Final thoughts on Lending Club

I opened my Lending Club IRA account in 2015 and deposited $50,000. My original intent was to build up the number of notes in the account and generate a decent monthly income when the time came to start withdrawing money. I acquired notes using their automatic investment feature for selecting notes and was effectively re-investing my returns in new notes. By then end of that year the account had grown to $53,000 and all looked great. In 2016, there were new notes being added and old ones either fully paid or charged off (some others in varying other states). Following are a few data points from the end of 2015 and 2016.

Description	Dec-15	Dec-16	Difference
Account Value	$53,166	$54,944	3.34%
Number of Notes	2,410	3,495	45.02%
Issued & Current	2,117	2,559	20.88%
Charged Off	15	279	1760.00%
Monthly Income	$647	$555	-14.23%
Net Annualized Return	15.32%	6.58%	8.74%

The account balance had grown by a little over 3%. The number of notes that I had acquired had grown substantially, as had the number that were current and earning interest. However, the number of notes charged off had grown by a factor of 17 (and more than doubled again in 2017). Surprisingly the monthly interest income had declined. Charged off loans were probably the biggest factor. But a shift to lower interest/risk loans contributed, as did the declining balances remaining in the current loans. Overall a disappointing performance. I decided to quit investing in more notes, let the account run out,  and start withdrawing the funds as they accumulated.

Later in 2017, I elected to start selling notes on FOLIOfn to close the account as soon as I could. Some of these I sold at substantial discounts as discussed in my previous posts. In the end, I cashed out $52,430. I made $2,430 or about 1.6% annual return on my initial investment.

It’s not clear what would have happened had I stuck with my original approach. I certainly would have acquired many more notes, some good and some bad. From discussions on peer to peer lending forums I think I was using automated investing during a period when Lending Club’s underwriting model was performing badly. Maybe over time it has improved, and the results would have been better.

One lesson I’ve taken away is beware of blindly using automated investing. You are likely to be better off developing your own models. Unfortunately, if you have much invested that would be a sizable job in selecting a lot of notes. One alternative would be to use one of the several services available to select notes for you.

That wraps up my Lending Club experience. I started this blog a few years ago to discuss alternative investment strategies. I think I will continue with the blog focusing on cryptocurrencies like bitcoin. I have been investing in these and plan on doing more analytical studies to aid with these investments. Follow me on Twitter @billlanke to know when I post these studies.

Lending Club returns history

Now that I’ve gotten both accounts completely closed I decided to share my history with the Lending Club IRA graphically. I tracked my account holdings daily and rolled these into a weekly spreadsheet. This is the data from the spreadsheet. There are two lines on the graph. One represents the annual return rate by comparing the week ending balance to that of 52 weeks prior (and adjusting for withdrawals). The second is the number of notes in my account (in hundreds).

The initial return rate was running at 8% and all was good. I was using automatic investment, so as cash was accumulated in the account, Lending Club selected new notes to fit the profile I had set. Then in September 2016 the return rate started a steady decline. In early December 2016 I turned off automatic investment when the return rate had fallen to about 4%. The fall was because of an increasing rate of charge offs. This was probably due to increasing age of the portfolio and the fact that automatic investment was doing a poor job at the time.

By the end of 2016 I decided that I had had enough and was going to let the account run out. I started withdrawing the cash as it accumulated. I did experiment in 2017 buying some notes at FOLIO for test cases and accidentally turned on automated investment for a few days and it sucked a lot of cash from my account in 2 days an added over 100 new notes.

The graph demonstrates that the return fell steadily. I don’t know if I could have turned it around by re-investing in more notes and using a strategy other than automatic investing. My next and final post will be a summary of my opinions on Lending Club. Follow me on @billlanke to know when I post this.

Accounts closed

My Lending Club IRA and custodial account with Strata Trust are now both closed. I can’t say I’ve received any official confirmation from either, but I’ve withdrawn all my funds. Lending Club still shows the one very late note, but I did submit the paperwork to forfeit all notes. Strata Trust sent me my last check and shows a zero balance.

I began the process by submitting the appropriate form to Lending Club on Wednesday, April 25^th. They acknowledged receipt and sent it along to Strata. I didn’t hear anymore from either and a week later I called Strata. They seemed totally unaware of my submission. When prompted they located the paperwork and indicated they would process it. I got the final check on Monday, 13 days after the submission. There was a $50 fee from Strata for terminating the account.

I am quite happy to have this behind me. I spent too much time tracking the Lending Club account. Dealing with Strata wasn’t particularly easy. I’m glad my wife won’t have to deal with this when I’m gone.

I will followup with a post reviewing my history and rate of return with Lending Club. I also plan on posting my views of using Lending Club as an investor. Follow me on Twitter, @billlanke, to know when these are posted.