Lending Club Sandbox: Day 16

Sixteen days after getting $2500 in my Lending Club account, I am finally starting to get payments back on my notes!! These payments are primarily coming from the notes I bought thru Foliofn. Here’s my account summary today:

10/10/15 Lending Club Summary

One annoying thing that has happened, that I didn’t really expect, is that one of the $25 notes that I purchased thru Lending Club is already FULLY PAID! The person just took out a loan and then paid it all back within a few days. (Maybe a scheme to raise their credit score?) In addition, I had at least 2 other notes that didn’t “issue”.

Rather than waste more time with automated investing & then the 3-10 days it takes for a note to issue, I went ahead and bought more notes thru Foliofn. Foliofn is definitely giving me that sandbox-satisfaction of being able to buy notes on the spot. It usually only takes 1 day for my Foliofn notes to clear and become “mine” and often their next payment is less than 1 month away.

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Lending Club Sandbox: Day 6-7

Fed up with waiting on new loans to become available on Lending Club, I began exploring the P2P note trading platform associated with Lending Club called Foliofn. The Foliofn website is not nearly as easy to use as Lending Club’s website, but I like the idea that I can trade my notes, previously purchased on Lending Club, or else buy partially paid-off notes from Lending Club investors who are trying to “exit” their Lending Club investments.

I did a little research before starting to buy notes on Foliofn and appreciated this blog post about “Penny Notes”. Borrowers who have only 15 remaining payments on their loans, and who have a pretty decent current history of paying their loans, are likely to KEEP paying their loans and are therefore pretty safe investments! Makes sense to me. I tried to find the penny notes with the highest “Yield to Maturity” (often as high as 12-15%) and preferably discounted or low mark-up (always less than 1.5% markup).

I ended up buying several of these notes as a mini-experiment. Which would win? My Lending Club Automated & Manually invested $25 notes or my Foliofn penny notes? Unfortunately, the penny notes will not last as long in my portfolio (most only 10-15 months), but if the pay-off is good enough, maybe this strategy is worth it?

Lending Club Sandbox: Day 5

Some of my Lending Club notes are finally starting to get issued! But this means I still have at least another month to wait before I start seeing any principal & interest payments. And even after 4 more days of automated investing & manual investments, my entire $2,500 investment is still not committed to notes ($475 remains in available cash). Here’s a summary of my account as it stands now::

It appears that there are days at a time that Lending Club does not have new notes available to investors. It seems like their inventory is a little too small for someone like me who is just starting out and trying to make a running start. Nevertheless, I’m enjoying the art of looking at notes and trying to decide whether that note might be a safe investment:

Example Note

This person has trouble spelling their job title (a “consultant”), but you can see a lot of details about their credit history, their home ownership status, their length of employment and income, etc.

Lending Club Sandbox: Day 1

After reading A Beginner’s Guide to Investing by Alex Frey, I liked the idea of having a small investing “sandbox”. Rather than micro-managing the bulk of your investments on a day-to-day basis, the author recommends having a small sandbox for some portion of your investments which you’re allowed to day-trade and actively manage.

I had heard about Lending Club for a while, and it piqued my interest. For those not familiar, Lending Club allows investors to invest in smaller fractions of loans to borrowers (called “notes”). On a monthly basis, the investor receives back principal and interest on the notes they have invested in, assuming the borrowers pay on time and don’t default. The Lending Club website advertises that investors receive an average annual ROI of 8.10% for D-G weighted portfolios (see figure below) and that 99.9% of investors that diversify among at least 100 notes see positive returns. As a scientist, I appreciated the amount of data they had on their website, and spent a lot of time looking through their interactive investor performance graph and even the downloadable spreadsheet data they publish on a quarterly basis.

I decided to put $2,500 aside into Lending Club so I could invest in 100 $25 notes. After 5 days waiting for my money to get deposited in my new Lending Club account, I chose to set up Automated Investing using the following Investment Criteria (called “D-G Weighted”):

**Note: Every Lending Club loan is assigned an investment “grade” which determines the perceived risk of the loan (G being the highest risk) and the interest rate. Higher risk loans also have the investment reward of higher returns, which is offset by the expectation that the charge-off rates (the rate at which borrowers “default”) on the loan will be higher.

In addition to the Investment Criteria above, I also set up an additional filter for my Automated Investing, based on some data analysis I had done of Lending Club’s 2007-2011 data:

  1. Loans must not have any public records.
  2. I chose to invest in loan purposes that appeared to have the lowest charge-off (default) rates: Refinancing credit cards, consolidate debt, home improvement project, wedding expenses, paying for dream vacation, covering moving expense, home down payment, car financing, and major purchases.

Lending Club warns that Automated Investing might not order notes very quickly if you have stringent filters, due to limited inventory. To speed up the initial investing process along, I had to manually ordered several notes. But even then, by the end of Day 1, I only was able to invest $1525 of my $2500. I was a little disappointed at how long it was taking to getting my investments in place.