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Lending Club PRIME Review – November 2011

by Peter Renton on November 16, 2011

Lending Club PRIME account review

The last time we reviewed my wife’s Lending Club PRIME account, back in August, we were at an NAR of 9.73%. There were 22 notes that were more than 30 days late and of those 15 have now defaulted. This brings the defaults/charged off number up to 30 which explains the 1% drop in NAR. Here is a link to my original Lending Club PRIME review if you want to find out how PRIME accounts work.

I took the above screenshot last night. For those following along closely, the account total has grown in size around $690 since the last review. There are plenty of late loans so the NAR will likely continue to fall. My real world return is pretty easy to calculate. I have not added to or subtracted from this account at all in the past year. My statement balance at October 31, 2010 was $55,944.65 and at October 31, 2011 it was $60,170.03. This equates to a return of 7.55%.

I am Taking This Account off PRIME

I think a return of 7.55% is decent but I am confident I can do better than that. So, I have decided to take this account off PRIME and manage it myself going forward. I like the Lending Club PRIME service with the hands-off approach but I also want to get the best returns possible.

Having said that, I think it is useful for readers to see the returns of a PRIME account so I am going to leave my wife’s other IRA as is. These two accounts were started as PRIME accounts at exactly the same time (the only difference is one is a Traditional IRA and the other is a Roth IRA) and had the exact same investment strategy initially. Both accounts even invested in many of the same loans.

In April of this year, I decided this was not the best strategy so I switched the Roth IRA, that you see in the screen shot below, to only invest in 60-month notes (the Traditional IRA is invested in only 36 month notes). After reinvesting for a bit over six months this account is now at 72% 36-month notes and 28% 60-month notes.

Lending Club PRIME Roth IRA account

The NAR trajectory of this account has followed the exact same path as my other PRIME account. It started at around 12% and has fallen to a low of 8.33% achieved last month. The real world return on this account over the past 12 months is also very similar – it is 7.72%.

As I change strategies with my other IRA account it will be interesting to see if I can create some separation between the two accounts. I certainly hope my note picking strategies will outperform the blanket investment strategy of a PRIME account.

Lending Club Changes the Minimum Investment for PRIME

Last month Lending Club changed their policy on the minimum investment needed to open a PRIME account. It was $5,000 and now it is $25,000. The reason for the change, as it was relayed to me, is that they want these accounts to be fully diversified. And they felt that $5,000 just wasn’t allowing new investors to achieve the desired diversification.

The average PRIME account is over $100,000 so for many people this won’t make any difference. But new investors wanting a hands-off approach now need to commit $25,000. If you already had a PRIME account you are grandfathered in (as the account above has been) and can maintain a lower balance.

Lending Club certainly doesn’t appear to be losing much business because of this change – they are having another excellent month.

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{ 9 comments… read them below or add one }

Dan B November 16, 2011 at 8:09 pm

When were these 2 IRA accounts started??


Dan B November 17, 2011 at 2:20 am

I’m surprised that you characterize a 7.55% real world return to date on this completely hands off Lending Club Prime account as “decent”. I think it’s outstanding.

Oh & by the way, since you are changing the rules of the game by taking this off Prime, I think it’s only fair that you concede now. Remember back in February of this year when this was returning 10% or so, I predicted that this Prime account would end up with a real world return of 4% by mid 2012. You stated (confidently) that you expected “double that”. Double that, huh? It’s not even double that today. Where do you think it’s going to be 6-7 months from now?

However, because I’ve come to develop a much higher confidence in Lending Club in general & in their competence & abilities these days, I’m willing to concede that 5% real world by mid 2012 would have been achievable………….. maybe even 5.5%. But 8%? Not on this planet. And incidentally, 5-5.5% would have been very good numbers for a hands off account in todays interest rate environment.

Now as for your intent to outperform by self managing, I think that you will be unpleasantly surprised by the difficulty in changing the momentum of that 1000+ note account. I will go on record & say that by end of 2012 you will NOT be able to open a gap larger than NAR 1.5% between the account you’re taking over & the Prime Roth IRA even though you’re already starting out with a 0.22% advantage. Care to wager? Come on, you might win. :)


Louis Lamoureux November 17, 2011 at 4:52 am

If you follow the review links back far enough, it looks like he opened his wife’s account in April 2010. I agree with you, it’s going to take a lot to move the needle on a 1000+ note account. Although, since you weren’t specific, I guess he could always tank the account to get the 1.5% separation ;)



Peter Renton November 17, 2011 at 8:22 am

@Dan, Lou is correct it was opened in April 2010 and fully invested by July. And I think you are right, a real world 8% return will be a difficult target to achieve in 6-7 months, it will probably be in the 5-6% range. But I don’t think it get down below 5%. It will be interesting to see. And you know by now that I am not much of a gambler…

@Lou, It will take a long time to move the needle on a 1,000-note account but I am in for the long haul. My goal is within 12 months to have at least a 2% (real world return) separation between my PRIME account and the one I have just taken off PRIME. One thing I should point out is that this account in only invested in 36 months so within 12 months I should have put another $25K to work or thereabouts just from the repayments.


Dan B November 17, 2011 at 3:03 pm

Peter………..You misunderstand. I’m saying that you will be unable to open a gap of larger than 1.5% by end of 2012 (13 months from now). I said nothing about a real world return of 8% in 6-7 months except that it was your prediction back in February of this year………… ridiculous as it now sounds to anyone reading this given the reality, & as ridiculous as it sounded to me when you first said it in February.
And yes, I know that you keep saying that you’re not much of a gambler etc……….The funny thing is that between the two of us you’re actually the much bigger gambler. And you can define that statement pretty much anyway you want & it will still be accurate. :)

Lou…………..Thanks for that info. You know, as odd as it may sound, I don’t think Peter could achieve more than a 1.5% separation within the allotted time even if he did try to tank the account just to prove me wrong.


Peter Renton November 17, 2011 at 3:52 pm

@Dan, I have been wrong before and will likely be wrong again but I do think I will be able to get a 1.5% separation in NAR between now and the end of 2012. I have made a note to write about about this and check in with you then.

And of course, gambling is somewhat subjective. I happily “gambled” $250,000 of my own money in my last company but I would never drop more than $100 on the tables in Vegas nor would I wager anything other than play money on a sporting event.


Ron M. January 13, 2012 at 7:42 pm

I find your experience Peter very interesting and am appreciative that you posted them. I try to keep a hands on approach with LC, but it does take a lot of time. When any of my notes are having a problem I unload them on the first sign of trouble on the 2nd market usually for a loss of $2.00 from the current balance. But Like I said, I think sometimes Ive become a money manager at having to do all of this. I think this type of investment has a high learning curve, and Im not the sharpest tool in the shed so I do like to hear from folks like you and Dan. Many thanks !


Dan B January 14, 2012 at 9:44 am

Ron M…………You’re welcome. Getting rid of problem loans in the manner that you described shows that you’re sharper than you’re giving yourself credit for. Just so that I can put your name with a mental profile, perhaps you’d like to share how long you’ve been investing, how many notes you have & how your returns have been so far. It’ll help me recognize you the next time you post.


Peter Renton January 15, 2012 at 7:03 pm

@Ron, I echo Dan’s remarks. Unloading loans at the first sign of trouble is a good way to maintain above average returns. But as you point out it is a manual process. I have over 2,500 notes spread over four Lending Club accounts and I have made the decision to not sell every note on the secondary market at the first sign of trouble. I will have defaults, and my returns will suffer because of this, but it allows me to not become the hands-on money manager like you describe.


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