Peer to Peer lending through Lending Club carries a higher risk profile than owning good stocks or bonds. As unsecured loans there is nothing that Lending Club can repossess to make up any loses from people either going bankrupt or disappearing/refusing to pay. The most that they can do is report the non payment which will in turn destroy a person’s credit ratting if it goes on for long enough. After that the loan is “charged off” and typically the debt is sold to a third party who tries to recover anything they can. You may eventually get a recovery payment if anything is recovered to pay the customer’s debts but usually it is a small percentage of what was owed.
January Posted a Loss
January 2017 has been the first month since I began investing in Lending Club I actually lost money. I had a gain of $30 but a loss of $43. So for this month Lending Club has not been a winner coming in at -$13.
In the last 2 months I’ve had a larger amount of loans than average become late so I have been expecting this. I think there may be a correlation to the holiday season and an escalating amount of late/defaulting loans. It is something I will need to keep in my mind for the end of this year to see if that is a trend I can expect going forward.
Any recoveries usually take a month or more to come back so there is a chance that I will recover some of my losses after this point. Though I am hopeful and I have been paid some recoveries in the past, I don’t calculate this into my monthly income figures.
I don’t expect to post every time I have a loss in Lending Club. I assume I will see more months with losses but will overall bring back a good percentage at the end of the year. I just chose to mark this particular month as it took over 2 years for me to have my first losing month.
Keep Calm and Continue Investing
Every month won’t be a winner. That said my Lending Club portfolio is currently returning over 6% annually even after January’s losses. This is a good case study for not letting emotion rule my investing decisions. Yes, there has been a loss over a small amount of time but if I zoom out there have been appreciable gains and one month is not indicative of a trend. My plan is to keep investing, keep rolling over interest, and continue to monitor my portfolio. If a trend develops I can make a determination then but right now I believe this to be an isolated event. Something to take note of but not act upon.