New to LC investing

[jonah]

As I mentioned in the subject line, I'm very new to Lending Club, created my account 3 weeks ago.  My question is in regard to diversification within my trading account.

I would be interested to hear opinions based on my trading and current notes invested.

1.  At the moment I invest in notes in Debt Consolidation and Credit Card Refinance in the following grades:
Grade A: 30%   Grade B: 40%  Grade C: 30%

Notes invested in: 40   Will be investing in at least another 60 notes maybe 160 notes with in the next week.  I invest in $25 notes.

I would like to continue investing in Grade A,B,C notes in debt and CC catagories. 

Am I diversified enough for the time being, lets say for the next month.  Or should I invest in other categories? such as car finance etc...

Can an investment be diversified enough only in Grade ABC notes in Debt Consolidation and CC refinance?  Or am I better off diversifying in other categories such as car financing, home down payments etc.... (as an example)?

Now I'm questioning my investment strategy!

My goal is to reinvest and continue to add cash for investments. 

[jz451]

I'de recommend when investing the rest of your money to stay away from A grade it returns only about 5% and B grade returns almost 7% and that is without any filtering. Since you're new I'de recommend going to nsrplatform.com create an account and play with their backtesting filters to optimize note selection for what you are comfortable with. Since you're already heavily invested in A grade loans it would be better to invest in a breakdown something like 10% A, 30% B, 50% C, 10% D, or    10% A, 40% B, 40% C, 10% D.

[jonah]

I appreciate the input, will keep this in mind when investing.

Thank you,
Jonah

[rawraw]

Step 1: Define your investment objective.
Step 2: Define what risk you are willing to take (how much are you OK with losing?)

After you answer those above, I think you can start to decide how to execute the strategy.  People will be very upset with A borrowers, until the day where they may be the only one with positive returns.  Setting the rules up front on what you want is key in my opinion.  And having arbitrary return numbers is normally a bad idea.  Relative measures normally get you in less trouble

[jonah]

Step 1: Define your investment objective.
Step 2: Define what risk you are willing to take (how much are you OK with losing?)

After you answer those above, I think you can start to decide how to execute the strategy.  People will be very upset with A borrowers, until the day where they may be the only one with positive returns.  Setting the rules up front on what you want is key in my opinion.  And having arbitrary return numbers is normally a bad idea.  Relative measures normally get you in less trouble

1. investment objective:
a. to earn better interest returns than what I would receive from a bank.
b. to be diversified in a number of different investments;  stocks, real estate, debt notes.
c. a steady positive ROI.

2. Risk:
a. I'm not looking to invest in risky notes.   
b. I would consider myself a conservative investor especially when it comes to investing in debt.


Investing in only debt consolidation and cc refinancing notes diversified enough or should I also invest in other types of loans?

[jz451]

Overall investing in all loan purposes does not make a big different in performance so it's up to you to only invest in only debt consolidation/credit card payoffs.

1. investment objective:
a. to earn better interest returns than what I would receive from a bank.
b. to be diversified in a number of different investments;  stocks, real estate, debt notes.
c. a steady positive ROI.

2. Risk:
a. I'm not looking to invest in risky notes.   
b. I would consider myself a conservative investor especially when it comes to investing in debt.


Investing in only debt consolidation and cc refinancing notes diversified enough or should I also invest in other types of loans?

[rawraw]

1. investment objective:
a. to earn better interest returns than what I would receive from a bank.
b. to be diversified in a number of different investments;  stocks, real estate, debt notes.
c. a steady positive ROI.

2. Risk:
a. I'm not looking to invest in risky notes.   
b. I would consider myself a conservative investor especially when it comes to investing in debt.


Investing in only debt consolidation and cc refinancing notes diversified enough or should I also invest in other types of loans?

What do you mean by "steady positive ROI"

Also, define what you mean by risky notes?  To me, it seems so far that you should be heavily weighted A/B

[Fred93]

1.  At the moment I invest in notes in Debt Consolidation and Credit Card Refinance in the following grades:
Grade A: 30%   Grade B: 40%  Grade C: 30%
...
I would like to continue investing in Grade A,B,C notes in debt and CC catagories. 

Am I diversified enough for the time being, lets say for the next month.  Or should I invest in other categories?

Sounds like a fine conservative plan.  I also invest only in the debt & CC categories.  Starting by thinking first about risk level you can tolerate, and going from there is the right approach.  You'll do fine.

