Your guide to peer to peer lending

How to Invest in Multiple P2P Lending Accounts

by Peter Renton on February 6, 2012

Last month, I provided you with an inside look at my p2p lending accounts at Lending Club and Prosper. I manage six accounts in total and with each account I have a slightly different investing strategy.

Now, some might think that six accounts is overkill, and to many people it is. I started out with just one account for the first several months. But then I was so delighted with my returns that I added two new accounts when I rolled over my wife’s traditional and Roth retirement accounts. Then I opened a Roth IRA account in my own name and before I knew it, I had four accounts at Lending Club.

Prosper has just recently added the IRA option but right now I have just two taxable accounts there, one in my own name and one in my wife’s name (I will be opening an IRA account there later this year). Many investors will have one IRA account and a taxable account and even investing with just two accounts can bring complications.

The Problem of Duplicate Notes

The p2p lending statistics site, Nickel Steamroller, has an excellent utility for Lending Club investors. You can download a CSV of your Lending Club account and then use their portfolio upload tool to run some analysis on your portfolio. One of the things I find most useful with this tool is the ability to see duplicate notes. You can even combine portfolios from different Lending Club accounts to see duplicates between your accounts.

I have spoken many times about the benefits of diversification. But when you invest in the same note twice you are not maximizing your diversification. If you are not paying attention you can easily make this mistake.

Lending Club provides a little warning for you if you try and invest in a note that you have already invested in. Prosper has no such mechanism but if you use Automated Quick Invest it will keep track of the notes you have already invested in and ensure you don’t accidentally reinvest in them.

That is all fine, but what about when you have multiple accounts? Lending Club will not warn you when you are about to invest in a note that you already hold in another account. And Prosper will happily invest in the same loan through the Quick Invest feature on two different accounts – there is no way to link your accounts in any way. So, you need a way to remove the possibility of investing in duplicate notes.

Use Mutually Exclusive Filters

In my Lending Club and Prosper accounts I run different exclusive filter sets. What I mean by this is that these are different sets of filters that will have no crossover whatsoever in the groups of notes they produce. In other words each note in a filter set cannot appear in any other filter set. This is best illustrated with an example.

An easy way to use mutually exclusive filters is to choose different loan grades. So you could run a filter set for loans grades A and B and on the other account you could choose C, D and E. This will ensure that you never have any overlap between accounts. But what if you only want to invest in C, D and E grade notes in both accounts. Then you must choose another criteria. You could use number of inquiries, states or loan terms to name a few. By choosing a different range for each account you will end up with no with duplicate notes in your accounts.

In an upcoming post I will take you through the criteria I am using right now in my six accounts to make sure I never invest in a duplicate note. But before then I am interested to hear from other investors who have multiple accounts. What criteria do you use to avoid investing in duplicate notes? Please let me know in the comments.

{ 18 comments… read them below or add one }

Dan B February 8, 2012 at 5:21 am

Peter…….Alright so the day will come Peter, when you will finally arrive at the healthy conclusion that you will never be able to come close to the long term returns that I’m getting at Lending Club. On that day you will stop buying those 60 month E, F & G rated loans in the futile attempt to prove otherwise & ask me to help run your Lending Club accounts. I will in turn show great humility & surprise you by not rubbing it in too much :)

Now I diversify well into the 900-1000 note range in my accounts. So I’m curious, when the above scenario plays out, would you want me to run your account in such a way that I don’t duplicate the notes that I’d be buying for your account vis a vis my own/other accounts? Or would you in fact want me to do exactly that?

It really won’t matter much because as you know I do have the Midas touch…………….but I’m just trying to determine the root cause of your non-duplication fetish. Ok, sorry I couldn’t resist working that in.

But seriously though, if you actually expand your p2p holdings as aggressively as you’ve been suggesting & with non duplication across accounts, you may one day become a mini-worthblanket…………..with so many different notes & increasing in number all the time, that your total portfolio returns will start to become a mini-proxy of the platform, as his has quickly become. I admit, I’m reaching a bit but you’re already into the 2000+ different notes range just with Lending Club, are you not? Just something to ponder.

JRV February 8, 2012 at 10:46 am

Hi Peter,
Timely article, as I was just mulling over this issue for my own accounts. I have a standard Lending Club account as well as two IRA accounts (one for me and one for the wife). This issue will emerge for anyone transferring a lump sum from one IRA to a Lending Club IRA. It takes a long time to find thousands of dollars worth of worthy $25 notes. One approach is to stagger out searches/investments by 10 day increments. This helps reduce potential overlap. Another trick I’ve used when buying notes for multiple accounts on the same day is to keep a written list of the employer name and the amount requested for loans I invest in. This helps me to avoid repeating the same investment in a different account. Keep this list handy for a couple of weeks from the time of purchase. Finally, I try to avoid more than four new investments per account per day. It’s always tempting to try to get as much invested as soon as possible, but the fatigue factor can set in and I find my screening process starts getting sloppy if I try to do too much.
Keep up the good work.

Charlie H February 8, 2012 at 12:10 pm

The problem if you over diversification you become a closet index of the platform. IE Fidelity Magellan is a closet S&P index fund with way overpriced expense ratios. It is so large it can not help but acting like an index fund.

If you only buy notes that meet a certain criteria, then thats another story.

Charlie H February 8, 2012 at 12:11 pm

In other news it looks like the LC No-Fee promotion is wrapping up based on the very small number now avalible on the platform.

flyp52 February 8, 2012 at 12:25 pm

I also have multiple LC accounts and I found it to be way too much trouble to try to select mutually exclusive loans across accounts. I just buy notes at an amount that provides sufficient diversification relative to the account value. So when I end up purchasing duplicate notes across accounts, the total amount invested in a loan still meets my diversification requirement across the total value of all accounts. But I also am not trying to implement different investing strategies across accounts.

