Author Topic: a view of LC's deteriorating investor returns  (Read 24028 times)

SLCPaladin

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Re: a view of LC's deteriorating investor returns
« Reply #45 on: February 24, 2017, 12:23:52 PM »
I had changed to B loans only a short while back. Then, in light of the 2016Q4 results, I stopped reinvesting completely. Not doing any Folio selling just letting cash build up. My reading of the 8k was that LC doesn't plan any additional steps in favor of retail lenders so I don't expect things to get better for us any time soon. If they do I'll resume investing; if not I'll cash out in phases. Might look into Folio selling another half the portfolio if I get around to it but I'm in no hurry.

That seems like a reasonable strategy. I build cash up so quickly in my account and I don't have any good alternatives at the moment for where to deploy it. The latest CPI numbers show inflation seems to be accelerating, so I hesitate to just have cash building up, but I'd much rather that than lose it with a bad investment! A local credit union has CDs for 2.75% with a one-time bump up option, but the terms are 5-years. Just trying to figure out alternatives if I stay on the sidelines.

Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #46 on: February 24, 2017, 12:59:49 PM »
I don't really have much to add here other than I'm sort of perplexed with where to go. My historical returns have dropped now and my recent returns are not good. My portfolio is pretty mature and I'm hesitant to reinvest the new proceeds because I can't seem to get any clarity as to whether the ship is being righted or if there is a second shoe yet to drop.

I think that describes our situation well.

Quote
I'd appreciate some comments from other users as to how they are playing this. For instance, what are you all doing in light of what you know? What filters do you see working in this new environment or are you waiting it out altogether.

I shifted my filters several times during 2016 and early 2017 toward the safe more conservative end.  This was done principally via grade and term, but also a few of the credit variables.

I implemented an automated folio selling program to reduce my exposure to some of the loans that would no longer meet my buy criteria.   I have started with the loans that are far outside my present criteria.  Folio has very low liquidity for notes above the $25 size, so this is very slow.  However, liquidity for larger size notes in increasing vs time.

At the present rate of sale, it would take 10 years to liquidate my portfolio, so this is more of an experiment than a practical tool at this time.  Of course I could reach in and turn a knob (discount formula) and make it go faster if I wished.  I'm presently pricing at a fair discount, not a panic price. 

I am continuing to reinvest, but not adding new funds.  Scratching my head tho about whether I am doing the right thing.

AnilG

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Re: a view of LC's deteriorating investor returns
« Reply #47 on: February 24, 2017, 07:30:31 PM »
If inflation is your concern, look into I-series bonds from TreasuryDirect. We max out our allocation of I-series bond every year ($10,000 per SSN per year). You don't have to pay taxes on interest until bond matures or you cash out and interest rate adjusts for inflation every six months.


That seems like a reasonable strategy. I build cash up so quickly in my account and I don't have any good alternatives at the moment for where to deploy it. The latest CPI numbers show inflation seems to be accelerating, so I hesitate to just have cash building up, but I'd much rather that than lose it with a bad investment! A local credit union has CDs for 2.75% with a one-time bump up option, but the terms are 5-years. Just trying to figure out alternatives if I stay on the sidelines.
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SLCPaladin

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Re: a view of LC's deteriorating investor returns
« Reply #48 on: February 24, 2017, 10:48:41 PM »
Thanks for the suggestion Anil. I do have quite a few I-series bonds, as it happens. I need to look at those again. I haven't invested in them in some time. The ones that I picked up in the early 2000's were making 6-7% though, which was incredible. The current fixed rate portion of these bonds is set at 0%. Many years ago, I remember picking up these I-bonds when the fixed ratio portion was about 3%+, plus the CPI inflation portion added on top of that. Needless to say, those bonds are still sitting in my Treasury Direct account.

If inflation is your concern, look into I-series bonds from TreasuryDirect. We max out our allocation of I-series bond every year ($10,000 per SSN per year). You don't have to pay taxes on interest until bond matures or you cash out and interest rate adjusts for inflation every six months.


