I like the potential of investing with Lending Club, even though it means I will take a bigger risk.
It has been a long time since I last shared my Lending Club portfolio, though I have been buying notes all the time, so I think it’s due for an update.
I mentioned a few days ago that my investment experience with Lending Club has been a mixed one so far. On one hand, I could get a return that beats any savings account that I own (and that’s the reason why I use Lending Club as an alternative investment); while on the other, a few defaults/charge-offs could ruin the entire investment portfolio. Even though I have been careful in selecting which loans to fund in order to reduce the risk, bad things still happened, especially since the summer when I had the first late payment. Now it seems that the pace is kind of accelerating.
As of today, I have a total of $3,203 invested in 135 loans. Of the 135 notes:
128 are current;
1 is 16 to 30 days late;
2 are more than 31 days late;
2 are charged off;
2 is fully paid.
I first noticed those two now charged-off loans (they are from the same borrower) in August when they were 30+ days late in making loan payments. Though I can see from the loan activity history that Lending Club was very aggressive in contacting the borrower in attempt to recover investors’ money, there wasn’t much luck and the loan was declared as charge-off in November, six months after the borrower fist failed to make payments, and no money was recovered. Despite the charge-off status of the loan, LC was still in contact with the borrower through an external collection agency (the last contact was reported on December 9th), but I pretty much give up any hope that I can get my money back, even partially.
It was August when I started to make some adjustments on how I invest in Lending Club loans. First, I cleaned up my existing investments, getting rid of all loans from the same borrowers, even though it meant that I had to sell some notes at discount after I paid a premium to get them. Since then, I have been staying away from notes from the same lender when selecting which one to buy. The new Lending Club tool makes this actually a lot easier.
As you can see from the above screenshot, LC’s new tool let you set a few filters when choosing loans, one of them is “Exclude Loans already invested in” (bottom right) which is exactly what I need.
And that’s not the only change I made. Now, in addition to evaluating loans based on the borrower’s overall qualification, I am also staying away from loans with the total amount exceeding $15,000. I don’t have any proof against investing in large loans except my own feeling that smaller loans may be relatively less *risky*, even though the loan amount of those two charged off notes is only $7,000.
Overall, my investment with Lending Club has become conservative as I invested in my Grade A notes now than before. When I first started with Lending Club, my thought was to get a higher rate of return that I won’t get from other conventional investments. However, after the charge-offs and late payments, I feel that the extra risk of investing in low grade notes may not be worth it. After all, I am still getting an annualized return of 11.40%, even after I started to buy more high grade notes.
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