Table of Contents
- My Journey As A Beginner With Alternative P2P Investments (and why I ditched the idea of stocks and bonds initially)
- My Lending Club Returns VS Average Returns (and is your money safe/are they legit)
- Where Else Can You Earn 10% Or More On Your Money Without A Sizable Contribution? (And should you invest?)
- My Betterment Returns And Where They Fall Short
- WiseBanyon Entered The Playing Field (and why I want to review their service!)
* For clarity, some real estate properties I bought for a relative at a tax deed sale when I was 19 years old were sold off, and these were part of the proceeds from that transaction.
My Journey As A Beginner With Alternative P2P Investments (and why I ditched the idea of stocks and bonds initially)
A couple of years ago, I began looking around for alternative investments I could get into to earn a better return than I was currently getting. I didn’t have enough seed capital to get into a multifamily deal, and it didn’t make sense to put a down payment on a SFH only to earn a couple hundred bucks a month and have to deal with tenant bullshit.
I started reading personal finance blogs like Mr. Money Mustache, Financial Samurai, and The Lending Memo to name a few. Peer To Peer lending was new to me (and a lot of others) and seemed intriguing that I could essentially become a bank. The idea that I would lend others money on a social platform I didn’t control or police applicants of, quite frankly scared the shit out me.
After doing some research, and learning that Google backed LC with 200 million, I felt a little more secure it learning the platform. After all, the real risk was in letting my money sit around and do nothing… like I would learn harshly a year later like I mentioned in the opening paragraph.
I decided to throw $500 bucks in and was prepared to lose it all. I didn’t trust the system at all, and there was an initial learning curve to buying notes that seemed trivial having zero financial background personally. However, this was an opportunity to grow, and I liked the challenge of learning how to pick notes and specifically, what criteria most affected a notes performance. (i.e. – what were the tell tale signs of applicants that would default… causing me to lose my money with no recursive action available to collect that debt)
This turned out to be the best learning experience of the whole ordeal. Knowing that applicants that do not fill out descriptions that aren’t required (this is an area on the applicant form for lending club borrowers that allows you to go into more detail of your personal situation/needs for the loan, but is not a required field) are more likely to default than those who skip over it (majority won’t take the time), can lead to a more stable portfolio by screening for that single factor. Of course as things got more popular, and the large players entered the game with automated millisecond trades, note volume became an issue and you had to become a little more lax (risky) on your note filtering in order to buy any quantity.
Other blogs like 1500 days (I believe) and Brave New Life along with many others would comment about note returns and performance… which I learned a little bit from each. Learning that homeowners and those with the same employer for more than a few years were much more stable, continued to increase my returns as my note selection got better and better. Most people were complaining about charge offs constantly for high interest notes, or very low returns for the ultra safe note pickers at the other end of the spectrum. I knew I wanted to be somewhere in the middle, but didn’t know how to get there.
With note volume being snapped up every so quickly once the automated investing kicked into high gear,
Automated investing came out from Lending Club themselves in 2014, which was supposed to make the process easier and less time consuming. For me, and the reason I ultimately have siphoned off almost all of my money from lending club to try other investments, is the change that impacted the ability to sell notes on the secondary network, FolioFN. One of my strategies for rapid redeployment of capital, and my “get out of jail PARTIALLY free card” was zero hesitation on any note that went delinquent. I didn’t care that they have a good track record for recovering payment during the grace period or not… I cut ties immediately by selling for a small loss on the secondary trading network (FolioFN) that same day, and would turn around and buy fresh non duplicate notes.
My Lending Club Returns VS Average Returns (and is your money safe/are they legit)
As I mentioned above, what ultimately put a damper on this strategy, was the change in terms via Lending Club operating agreement. No longer could I sell notes that were either in the grace period or due for payment. This created a problem, in that, I could no longer get some of my money back right away, and my returns slowly declined from 16.73% to down around 13% overall (according to the Lending Club return calculator). Once you factor in the early days of the return calculator not factoring in the sold notes from FolioFN, it evened out to about 11-12%.
I feel confident going forward that P2P Lending is around for the long haul, and I would invest more of my money with Lending Club again in a heartbeat. It’s pretty funny when they send you offers to borrow… being that you’re a lender, it just cracks me up to see the marketing of the flip side. If you’re still wondering if Lending Club is legit in 2016, there are entire websites dedicated to just this one topic with several earning reports from a wide variety of people. Lending Memo & Lend Academy
Where Else Can You Earn 10% Or More On Your Money Without A Sizable Contribution? (And should you invest?)
Now don’t get me wrong, I don’t know anywhere else you can stash money in an alternative investment and get that kind of return! It’s still a great investment for anyone with money just sitting in a savings account. You could easily earn 4-5% by choosing low interest notes with less risk, but personally I would do the exact same thing I mentioned above again, by betting against quantity vs charge off rate of a high interest note portfolio. (or balance the two)
The only reason I’m not still reinvesting, is so I can take my seed capital and use it elsewhere to try out other investments. The only drawback that stops me from doing it now is having the ability to deploy capital quickly… since Lending Club notes are 36 month or 60 month commitments, it makes it kind of hard if you’re continually reinvesting your interest and principle payments like I was. Alternatively, you could stick some of your stash in there, and have a nice little passive income check each month as well if it’s a sizable amount.
But if you just have money sitting in a savings account collecting .85% interest, there’s no reason why you shouldn’t get a handle on Lending Club or another peer to peer lender. When I receive proceeds again from my next project, a portion will go straight back into Lending Club once again, utilizing the exact same strategy.
Update – I’m going to add Betterment & WiseBanyon to the mix shortly… I opened accounts with them a while back, but never updated with my experiences.
My Betterment Returns And Where They Fall Short
So far, I put $100 dollars in Betterment, and totally forgot about it. To date, I think only about $60 dollars are left. Now I’m not sure how they do their allocating, since I didn’t even remember to check it or fund it until I went to write this post, but I’d imagine it’s too small of a pool to say anything like “Betterment Sucks”! There’s probably a minimum threshold like everything else, to where you need a few pieces of the whole pie in order to check performance based on real numbers.
I’d love to hear from other people who have used Betterment… like it hate it??
WiseBanyon Entered The Playing Field (and why I want to review their service!)
I also put a few bucks into WiseBanyon, and we’ll see if I like the backend system and look at funding this account as well to compare to peer to peer lending.