QUESTIONS:
1. Since I am reinvesting the paid out principal and interest, will it take longer than 18 months to for the Avg Age to go from 6 to 24 months? Is there some rule of thumb for this?
It is difficult to get IRR to match NAR (much less ANAR), because NAR takes into account late fees, charge offs, and recoveries from every periodic.
It is difficult to get IRR to match NAR (much less ANAR), because NAR takes into account late fees, charge offs, and recoveries from every periodic.
Also, NAR is an "instantaneous" number (to borrow from Calculus class), not an average number for a period of time. NAR changes every period. I don't think we can use NAR to answer your questions 3 & 4.
For example, suppose I have all 36 month notes with Weighted Avg Interest Rate of 20%. So, after a long time, like maybe 5 years, my expected NAR would be around 9.4% as taken from the LC chart median value at 18 months. My IRR will be less than the 9.4%, but likely close to it.
Is that a reasonable approach to estimating my expected long term NAR (My IRR will be less than the NAR) ?
It is impossible to get them to match. NAR is a hack. It contains no notion of time at all, so it can never properly account for the time value of money.
There is no value in even talking about how stupid it is, except that LC uses it, so people talk about it. NAR is a hack.
Real men use IRR.
I guess you could look at the right edge of the NAR graph to get a better idea about the performance of a note after it's full 36 month lifetime. But THAT isn't particularly satisfying data.That is exactly what I was doing.
I guess you could look at the right edge of the NAR graph to get a better idea about the performance of a note after it's full 36 month lifetime. But THAT isn't particularly satisfying data.
So are 99% of all LC investors going to end up with a NAR in the range of about 5% to 10% (at right edge of graph) in the end?
Accounts on the right edge of the chart are essentially idle accounts; i.e., no new investments.
That's a good question. I can't use LC because they say my NAR is 22% because of my use of note trading, so that's totally useless and means nothing.Hence the big disclaimer on that graph about folio transactions ha ha
Instead, I calculate the values myself in a spreadsheet. My IRR calculation is precise. But my NAR is a bit different from LC... I don't track individual notes, after all. Hmm... I retract my statement about my NAR, it's not an appropriate comparison.
Good point. What about folks with 60 month (5 year) notes? How long have those been around? Certainly that will move your average account age farther to the right than those that just buy 36 month (3 year) notes.So are 99% of all LC investors going to end up with a NAR in the range of about 5% to 10% (at right edge of graph) in the end?
Accounts on the right edge of the chart are essentially idle accounts; i.e., no new investments. Like several people already mentioned in this thread, new investments (even re-investment of payments received) keep your portfolio age low.
Average age = (0 + 36) / 2 = 18 months.
Average Portfolio Description (weighted by remaining principal where noted)
Interest Rate (weighted) 18.1%Age (unweighted) 456 daysAge (weighted) 359 days
Returns
LendingClub Net Annualized Return 9.70%Excel XIRR (inc. cash drag) 9.36%
QuoteI guess you could look at the right edge of the NAR graph to get a better idea about the performance of a note after it's full 36 month lifetime. But THAT isn't particularly satisfying data.
So are 99% of all LC investors going to end up with a NAR in the range of about 5% to 10% (at right edge of graph) in the end? IRR will be slightly less than that.
What does LC report your "Average Age of Portfolio" ?
I noticed your account number in your screen shot which you should edit and crop out. :)
Tony,
What is your actual IRR? What method do you use for your IRR calculation? (ex. Excel XIRR, InterestRadar). Does it include cash drag?
Ahhh! I can't believe I've never noticed this "Understanding your returns" page before! Here's what mine says, but it's confounded by my use of trading. So not nearly as impressive as it seems.It took me a while to find where those benchmark charts were located too :) I saw people posting screenshots of them, but couldn't find my own. The link text is not very helpful for where it actually takes you.
(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Ftonysaunders.net%2Fpics%2Freturns.png&hash=ff36fc1000cad37e8108d8c5b3595f47)