Peer to Peer Lending – 2014 Annual Prosper Report

It’s time for my annual Prosper check in. Like many things in my life, this year was not as good a year when it came to our peer to peer lending. Unlike many other things in my life, I can tell you exactly why- lack of diversity. When you only have 5-6 active loans and two of them default, even if they default at having paid at least 75% back, it makes a big impact. However, in order to get better diversity, I would need to invest more money into the process, and this year, at least, that has not been an option.

I guess I can feel good about the fact that we never felt the need to take money out of the Prosper account this year, unlike when C lost his job. At the same time, we had $3,000 invested back in 2009 and now only have a little over $200. Our available balances to be transferred out were never big enough that it would have mattered.

Year

Account Total Overall Rate of Return One Year Rate of Return Two Year Rate of Return Three Year Rate of Return

2011

$  135.00

(10.7%)

2012

$  172.50 (9.5%)

27.8%

2013

$  226.00 (7.6%) 31.0%

67.4%

2014

$  206.17 (8.4%) (8.8%) 19.5%

52.7%

 

This year, our two year returns seem a bit more sustainable, and our three year returns are nice. We did have a loss over the last year, but as I said, that doesn’t take a whole lot when you have as little invested as we do.

And sometimes, it helps to celebrate successes as well as losses. While we did have two more loans charged off this year, we also had one paid in full. And enough money from interest in order to invest in two more loans.

Year Charge Offs Paid In Full Active Loans
2011 26 28 3
2012 26 28 5
2013 26 29 6
2014 28 30 5

The one thing I CAN do to help my diversity is to start checking in more often (now I remember to check the Prosper account maybe one or two times a year besides when I do this report) and invest smaller amounts in more loans. For example, the last loan I invested in, I invested $70. You can invest as little as $25, so I might be better targeting $25 as the amount I invest in any loan. Because I would then have more loans, with less invested in each loan, I would lessen the risk I face from any one loan being charged off.

The key is, then, to remember that I have come up with this strategy. I say that because my strategy in the past was to stick to B and HR loans, and especially avoid the D rated loans, because my own numbers have shown those to have the greatest risk. And yet, that $70 I recently invested- D rated loan.

Original Loan Amount Interest Rate Amount Paid Prosper Credit Rating Term Ends
$    70.00 20.85% $           - D Sep-19
$    25.00 13.35% $       5.10 B Dec-18
$    75.00 15.20% $    21.28 B Sep-18
$    30.00 30.77% $    24.69 HR Jan-16
$    40.00 17.45% $    30.94 B Feb-17
Total
$  240.00 19.52% $    82.01

 

(Remember, don’t try to make the numbers add up. Some money that has come in has been reinvested.)

Last year at this time, I had $275 invested at a greater than 22% interest rate. This year, I am down $35 and a few percentage points. I am mostly okay with that because I have chosen to invest in a number of the B rated loans, which don’t have the highest pay offs, but have traditionally been my safest investments. And since I took a loss last year, having a slightly less risky portfolio this year feels okay.

The other thing I need to start paying more attention to is the term of the loans. Right now, I only have one 3 year loan. The rest are 5 year loans. I think I may want to try and keep those numbers a little more even, or, if I lean a certain direction, to start leaning toward the 3 year term loans.

 

So that’s this year’s Prosper/Peer to Peer lending report. Not as rosy as last year’s but probably more realistic in terms of long term rates of return, and still, not too bad. I’ve spent $35 on a lot worse “investments” over the years.