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.