P2P Lending Diversification and Portfolios

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There are many strategies in investing in P2P Lending, several of which were outlined in our last series of posts by New Jersey Guy and his experience with FOLIOfn.  You should note that those 3 strategies were just a taste of the secondary market and there are some very dedicated people out there who are trying out all sorts of strategies.  Just hop on over to the Lend Academy Forum and I’m sure others could teach you a thing or two.  I’ve heard New Jersey Guy mention diversification within peer to peer lending investments several times and it is something I now realize I knew nothing about.   [Read more...]

Positive Returns with LendingClub

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Awhile back, LendingClub had a part of their site that stated something to the effect that no investor with 800+ notes had negative returns.  They have since removed this and I had not seen any statistics that stated something similar until yesterday when I was browsing the site.

1 As of May 24, 2013, over 99% of investors with 100 of more Notes and with no single Note accounting for more than 2.5% of their total investment, have positive returns. To meet this criteria you would need to invest a minimum of $2,500 and none of the Notes could be greater than 2.5% of your total investment. The foregoing is not directed to the specific investment objectives, financial situation or investment needs of any particular person and should not be considered investment advice. You should consider reviewing the prospectus with a financial advisor prior to investing. Past performance is no guarantee of future results.

Source

This is a far stretch from the diversification they use to advertise and is certainly comforting for people with smaller accounts (like us). So the message today? Stick with investing $25 per note for smaller accounts and you *should* see a positive return.  Invest in higher grade notes that are recently listed and you should see higher positive returns.

 

Average Investment Amount

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When I first invested, I decided to use a pre-determined filter that Brian provided me with.  I have both a starter portfolio which includes these notes and a riskier portfolio so I can compare the results over time.  I enjoyed combing through the notes and deciding who I would lend $25 to mainly because I think it’s interesting to peer into someone else’s financial life.  I don’t think hand picking each note is necessary to make money in LendingClub.  However, I highly recommend only putting the minimum $25 investment per note.  It spreads out your risk in your LendingClub investments.  I look at it as having a diversified portfolio, much like one should do in the stock market.  All note grades default and putting all of your eggs in one basket is not a good strategy.

A look at my two highest grade loans (D2 18.49%) show average investments per person of ~$40 and ~$60.  I’ve seen many of my loans with over $100 invested per person.  I have started to read about hedge funds getting in on the action.  My thought (and hope) is that this is why I am seeing the high average investments.  There are only so many notes to be invested in which forces them to invest more money per loan.  If hedge funds start investing more into LendingClub it will be less and less about ‘peer-to-peer’ lending.  In my opinion it changes the whole idea of what the peer-to-peer lending and crowd funding sites like Kickstarter are all about.  Time will tell if institutional investors will have any effect on LendingClub, but in the meantime - please invest the minimum amount into loans unless you really know something I don’t.