are new.
  • If I were to invest all over again… First, I would do it within an IRA to avoid tax headaches. I would also buy at least 100 loans x $25, which also happens to be the $2,500 minimum for free automated investments at LendingClub (no minimum at Prosper). Picking loans can be fun for some but I got bored after a while.
  • LendingClub vs. Prosper relative performance. I tried my best to invest at both websites with the same criteria and overall risk preference. Right now, LendingClub is ahead by a bit. I wouldn’t put too much importance on the absolute numbers as I stopped reinvesting into new loans (at both sites) after the first year. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances separately over these past two years:
    1410_prosperlc

Prosper vs. LendingClub Investor Returns 19.5 Month Update

1406_lc

lcvspr_clipoIn November 2012, I invested $10,000 into person-to-person loans split evenly between Prosper Lending and Lending Club, looking for high returns from a new asset class. After diligently reinvesting my earned interest into new loans, I stopped my after one year (see updates here and here) and started just collecting the interest and waiting see how my final numbers would turn out at the end of the 3-year terms.

My last update was 4 months ago, so here’s what things look like after 19.5 months.

$5,000 LendingClub Portfolio. As of June 15, 2014, the LendingClub portfolio had 180 current and active loans. 51 loans were paid off early and 15 have been charged-off ($314 in principal). 6 loans are between 1-30 days late. 5 loans are between 31-120 days late, which I will assume to be unrecoverable. $2,679 in uninvested cash (early payments and interest). Total adjusted balance is $5,368.

1406_lc

$5,000 Prosper Portfolio. My Prosper portfolio now has 157 current and active loans, 78 loans paid off early, 23 charged-off. 6 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am also going to write off completely (~$89). $2,434 in uninvested cash (early payments and interest). Total adjusted balance is $5,322.

1406_prosper

Recap and Thoughts

  • The fact that institutional investors are buying a significant portion of Prosper and LendingClub loan inventory would seem to prove that the concept is successful. If I were to invest all over again, I would do it within an IRA to avoid tax headaches. I would also buy at least 100 loans x $25, which also happens to be the $2,500 minimum for free auto-investment at LendingClub (no minimum at Prosper). But simply put, I am not in love with P2P loans enough to allocate my precious IRA space to them.
  • My total adjusted balance is $10,690, which actually shows a slight recovery from my last update in which my total balances were actually dropping. At least I’m still headed to a final balance higher than a savings account. My idle cash is starting to pile up though, so I will take $2,500 out of each account soon and put it elsewhere.
  • Prosper says my annualized returns are actually 5.76%. But just 4 months ago, they said I was earning 7.55%. The lesson here is that your returns will continue to vary and likely deteriorate as your loans age, so don’t assume your returns will always stay the same as they are in the beginning (your returns will look good for a long time if you keep reinvesting into new loans). LendingClub says my annualized returns are now 5.94% (5.24% if you assume all loans 30+ days late will be total losses). Not awful return numbers so far in this low-interest rate environment, but less than I would have hoped for.
  • Prosper is still doing worse relatively than LendingClub. This could change again in the future. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances over these past 15.5 months:
    1406_prvslc

Prosper vs. LendingClub Investor Experiment: 15.5 Month Update

1402_prosper700

After posting the 1-year update (Part 1, Part 2) of my Beat-The-Market experiment back on November, I got bored. I had started with $10,000 split evenly between Prosper Lending and Lending Club, but although this alternative asset class had potential, I just didn’t find it reliable enough for me to invest significant funds in it.

I didn’t sell off my existing loans, but I stopped reinvesting in new ones. I hadn’t logged into either account for months, but this week I wanted to download my tax documents. So, I figured another update was in order, 3.5 months later.

$5,000 LendingClub Portfolio. As of February 19th, 2014, the LendingClub portfolio had 199 current and active loans, 36 loans that were paid off early, and none in funding. 6 loans are between 1-30 days late. 8 loans are between 31-120 days late, which I will assume to be unrecoverable. 7 loans have been charged off ($152 in principal). $1,814 in uninvested cash. Total adjusted balance is $5,305. This is only $1 higher than 3.5 months ago.