That seems like a reasonable strategy. I build cash up so quickly in my account and I don't have any good alternatives at the moment for where to deploy it. The latest CPI numbers show inflation seems to be accelerating, so I hesitate to just have cash building up, but I'd much rather that than lose it with a bad investment! A local credit union has CDs for 2.75% with a one-time bump up option, but the terms are 5-years. Just trying to figure out alternatives if I stay on the sidelines.
« Last Edit: February 24, 2017, 11:07:37 PM by SLCPaladin »

AnilG

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Re: a view of LC's deteriorating investor returns
« Reply #49 on: February 24, 2017, 11:18:07 PM »
Lucky you! I wish I had those 3%+ I-series bonds. I am sure those bonds are still generating 4.5+% for you with minimal risk. No investment will come close to offering risk-adjusted return of those bonds. Right now the fixed portion is 0% but I still buy them as they offer inflation-protection and deferred taxes on interest.

Thanks for the suggestion Anil. I do have quite a few I-series bonds, as it happens. I need to look at those again. I haven't invested in them in some time. The ones that I picked up in the early 2000's were making 6-7% though, which was incredible. The current fixed rate portion of these bonds is set at 0%. Many years ago, I remember picking up these I-bonds when the fixed ratio portion was about 3%+, plus the CPI inflation portion added on top of that. Needless to say, those bonds are still sitting in my Treasury Direct account.

If inflation is your concern, look into I-series bonds from TreasuryDirect. We max out our allocation of I-series bond every year ($10,000 per SSN per year). You don't have to pay taxes on interest until bond matures or you cash out and interest rate adjusts for inflation every six months.
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SeattleSun

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Re: a view of LC's deteriorating investor returns
« Reply #50 on: March 09, 2017, 04:03:48 PM »
.
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Wow, rare to see a discussion of I-Bonds IMO most times I bring them up I just get blank stares.

Back in the "good old days" me and the Mrs bought our annual limit of $30,000 per SSN and have the 2001 $60k tranche with a fixed component of 3.0%, the 2003 $60k tranche has a fixed component of 1.1% and the 2005 $60k tranche has a fixed component of 1.0%  And yes they are so old they are "paper bonds". 

Add to that the current semi-annual inflation rate (CPI-U) 1.38%  and you get a yield of : 2001 +5.20%, 2003 +3.35% and 2005 +3.17% and all is "tax deffered" so far.  Sometimes I lament having those three plus % returns on those 2003 and 2005 returns so it was comforting to see AnilG say, "No investment will come close to offering risk-adjusted return of those bonds".  I think "risk adjusted return" must be the key words there.

Since I do this investing stuff as a "hobby" maybe one of you "smart finance guys" would tell me what you think about my I-Bond returns to date. Note the return gets adjusted every six months so I am just quoting the interest earned over the time I have held the I-Bonds.

1)  An Oct 2001  $10,000 I-Bond have  earned interest of $11,872 as of 1/1/17 - 15 years + 3 Months or 183 months.  Good, bad or average investment. 

One of my reference is the gold bullion I bought in the fall of 2001 at $299/oz and is up 400% as today's close at $1,200 an ounce. 

2)  A July 2003  $10,000 I-Bonds has earned interest of $5,660 as of 1/1/17.

3)  A Nov 2005 $10,000 I-Bonds has earned interest of $4,202 as of 1/1/17.

SOMETIMES I FEEL I OVER PAID FOR HAVING THE US GOVERNMENT INFLATION PROOF  $180,000 OF MY CASH STASH.

When I did my retirement planning in 2005 I ran senerios at 4%, 6%, 8%, 10% and 12% inflation.   LOL

That's what living through the 1970's does to your mind!



================================================================

More on the topic of this thread I decided to stop investing in P2P (Propser)in June of 2016 since I had an investment opportunity that did in fact have a 21% return last year.  Priority day trading strategy, so sorry can't tell.   High "pucker factor" as one might imagine.

I have just been letting my P2P account "decay" naturally and harvest the cash quarterly. So far have withdrawn $38k

The family has two accounts one yielding 10.1% and mine yielding 9.1%

Edit: after reading this full thread, note that the two account are "old" and full of 36 month loans.

All "Debt Consolidation"
A 12%
B 48%
C 28%
Cash 12% which I will pull out at the end of March

So maybe I got "lucky" being "conservative" with my "self directed" selection criteria.


SeattleSun



If inflation is your concern, look into I-series bonds from TreasuryDirect. We max out our allocation of I-series bond every year ($10,000 per SSN per year). You don't have to pay taxes on interest until bond matures or you cash out and interest rate adjusts for inflation every six months.


