Help Understanding NAR, IRR when Reinvesting Principal and Interest

[Rob L]

Meanwhile "incredadot" (now at 24 months) seems to have been marching day for day to the right since this graph first appeared.
If that's an unhappy camper I'm really missing something here.

[BruiserB]

"Incredadot" - love it! Could this person have bought 500 individual notes of $25 but all from the same loan?  That would be a $12,500 investment and they would technically be separate notes. I have inadvertently bought 2 notes from the same loan before when I was picking manually. I currently have 2 like this in default right now. :-/

I know Bluevestment actually allows you to specifically request $25 notes even if you invest more than that per loan...I suppose to make them more marketable should u later sell on Folio. 


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[TonySaunders]

Accounts on the right edge of the chart are essentially idle accounts; i.e., no new investments.

The worst of the charge-off rates in the graph above are no longer affecting anyone's NAR. The oldest 3 year notes today are from the second half of 2011 (and that is the BEST year to date).

I don't have any good explanation for the astonishingly consistent and uniform results that seem to be dictated by the right edge of the ANAR graph.  My experience has been completely different from what the graph seems to say. I've been earning about 15.5% IRR and 16.5% ANAR consistently for years, and I know that other people often perform similarly. I'm a good investor, but I'm not such an extraordinary one that I expect to earn double the usual rate. I have no empirical reason to doubt the graph and nothing but anecdotes to contend with it, but I know something isn't right. I think a mistake has been made somewhere in our interpretation or understanding of... something.

[Deming]

What does LC report your "Average Age of Portfolio" ?

[TonySaunders]

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.

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.

[rawraw]

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.

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.

Hence the big disclaimer on that graph about folio transactions ha ha

[lascott]

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.

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.

[Deming]

I believe if all cash is reinvested, then you might get lucky with an Avg Portfolio Age of 1/2 the terms of your portfolio.

Average age = (0 + 36) / 2 = 18 months.

In that case, at 18 months on the curve, 80% of us are all looking at a return of between 5.7 and 9.7% NAR. If you hold only 60 month notes, then at 1/2 that term of 30 months, you will be looking at between 5 to 8.8% NAR. That is likely the best case unless the entire curve shifts to the right due to fewer defaults in a stronger economy. It's statistics and there is no escaping the inevitable consequence of an aging portfolio and the curve of despair.

Once you stop reinvesting, your NAR will decrease as your avg age slides to the right and will continue until you are fully liquidated. That will be a sad and painful thing to watch...

Here is a recent quote from a well know LC member whose avg portfolio age is about 15 months old and is exactly where expected on the curve. 

Average Portfolio Description (weighted by remaining principal where noted)

Interest Rate (weighted)	18.1%
Age (unweighted)	456 days
Age (weighted)	359 days

Returns

LendingClub Net Annualized Return	9.70%
Excel XIRR (inc. cash drag)	9.36%

[Half Right]

I was curious so I looked at the age of the portfolio. I have been investing for about 4 years all in 3 year notes. All proceeds reinvested almost immediatly and the average portfolio age is 19.1 months. Apparently the approval process, especially at the end of the month, when LC holds back notes so the Loan Issuance graph looks pretty and consistent, cause the portfolio to age by 3/4 of a month.

[Emmanuel]

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?  IRR will be slightly less than that. 

6.93%, exactly. Well, at least according to our calculations: http://blog.lendingrobot.com/post/92058702871/

[turing]

What does LC report your "Average Age of Portfolio" ?

I'm assuming you meant to type "where".

Here are some screenshots to show you how to get there and directions.

1) Click 'understanding your returns'
2) See 'Average Age of Portfolio" to left of chart

[Deming]

I noticed your account number in your screen shot which you should edit and crop out. 

[turing]

I noticed your account number in your screen shot which you should edit and crop out. 

Good catch.  Thank you.  I have cropped and reposted.

[TonySaunders]

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.

[Deming]

Tony,

What is your actual IRR?  What method do you use for your IRR calculation? (ex. Excel XIRR, InterestRadar).  Does it include cash drag?