By now most of you know my story. Lucky me, I started over again with $0 dollars in 2009. I didn’t start investing again until 2014. I’ve been fortunate to rebuild my investment portfolio to over $300k in less than 3 years. I’m really proud of this, but my investment portfolio is still not diversified. One of my 2017 goals is to start building a diversified investment portfolio. I saw Lending Club as a way to begin diversifying.
I’m currently invested 100% in stocks and bonds, mostly dividend paying stocks. There is sector diversification within my stock portfolio, but aside my savings accounts, I don’t have money in any other investment vehicles. I’m considering buying a rental property (more on this in a later post), and I just started investing in Peer-to-Peer Lending. I researched two P2P lending companies, Prosper and Lending Club. They both seem similar. I have experience with Prosper from 2007 to 2008. It was brand new and had a lot of hiccups and a lot defaulted loans. I’m sure Prosper has improved by now. But I still have a bad taste in my mouth about my overall experience.
I decided to go with Lending Club. I chose it because many financial bloggers use it and I’ve read their monthly updates. On average it seems like investors are pulling in anywhere between 5% – 9% a year with Lending Club. I took $2,500 and used Lending Club’s automated investing tool. This means I don’t choose the loans; instead I set the limits (grades of loans) that I want in my portfolio and Lending Club does the rest. My $2,500 investment just funded 100 loans. Actually, I’ve funded 99 loans, one is still in underwriting.
Creating A Diversified Investment Portfolio With Lending Club
My P2P lending goal for 2017 is to invest $10,000 into Lending Club. I plan on adding $2,500 each quarter. This timed release of cash allows me to slowly enter the space and decide if I want to continue investing. If I don’t see the returns I expect, I’ll quit adding money and put it to use selling options. I’m currently investing from my savings account. I will incur taxable events with all of my earnings. If all goes well, I’ll consider opening a Roth IRA for $5,500 in 2018 to avoid future taxation.
Automated Investing with Lending Club
Lending Club’s automated investing option is a set it and forget it model. I set the targets and Lending Club fills my loans. The loan criteria I set is to invest a maximum amount of $25 per loan. I also chose to invest in both 36-month and 60-month loans.
Lending Club has three preset automatic investing options to choose from. These options are based on the percentage of loans to be funded per grade of loan; from A to G. A being the best loan, but A also pays a lower rate of return. Just like stock market investing, there are risk tolerances to consider. The more risk, the higher the potential return.
In trying to gain slightly higher returns, I choose to create my custom mix of loans. I added a few more C loans and reduced my B loans. My custom mix estimates a projected return of 6.49%. This mix shows that historical returns for this mix are between 5.54% and 8.39%.
The image below is the automated investing page.
The next image is my custom mix investment criteria details. My mix is as follows:
- A – 8%
- B – 27%
- C – 34%
- D – 19%
- E – 8%
- F – 3%
- G – 1%
This image also shows historical loan inventory by letter grade, effective interest rate, estimated fees, average charge off rate, and projected return.
In a perfect world, I can expect a project return of 6.49%. Of course nothing in life is guaranteed except death and taxes. This is why I choose to spread out my loans in $25 dollar increments. This will hopefully cut my risk of defaults hurting my overall return. We’ll see ;-).
One great feature of automated investing is that once my loan repayment value passes $25 dollars, the system will automatically invest the money into a new loan; sort like DRIP investing. My money never sits idle. Not a bad diversified investment portfolio strategy.
My Lending Club Portfolio
The next image is a screenshot of my portfolio. I plan on creating a new portfolio every quarter. I’m calling it My First Portfolio 2500. I want to keep the $2,500 allocations independent because if all goes well, I will use these portfolios as test beds. By this I mean the next $2,500 portfolios, will not have the same automated investing criteria as earlier ones. Once I get my feet wet, I’ll probably fund loans from one portfolio by myself, without automated systems.
I’ve received no payments to date. Don’t worry, the loans funded only 4-days ago ;-). The system is predicting that if all my loans are paid monthly and on-time, I should receive $84.48 a month. This means if all goes according to plan, I’ll be funding 3 new loans in this portfolio every 30 days.
The last image is an expanded view of my Lending Club portfolio. This page shows my loan composition, return details, and most importantly loan status updates. Since this account is brand new, this page looks fantastic. There are no loans in grace periods, late payments, or charge offs yet.I wanted to screenshot this because it’s probably the last time every loan I fund will be active and current ;-).
Lending Club and Diversified Investment Portfolio Takeaways
The account itself was easy to open and fund. It took about 3-days for my money to move from my bank to LC. From there, the loan process is a bit slower. As the image above shows, I still have one loan in underwriting. It took about 6 business days for all but one of the loans fully fund, get approved by LC, and go live. Once funded and approved, it can take days, for Lending Club to process the loan.
My hope is that my venture into a more diversified investment portfolio will be successful. If it is, I will restructure my annual goals of $50k invested in the stock market to $40k in stocks, and $10k in Lending Club each year.
As mentioned, I’m also considering buying a rental property this year. I’m working out the details on an offer for a home in the SF bay area. This is a true win-win transaction for all parties involved. If this transaction goes through, I’ll finally be more diversified, and I’ll be helping a family get out of a bad situation while gaining equity. P2P lending, stocks, and real estate; these are my first steps towards a diversified investment portfolio.
If all goes south with Lending Club, I do have a few friends that work there. I’ll swing by on my way to and from work and take advantage of the free food and snacks they give their employees ;-). It’s one way to recapture some ROI. This is a joke of course. But I do walk by Lending Club’s headquarters 10-times a week on my way to and from my office. In fact the image of Lending Club’s office was taken by me this morning on my way to work.
Do you have a diversified investment portfolio? Do you invest in P2P lending? Have you ever tried Lending Club?