After the TSP, I invest my money in Betterment and Vanguard. I track all of my investments with Personal Capital. I also wrote a short, 2 hour book summarizing this site. You can buy it here.
Lendingclub.com continues to deliver superior investment returns while minimizing risk. Since my review 6 months ago, my net annualized return has decreased by 2.12 percentage points (from 8.35% to 6.23%). While this isn’t the direction I’d like to be going, I expected this result based on having 4 loans 31-120 days late when I last wrote 6 months ago.
In fact, I’m pretty excited that, while I am seeing a lower net annualized return, I haven’t had any more defaults. I believe that this is mostly due to being more selective in the notes I invest in and not just choosing randomly or based on the grade or interest rate.
In the last 6 months I haven’t made any new deposits or withdrawals from my Lending Club account. I’ve seen 3 loans fully paid, 4 loans get charged off, and I’ve added 14 new loans to my portfolio.
In the past I’ve used a variety of criteria to select my loans. Obviously, with only a 6% return, when Lending Club advertises a 9.6% return, I need a new strategy.
My New 2013 Lending Club Investment Strategy
This strategy is based primarily on the research I performed on avoiding charged off loans, as well as reading other Lending Club investment strategies. Many Lending Club users are seeing double digit returns, so it’s a bit embarrassing for me, after 24 months of investing, to still be posting 6-8% returns.
My new 2013 strategy for selecting Lending Club notes looks like this:
- Loan Grade: C, D only
- Deliquincies in the past 2 years: 1
- Monthly Income: >=$7500
- Loan purpose: all except Vacation, Small Business, and Other
That’s it. Very simple, but LendStats.com shows that if I had used this strategy since 2010, I could have expected a 10.43% return, only a 3.91% default rate, and still had over 6000 loans to select from. I’ll put any new loans purchased under this scheme into a specific portfolio and report back on my results.
My goal with Lending Club has always been to generate 10% returns while minimizing my charged off and defaulted loans. I hope to make that goal a reality with this new strategy.
My Exact Lending Club Results After 2 Years
So after two years of investing in Lending Club, here are my results. Remember, this was with almost no research and a very relaxed approach to selecting which loans were invested in. Had I taken more time to research, I’m sure my return could have been much greater.
A 5% return is not negligible, especially when there was no work done on my part, CD and savings accounts interest rates are so low, and this is an investment very uncorrelated to stock market or property value performance. In an era of low FDIC insured interest rates and an extremely volatile and possibly overpriced stock market, Lending Club offers just one more way to diversify your income and investments.
Loan Performance Summary.
Lending Club is still mostly an experimental investment opportunity for me. My main focus right now is paying off my student loans, investing in the stock market through Roth TSP, and building my savings for eventual early retirement at age 40. As my student loans get paid off, I expect to begin routing more money every month into my Lending Club account.
Let me know if you have an excellent Lending Club investment strategy in the comments! Share the wealth!
2 Websites I Use to Achieve Financial Independence Faster
I have investment accounts all over the place. To keep track of all of them in one place I use Personal Capital. It combines all of my accounts, shows me where I may be overpaying in fees, and provides beautiful charts showing my overall asset allocation and performance.
I use Personal Capital to track my Roth and Traditional TSP, Vanguard IRAs, banking accounts, SDP, and my Betterment taxable account, all in one place. It's free, secure and presents me with a one-stop dashboard so I can see all my money on one site.
Read my full review of Personal Capital and see how easy it can be to manage your investments in one place. Trust me, once you try it, you'll love it.
P.S. - If you have over $100,000 of assets and a 401k, you really need to run the Personal Capital 401k Fee Analyzer.
The best way I know to achieve financial independence is to keep your investments simple, diversified, automatic, and low-cost. Costs eat into your returns like you wouldn't believe! A 1% difference in expense ratios can mean $100,000s lost to fees over a lifetime of investing.
Even if you're a DIY (do-it-yourself) investor like I am, you need to check out Betterment. You can read my full review here, but the bottom line is for only $250 per $100,000 invested (0.25% expense ratio) you get simple, diversified, and automated investing. In addition every account now gets free Tax Loss Harvesting+ features, which should increase returns for the average investor more than the minuscule management fee.
If you're not a DIY investor or are just getting started with investing, then you definitely need to check out Betterment. It's what I recommend to my family and friends who aren't strong investors or don't care to learn about asset allocations, diversification, or rebalancing.