1402_lc700

$5,000 Prosper Portfolio. My Prosper portfolio now has 185 current and active loans, 56 loans that were paid off early or payoff in progress, and none in funding. 4 loans are between 1-30 days late. 10 are over 30 days late, which to be conservative I am also going to write off completely (~$183 in remaining principal). 14 have been charged-off ($302 in principal). $1,619 in uninvested cash. Total adjusted balance is $5,255. This is $45 less than 3.5 months ago.

1402_prosper700

What has happened since my last check-in on November 1st?

  1. My total adjusted balance is $10,560, which is a $44 drop over the last 3.5 months. Even with the increase in idle cash, my total balances should still be inching up, not down. It appears that an increasing number of late and defaulting loans are starting to catch up to me.
  2. My idle cash balance across both accounts has increased by $1,527 in just 3.5 months, indicating an increasing number of early loan payoffs and thus fewer people paying me 10% interest rates.
  3. Prosper is currently doing worse relatively than LendingClub. This could change again in the future. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances over these past 15.5 months:
    1402_pr_lc

I suppose that I’ll hang onto these loans and see how the rest unfolds. I know that other people report 10%+ annual returns on Prosper and Lending Club and may be better loan pickers than me, but I still be wary setting such high expectations for the average P2P investor. I’m still in the black and doing okay, but I wouldn’t count your chickens until the loans get a bit more mature.

$30,000 Beat-the-Benchmark Experiment – One Year Update, Prosper and LendingClub

1311_prosper_full

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.


(click to enlarge)

[Read more...]

$30,000 Beat-the-Benchmark Experiment – One Year Update, Part 1

1311_tk_full

It’s finally been a full year since starting my Beat the Market Experiment, a series of three portfolios started on November 1st, 2012:

  1. $10,000 Passive Benchmark Portfolio that would serve as both a performance benchmark and an real-world, low-cost portfolio that would be easy to replicate and maintain for DIY investors.
  2. $10,000 Beat-the-Benchmark Speculative 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 P2P Consumer Lending Speculative Portfolio – Split evenly between LendingClub and Prosper, this portfolio is designed to test out the alternative investment class of person-to-person loans. The goal is again to beat the benchmark by setting a target return of 8-10% net of defaults.

I’m splitting this summary up: Part 1 will focus on the Benchmark vs. Beat-the-Benchmark results. Part 2 will include the P2P lending performance. Values given are as of November 1, 2013.

$10,000 Benchmark Portfolio. I initially put $10,000 into index funds at TD Ameritrade due to their 100 commission-free ETF program that includes free trades on the most popular low-cost, index ETFs from Vanguard and iShares. With no minimum balance requirement, no maintenance fees, and no annual fees, I haven’t paid a single fee yet on this account. The portfolio used an asset allocation model based on a David Swensen model portfolio, which I bought and held through the entire yearlong period.

The total portfolio value after one year was $12,095, up 21%. Here’s how each separate asset class fared from November 1st, 2012 to November 1st, 2013 (excluding dividends):

  • Total US Stocks +$986 (+25%)
  • Total International Stocks +$588 (+15%)
  • US Small Cap Stocks +$150 (+30%)
  • Emerging Markets Stocks -$3 (-1%)
  • US REIT +$72 (+7%)

Screenshot of holdings below:

[Read more...]

$30,000 Beat-the-Benchmark Experiment Update – October 2013

1310_prosper_small

Here’s the October 2013 update for my Beat the Market Experiment, a series of three portfolios started on November 1st, 2012:

  1. $10,000 Passive Benchmark Portfolio that would serve as both a performance benchmark and an real-world, low-cost portfolio that would be easy to replicate and maintain for DIY investors.
  2. $10,000 Beat-the-Benchmark Speculative 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 P2P Consumer Lending Speculative Portfolio – Split evenly between LendingClub and Prosper, this portfolio is designed to test out the alternative investment class of person-to-person loans. The goal is again to beat the benchmark by setting a target return of 8-10% net of defaults.

As requested, I updated the scale to zoom in on the comparison chart.

Summary. 11 months into this experiment, the Benchmark and Speculative portfolios are both up between 15-20%. The Speculative portfolio is actually winning now ($12,071 vs. $11,723). I sold all my AAPL shares in September. Both P2P portfolios continue to earn interest and are still on pace for an 8%+ annual return, but the growth rate has slowed lately as late loans have been taking a toll. Values given are after market close October 1, 2013.