That seems like a reasonable strategy. I build cash up so quickly in my account and I don't have any good alternatives at the moment for where to deploy it. The latest CPI numbers show inflation seems to be accelerating, so I hesitate to just have cash building up, but I'd much rather that than lose it with a bad investment! A local credit union has CDs for 2.75% with a one-time bump up option, but the terms are 5-years. Just trying to figure out alternatives if I stay on the sidelines.
« Last Edit: March 09, 2017, 10:01:26 PM by SeattleSun »

SeattleSun

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Re: a view of LC's deteriorating investor returns
« Reply #51 on: March 09, 2017, 05:00:46 PM »
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That seems like a reasonable strategy. I build cash up so quickly in my account and I don't have any good alternatives at the moment for where to deploy it. The latest CPI numbers show inflation seems to be accelerating, so I hesitate to just have cash building up, but I'd much rather that than lose it with a bad investment! A local credit union has CDs for 2.75% with a one-time bump up option, but the terms are 5-years. Just trying to figure out alternatives if I stay on the sidelines.


Hoping not to be "Captain Obvious" but in a rising interest rate environment you want to lend short term and keep rolling over you money into a higher interest rate. 

So going "long" with a 5 year CD now seems "wrong".  Yea it appears they are willing to give you one adjustment but ......

Build a "ladder" of monthly CDs and keep rolling them over.   I helped my conservative Mom and Dad do that into the 1981 interest rate peak.  Then when rates start to fall go long term. 
« Last Edit: March 09, 2017, 05:36:54 PM by SeattleSun »

SLCPaladin

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Re: a view of LC's deteriorating investor returns
« Reply #52 on: March 10, 2017, 12:22:57 AM »
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That seems like a reasonable strategy. I build cash up so quickly in my account and I don't have any good alternatives at the moment for where to deploy it. The latest CPI numbers show inflation seems to be accelerating, so I hesitate to just have cash building up, but I'd much rather that than lose it with a bad investment! A local credit union has CDs for 2.75% with a one-time bump up option, but the terms are 5-years. Just trying to figure out alternatives if I stay on the sidelines.


Hoping not to be "Captain Obvious" but in a rising interest rate environment you want to lend short term and keep rolling over you money into a higher interest rate. 

So going "long" with a 5 year CD now seems "wrong".  Yea it appears they are willing to give you one adjustment but ......

Build a "ladder" of monthly CDs and keep rolling them over.   I helped my conservative Mom and Dad do that into the 1981 interest rate peak.  Then when rates start to fall go long term.

I really do appreciate this insight. I think this is only true if one knows that interest rates are indeed going higher. If we fall into a recession (we are due for one), inflation and interest rates could stay low, or reverse course.

I should have mentioned that the credit union 2.75% 5 year certificate has the option of a 1-time rate readjustment that can be exercised by certificate holder. This gives me a bit of confidence to pull the trigger. The math here is always challenging because I have to essentially forecast how quickly rates will rise as locking money into a 6-month, 1-year, or 18-month risk-free CD guarantees paltry returns (likely below the most recent CPI). On the other hand, lock into a 2.75% and if interest rates shoot up rapidly (like in the 80s), then my gamble will most certainly be a bad one.

nonattender

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Re: a view of LC's deteriorating investor returns
« Reply #53 on: March 11, 2017, 01:55:26 PM »
I really do appreciate this insight. I think this is only true if one knows that interest rates are indeed going higher. If we fall into a recession (we are due for one), inflation and interest rates could stay low, or reverse course.

I think they're going higher.  Of course, I own a ton of bank stocks, so, I might be biased - but my money is aligned with my big mouth.

Quote
I should have mentioned that the credit union 2.75% 5 year certificate has the option of a 1-time rate readjustment that can be exercised by certificate holder. This gives me a bit of confidence to pull the trigger. The math here is always challenging because I have to essentially forecast how quickly rates will rise as locking money into a 6-month, 1-year, or 18-month risk-free CD guarantees paltry returns (likely below the most recent CPI). On the other hand, lock into a 2.75% and if interest rates shoot up rapidly (like in the 80s), then my gamble will most certainly be a bad one.

