For almost a decade personal investors have used Lending Club as a staple to diversify their portfolio as an Alternative Investment. Reviews written between 2010-2015 would always boast about their strong returns. But is it still worth it today? Read my Lending Club Review before making your decision to invest here or not.
I opened my account at Lending Club in October 2016. Only a few months after the company fired its CEO, Renaud Laplanche, from questionable lending practices. The stock price back then was trading just under $6 a share (down over 50% from a year prior).
Why (you ask) did I decide to open my account then? Well, I figured uncovering a scandal would require the board of a publicly traded company to take immediate actions as a positive sign that there would be stricter guidelines towards the loans issued to investors.
But, I was wrong. This blog post is 12 months in the making. But before we fast forward to today, let’s dissect the investment.
I followed Lending Club’s recommendation to start with at least 100 notes. And I used their Automated Investing tool. The breakdown was as follows:
- $25 notes
- 3 year notes
- more weighted in B/C grade return and risk
When starting, my Lending Club investing strategy estimated a projected return to yield 5.98%. I was willing to give up higher returns for notes that carried less risk given that I was new to this investment vehicle.
High-yield bonds are typically lower-quality bonds, meaning they carry more risk with a potential higher upside in yields. These bonds are considered speculative for taxable bonds and invest mainly in U.S. high-income debt securities with potentially no given rating.
I decided to benchmark Lending Club’s performance against iShares High Yield ETF (Ticker GHYG). Historically iShares were yielding a little over 4.5% and their last 3 years were just under 2%.
Let’s fast forward to today. As of October 2017, my expected returns is only 3.06%. Out of a total of 154 loans issued, 12 loans are 30+ days late or have defaulted and 6 more are at risk of being late. Also, within that time, Lending Club lowered my expected returns to now range between 3.79% – 7.82%.
During that same time frame, a CD would have locked me in for higher security at a lower yield of 1% but a High Yield ETF would have yielded me a range between 5% – 10% with the option of having higher liquidity.
So, Is Lending Club Still a Good Investment?
In my opinion, not for me. The risk is too high and the reward too small. It’s only been a year and almost 10% of my loans have already defaulted or are trending to default. Because of this, I have decided to withdraw all cash as notes mature.
I do acknowledge others have had a lot of success with Lending Club over the decade and my situation could be unique. I am not saying not to invest with them but wanted to share my experience to help you make your own decision. Depending on your strategy, this may be a better option for you than maybe CDs or other notes. But is Lending Club worth the higher risk for an additional 1-3% gain? Not for me personally, there are better investments out there at a comfortable risk level and higher returns.
If you would like to stay in the Peer-to-Peer space, read my review about Real Estate Peer-to-Peer lending (coming soon).
Comment and Share your thoughts and experiences with Lending Club below!