$10,000 Benchmark Portfolio. I put $10,000 into index funds at TD Ameritrade due to their 100 commission-free ETF program that includes free trades on the most popular low-cost, index ETFs from Vanguard and iShares. With no minimum balance requirement, no maintenance fees, and no annual fees, I haven’t paid a single fee yet on this account. The portfolio was based loosely on a David Swensen model portfolio with a buy-hold-rebalance philosophy. Portfolio value is $11,723. Screenshot of holdings below:

[Read more...]

$30,000 Beat-the-Benchmark Experiment Update – September 2013

1309_btm1

Here’s the September 2013 update for my Beat the Market Experiment, a series of three portfolios started on November 1st, 2012:

  1. $10,000 Passive Benchmark Portfolio that would serve as both a performance benchmark and an real-world, low-cost portfolio that would be easy to replicate and maintain for DIY investors.
  2. $10,000 Beat-the-Benchmark Speculative 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 P2P Consumer Lending Speculative Portfolio – Split evenly between LendingClub and Prosper, this portfolio is designed to test out the alternative investment class of person-to-person loans. The goal is again to beat the benchmark by setting a target return of 8-10% net of defaults.

As requested, I updated the scale to zoom in on the comparison chart.

Summary. 10 months into this experiment, the Benchmark and Speculative portfolios have suddenly pulled neck-and-neck, with less than $25 separating them ($11,060 vs $11,083). Both US and Emerging Markets stock indexes have dropped recently, while my Apple shares have risen in anticipation of new product launches before the holiday season. Both P2P portfolios are still paying out competitive interest although late loans continue to pop up. Values given are as of September 1, 2013.

$10,000 Benchmark Portfolio. I put $10,000 into index funds at TD Ameritrade due to their 100 commission-free ETF program that includes free trades on the most popular low-cost, index ETFs from Vanguard and iShares. With no minimum balance requirement, no maintenance fees, and no annual fees, I haven’t paid a single fee yet on this account. The portfolio was based loosely on a David Swensen model portfolio. Portfolio value is $11,060. Screenshot of holdings below:

[Read more...]

LendingClub vs. Prosper Loan Performance Comparison, 9-Month Update

prosperlate

I invested $10,000 into person-to-person loans in November 2012, split evenly between LendingClub and Prosper. It’s been a little over 9 months since then, so I wanted to give a detailed update in addition to my brief monthly updates. The primary goal of this portfolio is to earn a target return of 8-10% net of defaults, but I also wanted to see if there were significant differences between the two competitors Prosper and LendingClub.

I’m also considering liquidating both portfolios after 12 months have passed. I’m getting a little bored with the experiment, and having to sell the loans would also allow me to compare the ease of selling either company’s loans on the secondary market.

Portfolio Credit Quality Comparison

I wanted to keep these portfolios comparable in terms of risk level, while still trying to maximize overall return net of defaults. Peter Renton of LendAcademy made this helpful chart comparing estimated defaults rates with their respective credit grades. Since each company has their own proprietary credit grading formula, they don’t match up perfectly.

Here’s my portfolio breakdown:

[Read more...]

$30,000 Beat-the-Benchmark Experiment Update – August 2013

1308_tk_full

Here’s the August 2013 update for my Beat the Market Experiment, a series of three portfolios started on November 1st, 2012:

  1. $10,000 Passive Benchmark Portfolio that would serve as both a performance benchmark and an real-world, low-cost portfolio that would be easy to replicate and maintain for DIY investors.
  2. $10,000 Beat-the-Benchmark Speculative 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 P2P Consumer Lending Speculative Portfolio – Split evenly between LendingClub and Prosper, this portfolio is designed to test out the alternative investment class of person-to-person loans. The goal is again to beat the benchmark by setting a target return of 8-10% net of defaults.

As requested, I updated the scale to zoom in on the comparison chart. You can view it the old way here.

Summary. Values are as of August 1, 2013. 9 months into this experiment, the passive benchmark portfolio remains the leader and if anything is widening the gap. My neglected speculative portfolio has been more volatile and also consistently behind the benchmark in this bull market. As for the P2P portfolio, it is starting to look like LendingClub may perform better than Prosper. Although my Prosper portfolio is earning slightly higher average interest, it also has significantly more late loans which has more than offset the higher interest. I’m slightly above 8% annualized return for LendingClub currently using my metrics, slightly below 7% for Prosper.

