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.
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.
