Similar to last quarter’s Lending Club investment results and summary, I’m happy to report that I’m still earning a very respectable 14% return on my investments with no defaults.

True to form, I’ve made a few tweaks here and there to my original Lending Club investment strategy.

1. Account balance. Just 3 months ago, I only had $300+ and 13 notes. Based solely on initial results, I decided the potential ROI was simply too good not to scale up using a regular investment plan.
2. Regular weekly investments. I’m transferring $100 per week into my account to buy what I consider the 4 best notes in Lending Club’s database that week. Employer, job security, and the amount of time the borrower has been with their employer are my top priorities to review (see how I review these metrics quickly using Lending Club’s all encompassing loan application spreadsheet). This slow and steady investment plan helps to keeps me disciplined and investing only in the notes I consider the “cream of the crop” versus overreaching and trying to deploy too much money at once by buying notes I’m not 99% certain will repay in full.
3. Diversification. The secondary benefit of a larger account and a regular deposits is that I’m becoming more diversified. I’m told that 99% of Lending Club investors who diversify their portfolio across 100 notes or more have net positive returns, so the more protection I can add by investing the minimum amount of cash ($25) per note, the better my returns should be.
4. Dabbling in the higher ROI, higher risk notes. Occasionally, I find a really good loan application in the higher risk, Grade E and F notes that I feel should not be there. Lending Club’s underwriting is pretty tough, so in some circumstances, I’ll find what I consider a solid borrower who, in my opinion, probably deserves to be a Grade C or D note but gets labeled as Grade E and F. These might be borrowers who do not meticulously work at keeping a 720+ credit score, who have had their credit card limits cut negatively affecting their Debt to Income (DTI) ratio resulting in a short term hit to their FICO score, or might have missed a single payment 1 to 5 years ago but got it caught up without going to collections. These are what I consider the hidden gems, where you get high ROIs without the high default risk, but then again, I could be completely wrong because I am by no means a Lending Club or P2P Lending expert.

As always, there is a certain amount of risk in creating an investment portfolio of this type. If you’re new to social lending and you’re looking to put some money to work or you’re a part of the Move Your Money movement, I would suggest that you start slow, don’t chase the high yield notes right out of the gate, and find a group of investors or a experienced investor to learn from or bounce a few ideas off of. Their experience and past mistakes could be your future gains.

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