Author Topic: Desired Grade Distribution  (Read 2088 times)

jheizer

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Desired Grade Distribution
« on: August 28, 2015, 02:29:06 PM »
Seeing everyone's results from the  "What does your "Understanding Your Returns" page look like? Here's mine" thread has had me thinking about mine again lately.   How many of you strictly manage your grade distribution?  Do you just have general goals?  How to they effect your idle cash?

In the beginning I had very hard set goals on what I wanted each one to be but with my (probably too strict) criteria over time I have ended up loosening up on it a lot in order to stay as full invested as I can.  I recently started allowing a lot more Bs to be bought with the end result of having allowed a lot more Bs than I ever wanted and am way short on Es. 

Just curious how other people balance this act and how strictly they do so.
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Edward Reid

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Re: Desired Grade Distribution
« Reply #1 on: August 28, 2015, 03:32:14 PM »
I started out looking for some diversification in grades, but centered on C-D. As I built my portfolio, I realized there was little point to this. For me, the sweet spot in terms of balance between return and risk is C-D based on current stats. However, looking at older stats, I saw that after the 2008-2009 downturn, D loans tanked badly -- even went into negative returns -- whereas C loans were much more stable. Since then I've only been looking at C grade.

Of course, this is based on my situation. Those who can afford to gamble a bit more buy a lot of E-F notes. You see that in some of the distributions posted -- those investors have few A-B notes. Someone who needs to be more conservative should stick to A-B notes -- adding riskier notes does not diversify them, but merely increases their risk.

I'm also almost entirely in 60-month notes. My time horizon is long enough for that, and I like the higher returns. Even if returns should change so that 36-months notes are better, I'm not stuck for all that long.

I have a couple hundred notes. I started out with 25s but switched to 100s, and I'm looking to move toward all 100s. That will take five years due to having bought a lot of five-year 25s, and by that time I might have a bit more to invest, and increase the note size as I build up. The diversification charts show that owning more than 200 notes reduces the variation in performance very little, and more than 500 virtually not at all, so my goal is to keep the ratio of total investment to note size between 200 and 500. I'll probably stay at the lower end (fewer notes) so that I can take more time studying the ones I invest in.

Edward

lascott

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Re: Desired Grade Distribution
« Reply #2 on: August 30, 2015, 10:01:19 PM »
Initially I was only doing D & E. I was using P2P-Picks via Bluevestment and was trying to do the top 5%. When that didn't purchase enough (vs money building up because of paid off and added investments) then I went to 10% and then 25%.  After I saw CircleT009 account, his longevity and reasonable return I started going in to C, then B, then As as I needed/wanted to invest more money.


Depending on the 3rd party or home grown service you use, you can change your criteria for each grade. I do some of that and probably why I'm in the more conservative group.  ie. imagine any of the borrower criteria that could likely be different (worse) as you go from A's to G's. Think Debt-to-Income, Loan-To-Income, FICO, utilization, etc. One can adjust these numbers for each grade to get the risk toleration they want within a given grade.  Could mean less notes within a grade tho depending on your criteria.

The more money I'm adding to P2P probably the more conservative I'm getting as I'm expecting to be into P2P for 10-15 years.

As I get fully invested I may change my criteria to be more strict for some grades I'm really overweighted in (i.e. all Bs, A1, A2)
« Last Edit: August 30, 2015, 10:23:31 PM by lascott »
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rawraw

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Re: Desired Grade Distribution
« Reply #3 on: August 31, 2015, 01:59:15 PM »
I manage it and stress test it periodically, which then informs whether to scale up or down risk

jheizer

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Re: Desired Grade Distribution
« Reply #4 on: August 31, 2015, 02:04:44 PM »
I guess in my case I am being "forced" to low risk so I shouldn't complain.  Basically in the beginning I had hard set numbers.  Then I have those numbers + 5% buffer.  Now I am just kind of like what ever I get I get.
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