Dan B February 8, 2012 at 12:52 pm

Charlie H………..Actually it’s not another story, as you put it. If you only buy notes that meet a certain criteria, but you buy a lot of those notes, then you become a proxy for that subset, correct? I think this is always an issue if you don’t put a reasonable cap on the total number of notes before you increase your unit size.

Peter Renton February 8, 2012 at 3:19 pm

@Dan, I know I can always rely on you to show great humility :-) .

You do raise a valid point, though. I certainly don’t want to become just a proxy for the platform. But I am confident I am not becoming one. I have increased my note buying to $100 in most cases and last month I added 49 notes on Lending Club across my three accounts – all grades D, E, F and G. There was a total of 547 notes issued in January in those credit grades, so I think at less than 10% of notes issued I am not just becoming a proxy for the platform. At Prosper my percentage was even lower 46 notes out of 681 total issued.

@JRV, You raise many good points here. One thing I neglected to mention is that I invest once per week on Lending Club. This gives enough time for plenty of new notes to come on to the platform and when I download the CSV file I make sure that I only invest in notes that have an application date of the last week. This way I know I am only getting fresh notes each time. But it does take time in invest a large lump sum – I think it is best to be patient. I also think you should only aim for 500 notes initially, so if you are rolling over $50,000 then I would shoot for $100 per note.

@Charlie, Yes, the “No Fee” promotion is over. It lasted until the end of January. There is an update on my post about it:

@flyp52, That is another way to do it. If you set are happy with a $100 diversification per note and have two accounts. You could just invest $50 per note in each account and just not worry about investing in duplicate notes.

Dan B February 8, 2012 at 3:38 pm

Peter……….So if you’re adding $100k to p2p this year & you’re doing $100 a pop, that’s 500 notes for Lending Club & 500 for that other company. And this doesn’t include the normal reinvestment from repayment of principal plus interest……………..which will add another 300+/- at Lending Club, correct? So you’re looking at ~800 new notes total that you’ll be buying at LC this year. Was I correct in stating that you already have around 2000 notes currently?

Mike February 8, 2012 at 3:39 pm

One of my pet peeves regarding LC is the inability to link accounts. I just have two accounts, one regular and one IRA, but I can’t imagine keeping track of 6 separate accounts like you, Peter, without linkage. I tend to invest my funds daily or every other day, and I do both accounts back to back, so I can remember who I’ve invested in and avoid those loans in the other account. I don’t think it is that technically difficult to provide links between accounts, but for whatever reason, LC hasn’t chosen to provide that option yet.

Dan B February 8, 2012 at 3:53 pm

Mike………..Rumor has it that Lending Club is working on enabling the accessing of multiple accounts through one account sign in (i.e. one email address), though I’m not sure if that’s what you mean by “linked”.

Mike February 8, 2012 at 4:12 pm

Thanks Dan. Yes, linked accounts means that you can view them all under one sign in. All online brokerages have this ability, so you can monitor your entire portfolio without having to log in and out over several accounts. I was told that this was under consideration a while back. I hope your rumor has more merit.

Peter Renton February 8, 2012 at 4:45 pm

@Dan, I have about 1,900 notes in the three accounts I manage at LC and another 750 or so in my PRIME IRA that Lending Club manages. I am putting another $100K into p2p lending but the lion’s share of this will go to Prosper (because my LC investments are already close to $100K). My plan is to have slightly more than $100K invested in each company by the end of the year.

@Mike, I have been told that Lending Club is working on removing the unique email address requirement for each separate account (which, let’s face it, is a completely ridiculous requirement) but I don’t know if that is going to mean true linked accounts like one can have at an online brokerage. I somehow doubt that will happen this year, but it has to happen eventually if p2p lending is to be treated as a serious asset class.

Mike February 8, 2012 at 4:50 pm

Peter, I admire your courage. Does Proper require separate email addresses for different accounts?

Dan B February 8, 2012 at 5:07 pm

I admire Peter’s courage too. It’s the wisdom part that I’m not 100% sure about. :)

As for the sign in issue at Lending Club, we are on it.

JRV February 8, 2012 at 7:49 pm

Peter, how has the L.C. Prime Account has worked out for you? This may be a bit off topic from the source article, but I’m curious if LC does a good job managing larger accounts. I’m thinking about turning my IRA into a Prime account, but feedback and information on the Prime Accounts is pretty sparse.

Peter Renton February 8, 2012 at 11:08 pm

@Mike/@Dan, I am fully aware of the risks involved with both Lending Club and Prosper and as I have said many times before I believe I am being well compensated for that risk.

As for the separate email accounts, you don’t need one if you want to take out a loan on Prosper but it looks like you do need a separate email to open up their IRA product. I will look into that some more when I open my own IRA.

@JRV, I am reasonably happy with my own PRIME account. As I wrote last month in my accounts snapshot post (/snapshot) I am getting close to 8% real return on my wife’s PRIME Roth IRA. That is not a bad result considering no effort is required to generate that return. But I do believe the astute investor can do better than that – but you need to be prepared to put in some work. I have written several posts about my PRIME account that you can read here: /tag/prime/.

Dan B February 9, 2012 at 1:05 am

So how do you prevent duplication between the 1900+ LC notes you manage & the 750+ LC notes that LC Prime manages again? On an ongoing basis, I mean?

Peter Renton February 9, 2012 at 3:26 am

@Dan, I do no checking against the PRIME account mainly because it is investing primarily in B and C grade notes. For the 21% of the portfolio that is invested in D and E grade notes I just put up with the inevitable duplication there. But it is only a very small percentage of my overall LC portfolio.

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