Awhile back I wrote a detailed review of how I borrowed from Lending Club to consolidate debt. Today we’ll focus on investing with Lending Club.
Experience with Lending Club
Read this review with confidence knowing that I have personal experience using the Lending Club platform as both a borrower and a lender – most other reviews do not.
Benefits of social investing
First let’s consider some of the benefits of social investing (a.k.a. peer to peer lending), I’ll list the top six as I seem them, feel free to add any I miss.
- High returns – In the last 2 years I have a net annualized return (NAR) of 8.27% which is much higher than my stock market investments.
- Solid stock market alternative – Many people are uncomfortable investing in a volatile stock market they have little to no control over, I’m one of them. Social investing is a solid alternative that pays well and offers more security (as long as notes are chosen carefully).
- You can help people – People are borrowing for many different reasons, many of them are honorable. Choose notes for debt consolidation, business loans, or anything else you’d like to support. The point is, you can help people with something you’re specifically passion about, which is cool.
- Set on your own criteria – Tweak borrower criteria so you only see notes that fit your investing goals. Create and save filters based on your criteria and only invest in notes that fit those criteria. (Watch the video for more detail.)
- Easy to diversify risk – Choose different grade loans to diversify risk. Higher risk accompanies higher returns so diversify based on your comfort level.
- A secondary market – Using the FOLIOfn note trading platform (a.k.a. the secondary market) you can resell trouble loans or purchase undervalued loans that fit your risk profile.
How to pick notes
One of the best things about social investing is the ability to pick what your money will be used for. I prefer to support those looking to consolidate and eliminate debt, so I do. Maybe you want to fund small business start ups or help people pay off medical bills. It’s up to you and that’s super cool.
- Use filters – Before browsing available notes, build and save filters based on criteria that will help lower risk. (Watch the video for more detail.)
- Choose loan types – Typical loan types go toward debt, businesses, weddings, and home renovations. As mentioned, I commonly stick with debt consolidation loans because I like helping people get out of debt – invest where you want to help.
- Diversify amounts – Invest small amounts in many different notes to diversify risk. I typically set a limit of $25 or $50 per note so if any particular note goes into default, I minimize loss.
- Diversify grades – You have a choice of notes ranging from grade A to grade G. Typically A grade notes are safest and G grade notes are most risky, with a sliding scale for other grades in between. Nearly 50% of the notes I chooose land in grades B and C, but the other 50% are spread throughout the other grades to help boost returns while still providing a level of security.
Don’t make the mistake of assuming loans are less risky simply because they carry a higher grade, while this is true a majority of the time it can also bite you if you ignorantly postulate without due diligence. In my experience with defaults (there have been three) 2 were grade D notes and 1 was grade A.
I encourage you to read more about investing with Lending Club and to open an account if it’s a good fit for your situation.
Video example of social investing
I captured this video to show you around the Lending Club interface and to give you a brief example of how I go about investing in notes.
(If you cannot see the video click here.)
Get started by reading more about investing with Lending Club and opening an account if it’s a good fit for you.