As you look back a year from now, you may decide to make some adjustments, but for now, I'd suggest keep it simple, and stick with your good plan.

[jonah]

After doing some more research on Lend Academy and reading the replies I've received, I feel confident with my strategy.

I want to thank those who replied to my post!

[SLCPaladin]

People will be very upset with A borrowers, until the day where they may be the only one with positive returns.  Setting the rules up front on what you want is key in my opinion.  And having arbitrary return numbers is normally a bad idea.  Relative measures normally get you in less trouble

This is excellent advice. Many people erroneously think that higher risks equals higher returns. While it is true that higher risk is usually required for higher returns, it's not like a knob on a stove. Higher risks also implies the possibility of higher losses, and it is easy to gloss over this fact. Your strategy is similar to mine. I don't invest in notes below C, and lately I've been gravitating towards the A and B side. It's a conscious choice I've made for my own personal circumstance. Other strategies may indeed outperform, but are not suitable for my personal needs.

[Larry321]

I think the proper investment goal should always be to meet or better the Dow.
You can always put your money into a DJ fund and match the market. The goal should be to beat the market.

Step 1: Define your investment objective.
Step 2: Define what risk you are willing to take (how much are you OK with losing?)

After you answer those above, I think you can start to decide how to execute the strategy.  People will be very upset with A borrowers, until the day where they may be the only one with positive returns.  Setting the rules up front on what you want is key in my opinion.  And having arbitrary return numbers is normally a bad idea.  Relative measures normally get you in less trouble

1. investment objective:
a. to earn better interest returns than what I would receive from a bank.
b. to be diversified in a number of different investments;  stocks, real estate, debt notes.
c. a steady positive ROI.

2. Risk:
a. I'm not looking to invest in risky notes.   
b. I would consider myself a conservative investor especially when it comes to investing in debt.


Investing in only debt consolidation and cc refinancing notes diversified enough or should I also invest in other types of loans?

[SLCPaladin]

I think the proper investment goal should always be to meet or better the Dow.
You can always put your money into a DJ fund and match the market. The goal should be to beat the market.

That is an interesting thought. I invest in LC notes because I believe in the hypothesis of achieving yields that are uncorrelated (or less correlated) to stock market fluctuations. I'm not necessarily looking to beat the broader market, I want a stable, income generating stream of cash with less volatility that stock market gyrations. My investment in LC notes is entirely different than my stock investments.

[rawraw]

Two thoughts:

1) That logic just doesn't work across asset classes.  That may be a good conceptual question for other equity strategies, but not when you are looking at the returns of loans.
2) Investments are not always seeking the highest rate of return.  This may be the case for you, but my opinion is that it isn't a good idea to make this assumption for everyone.

[dmcnic]

I think the proper investment goal should always be to meet or better the Dow.
You can always put your money into a DJ fund and match the market. The goal should be to beat the market.

The notes available on LC are fixed income notes with a limited maturity. That is nothing like the Dow (which is composed of variable income equities with indefinite maturity). It is much better to find something that has similar characteristics. Perhaps the Vanguard Total Bond Market ETF (BND). It has a YTD Return of 4.89% and a current yield of 2.42%.

Use the equity portion of your portfolio to beat an equity market measure like the Dow.

[Edward Reid]

People will be very upset with A borrowers, until the day where they may be the only one with positive returns.  Setting the rules up front on what you want is key in my opinion.  And having arbitrary return numbers is normally a bad idea.  Relative measures normally get you in less trouble.

Yes ... with all the numbers tossed around here, it's easy to lose track of the fact that class A notes yield (at present) far better returns than CDs with nearly the safety. (Though not guaranteed! If you would be destroyed by the loss of your LC investment, run away now.) And it's better than inflation, which is an important relative measure for many investors.

I don't buy the concept of "class diversification". To me, that's just diluting your goals and risk tolerance. Pick the class that fits your goals and risk tolerance and invest there. But make sure to look at historical data: for example, C and D are yielding about the same today, but D notes tanked after the 2008 crash while C notes did not. Past performance is not a guarantee of future performance, but does provide cautionary tales.

Your goal in terms of number of notes is good. You'll see investors here with 100 times as many notes, and they have many reasons. But when you study the statistics and charts -- as it appears you've done -- you find that the diversification benefits of 200 similar notes are pretty much the same as for 20,000 notes.

Edward