How much to invest in LendingClub

by Leave a Comment

With the p2p lending industry being relatively new, I was curious about how much people are investing.  However the limit that you can invest was pretty easy to find:

Regardless of your state of residence, you may not purchase notes in an amount in excess of 10% of your net worth (exclusive of the value of your home, home furnishings and automobile).

Source: http://www.lendingclub.com/kb/index.php?View=entry&EntryID=113

It is pretty surprising that this limit exists when there are many more risky (in my opinion) investments that exist.  People investing shouldn’t need to be protected from themselves. As an investor, one must accept the risks that exist. One of the first things I sense when I tell people who haven’t heard about p2p lending is apprehension.  This is no surprise as it is important to ask questions, but you shouldn’t write it off p2p as far as investments go.  In my opinion, the returns are too good to ignore.  The fact is that no one who has invested in 800+ notes has received a negative return (source).  Certainly, we can’t assume future returns based on previous ones, but it is somewhat reassuring. This paired with a large investment from Google and the possibility of LendingClub going public makes me sleep a little better at night. Being relatively young, I am comfortable at this point investing 10% of my net worth, not including an investment property.  What do you invest into LendingClub? Any insights into different strategies like withdrawing principal from your account each month?  Let us know in the comments!

Average Investment Amount

by Leave a Comment

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.