The rate bump option is good, but it keeps you captive to that one institution - and out of the broader market.  You can only bump up if *they* bump up (that's my understanding - and how those usually work - I didn't look at that specific offer).  Andrews FCU has a 3.00% APY "non-special" 7-year CD w/an EWP that's 180 days, so, if you hold the CD for only one year, then cash in, you'll get effective yield of 1.5%... of course, the longer you hold it, the less effect that 180 day early withdrawal penalty will have.  It's a very short/low EWP, so, it's a pretty good offer if you're looking to hedge and don't think we get above 3% in the next year or two.  More discussion of this in my "Cash Parking" thread (which took a turn for the humorous, after I started dosing my coffee with Baileys as it got cold here for a while).

http://forum.lendacademy.com/index.php/topic,4212.msg39511.html#msg39511

A little nonsense now and then is relished by the wisest men.

SLCPaladin

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Re: a view of LC's deteriorating investor returns
« Reply #54 on: March 12, 2017, 12:26:12 PM »
Quote
The rate bump option is good, but it keeps you captive to that one institution - and out of the broader market.  You can only bump up if *they* bump up (that's my understanding - and how those usually work - I didn't look at that specific offer).  Andrews FCU has a 3.00% APY "non-special" 7-year CD w/an EWP that's 180 days, so, if you hold the CD for only one year, then cash in, you'll get effective yield of 1.5%... of course, the longer you hold it, the less effect that 180 day early withdrawal penalty will have.  It's a very short/low EWP, so, it's a pretty good offer if you're looking to hedge and don't think we get above 3% in the next year or two.  More discussion of this in my "Cash Parking" thread (which took a turn for the humorous, after I started dosing my coffee with Baileys as it got cold here for a while).

http://forum.lendacademy.com/index.php/topic,4212.msg39511.html#msg39511

You are quite right about the bump option. The option is only effective "if" the institution offers a product with higher rates, which they may very well choose not to do if they have all the captive deposits they need, or if the cost of a rate reset is too steep for the institution. Food for thought indeed.

I did see the Andrews FCU offering on depositaccounts.com but I wasn't aware of the early withdrawal penalty. That is a nice option to have and it does seem rather tempting, especially since the certificate is effectively callable. The one drawback that I see is that most of these credit unions and banks that offer an early withdrawal penalty for breaking CDs usually have it buried into their terms and conditions that they can refuse to a redemption request. I had a bunch of high-yielding CDs (I use that term loosely in an ultra-low rate environment) with Discover that I broke and reinvested with Pentagon Federal Credit Union when they offered 5- and 7-year CDs at 3.1% with an early withdrawal option (penalty) similar to what Andrews FCU has.

At this point I'm basically deciding between parking runoff and excess cash in strictly A/B grade at LC, or just going to FDIC or CU equivalent secure term deposits.

Larry321

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Re: a view of LC's deteriorating investor returns
« Reply #55 on: March 16, 2017, 12:07:32 PM »
For the past couple of months, I have not been buying new loans, and instead I am moving money out of Lending Club and over to Fidelity.
My returns have dropped, and write offs have been increasing. In 4 years, as loans mature, I will have moved all my money out of LC.  I will have made money, but not as much as I would have liked.

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Larry321

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Re: a view of LC's deteriorating investor returns
« Reply #56 on: March 16, 2017, 12:10:11 PM »
LC is not to blame for defaults.  They ARE to blame for not analyzing historical data about defaults and not providing us with complete data on the probability of which loans might default.

I am slowly pulling my funds out of LC and investing elsewhere.
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AnilG

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Re: a view of LC's deteriorating investor returns
« Reply #57 on: March 16, 2017, 05:54:48 PM »
Sometime, it is good to look back in time and see what were your expectations when you started and why? The written thoughts and published articles always help with such exercise. Just came across an old Lending Memo article from 2013 in which Simon (Where is he now?) surveyed some people about their "sustainable" return expectations. I thought it was interesting to look back on the optimistic outlook in 2013.

P2P Lending: What is an Expected Return? A Survey of Industry Voices
http://www.lendingmemo.com/peer-to-peer-lending-return/
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Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #58 on: March 16, 2017, 06:05:51 PM »
Best part of that article ... we got to see a photo of Anil Gupta!  Now we know what you look like.

jheizer

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Re: a view of LC's deteriorating investor returns
« Reply #59 on: March 16, 2017, 06:10:28 PM »
That is a good point.  I believe when I started I thought that 7% was almost idiot proof, 8-9% was doing good, and my golden hope was 10%.  Lately my ANAR is sitting just below 7 so I guess I am/was an idiot.
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