$10,000 Benchmark Portfolio. I put $10,000 into index funds at TD Ameritrade due to their 100 commission-free ETF program that includes free trades on the most popular low-cost, index ETFs from Vanguard and iShares. Also no minimum balance requirement, no maintenance fees, no annual fees. The portfolio was based loosely on a David Swensen model portfolio. Screenshot, click to enlarge:

[Read more...]

$30,000 Beat-the-Benchmark Experiment Update – July 2013

1307_lc_small3

Here’s the July 2013 update for my Beat the Market Experiment, a series of three portfolios started on November 1st, 2012:

  1. $10,000 Passive Benchmark Portfolio that would serve as both a performance benchmark and an real-world, low-cost portfolio that would be easy to replicate and maintain for DIY investors.
  2. $10,000 Beat-the-Benchmark Speculative 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 P2P Consumer Lending Speculative Portfolio – Split evenly between LendingClub and Prosper, this portfolio is designed to test out the alternative investment class of person-to-person loans. The goal is again to beat the benchmark by setting a target return of 8-10% net of defaults.
1307_btmsummary

Summary. Values are as of July 1, 2013. 8 months into this experiment, the passive benchmark portfolio remains the leader despite a slight drop this month. The speculative portfolio has definitely been more volatile and is back to lagging again. As for the P2P portfolio, it is starting to look like LendingClub may perform better than Prosper. Prosper simply has more late loans in the pipeline, although I’m still hopeful for solid overall returns.

$10,000 Benchmark Portfolio. I put $10,000 into index funds at TD Ameritrade due to their 100 commission-free ETF program that includes free trades on the most popular low-cost, index ETFs from Vanguard and iShares. The portfolio was based loosely on a David Swensen model portfolio. Screenshot, click to enlarge:

[Read more...]

Investment Returns By Asset Class: Mid-2013 Update

assetreturns1306

We’ve reach the midway point of 2013, and here are the returns of the major asset classes as benchmarked by passive mutual funds and ETFs. Return data was taken after market close at the end of June 2013. I’m still tweaking the format, in the hopes of making it easier to understand. Below is a chart of the all the trailing total returns for year-to-date, trailing 1-year, and trailing 10-year periods.

Market Commentary

The big news recently is the Fed talking about possibly tapering off its quantitative easing. Since that drove interest rates up, bond prices fell. I think this was a good reminder that we are in abnormal times, with the super-low interest rates being artificially depressed and that one day we will revert back to the mean. Even though my bond holdings fell as well, I’m fine with that if that’s a result of a healthy stock market and it means higher interest rate payouts in the future.

Stocks prices have pulled back a bit recently, but are still well above levels from a year ago. If you bought and held since 2009, you’re still happy. Gold has dropped nearly 30% since the beginning of the year. I just don’t understand gold prices, which is why I don’t own it. I can see a place for it as a diversifier, but it just seems too volatile and speculative to be considered “real money”.

The details:

[Read more...]

$30,000 Beat-the-Benchmark Experiment Update – June 2013

1306_lc_full

Here’s a condensed June 2013 update for my Beat the Market Experiment, a series of three portfolios started on November 1st, 2012:

  1. $10,000 Passive Benchmark Portfolio that would serve as both a performance benchmark and an real-world, low-cost portfolio that would be easy to replicate and maintain for DIY investors.
  2. $10,000 Beat-the-Benchmark Speculative 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 P2P Consumer Lending Speculative Portfolio – Split evenly between LendingClub and Prosper, this portfolio is designed to test out the alternative investment class of person-to-person loans. The goal is again to beat the benchmark by setting a target return of 8-10% net of defaults.
1306_btmsummary

Summary. Values are as of June 1, 2013. 7 months into this experiment, the passive benchmark portfolio remains the leader although last month it was pretty flat. The speculative portfolio is bouncing back quite nicely, almost matching the benchmark portfolio. The P2P lending portfolio is still rather young, but I’m satisfied with the current trend of having 5 out of 450+ loans that are over 30 days late.

$10,000 Benchmark Portfolio. I put $10,000 into index funds at TD Ameritrade due to their 100 commission-free ETF program that includes free trades on the best low-cost, index ETFs from Vanguard and iShares. The portfolio was based loosely on a David Swensen model portfolio. Screenshot, click to enlarge:

[Read more...]