Worst Month Yet, Prosper Version

[Rob L]

"And the beat goes on ..."  there must be a few old folks that remember.
Another profitable month (approx 3% APR on invested cash).
As a sanity check, does it seem appropriate that for every $3 of interest received $2 is lost to chargeoffs (A & B grades only)?

[Rob L]

A losing month. Three of past 6 months have lost money.

[SeanMCA]

Yes, I'm negative YTD in Prosper just like Lending Club.

[Rob L]

A slightly profitable month.









Edit: replaced charge offs chart; it was from last month.

[Bpoole99]

Folks, I don't understand...  My return continues to be great on Prosper.  I have about 2100 active loans(mostly 36 month term) and my dashboard shows an annualized net return of 10.18% and a seasoned annualized net return of 8.78%.  LendingRobot has me at a portfolio health of 98.74% and an expected return of 11.71%.  I haven't sat down to try to figure out my actual rates, but as of November 1st I have earned about 9% or so of my average balance this year, so those numbers pass the sanity test - or maybe even seem a bit low.  I have to think that your results are either due to purely using automated investing or lack of diversification.  I have spent a decent amount of time developing an algorithm and a program to choose notes daily to (at least try to) optimize both.

Right now, my biggest concern is the tax hit that I will take due to the way losses are treated compared to gains as this is my first full year being "fully" invested.  Otherwise very happy with Prosper and P2P investing.

[Rob L]

Take a look at the cumulative profit chart between April 2015 when I became fully invested and September 2016 when I stopped reinvesting cash and began to let it accumulate in my account. The rise was about 8% over 18 months or about 5.3% annualized return and only one negative month. For a portfolio of only A and B loans this isn't bad and is about what I expected. Once I stopped reinvesting cash back into new notes the returns dropped dramatically also as expected. That's just the way it works.

As I've said before, I pulled the plug on Prosper when they discontinued participation in Folio, not because of poor returns. Personally I valued the knowledge that I had that liquidity should it ever be needed. Also I simply hate it when a company changes the rules in the middle of the game such as this and decided to vote with my feet. Prosper lost my confidence and hacked me off and at a time when I was considering moving my entire LC investment to Prosper. Really glad I didn't.

Now I'm stuck and presumably must wait for ALL of my notes to become inactive before closing my account. Checkout the cash balance in account chart and you will see it's starting to roll over, accumulating less and less of a percentage of cash each month. The curve will asymptotically approach 100% and it seems very likely to me that my account will only go to 100% cash 36 months after my last note purchase (all my notes are for 3 year loans). In the last few months there will be almost no notes but I still won't be able to close the account. With Folio I could have sold those last few notes at a big discount and closed the account. Very messy.

These charts just let folks see what the impact on returns and cash build up looks like when reinvestment of cash is stopped.

[Bpoole99]

I agree, but that's not a hit on Prosper, its just a reality of this investment class.  I don't use Lending Club, but I would expect something similar.  If Folio still existed, this "aging" effect would still play into the return you could get when you sell a note.  After all the note is only worth the present value of expected payments.

I don't know if this is a credible argument, but this effect is the reason why I stopped investing in 5 year notes.

[Rob L]

Another month and nothing remarkable to report but this ...

I noticed that my profit was -$4.10 yet my income (interest + late fees + debt sales proceeds - chargeoffs - bankruptcies) was $12.46. So, why did I lose money?
Prosper Collection fees plus Service fees was $16.56. Take the $16.56 from the $12.46 and you get the reported loss of -$4.10.

Naturally that prompted me to take a look at Prosper's fees as a percentage of my profits over the lifetime of my account.
I've made a profit net of Prosper's fees of $5,492.44. Prosper's fees on these profits were $1,349.43 so my pre-fee profits were $6,841.87.
Prosper's fees have been $1,349.43 / $6,841.87 = 19.7% of my gross profits. !!!! WOW!!!!
These fees are the equivalent of over 20% of all my losses due to charge offs and bankruptcies.
Am I the only one who didn't know these fees were so expensive? I haven't looked at LC but that's certainly on the todo list.

Meanwhile the latest charts:

[bkcarolina]

I also quit investing when they nixed the ability to liquidate (even though I never did so and had no plans to), so now twice a month I cash out and switch the funds to LC.

[Rob L]

Another month bites the dust.
By the time I'm done with Prosper I'll probably be able to buy a 5 year CD at 3%, FDIC.

[Rob L]

No joy in Mudville. Gee I'm glad I only have about $11k remaining invested in Prosper notes.

And by the way, I can already buy that 3% 5 year CD I mentioned last month:
https://www.depositaccounts.com/banks/connexus-credit-union.html

[Rob L]

No surprises this month.
For those who say I took too much risk buying only LC D & E loans I say look at this.
For those who say my LC returns are depressed because I sold my best loans on Folio I say look at this (no Folio sales here).
All my Prosper notes were bought using the Prosper auto-invest feature (grade selection only, no filters). I simply relied on their underwriting.
My thesis doing this was that was that for "low risk" A & B loans there was little to be gained attempting to pick the "best" ones.
I have no idea if my thesis was valid. Since I bought a large number of loans (i.e. well diversified) my returns are likely in the middle of the pack.
The good news is that my invested principal balance is down to $9.6k, down from $11k last month.

[Rob L]

A modest profit this month and the beat goes on.
I'm just completing the move of essentially the entire current cash balance back to Fidelity.
The balances stand at about $8k notes and $2k cash.
The cash balance in account chart has been replaced with a chart of the history of the principal value of notes owned over time.

[Rob L]

And for April:

[Rob L]

Addition to April:

The above chart "Cumulative Profit as a % of Investment" should actually read "as a % of Initial Investment" (the whole amount).
Since I've been letting notes run off and accumulating cash, comparing profits to the entire initial investment is unduly pessimistic (even though I've only this month moved that cash out of Prosper). Call it my bad.

The following chart provides ROI (return on investment) that includes only the cumulative principal invested in each month versus the cumulative annualized profits in that month.

The chart appears entirely reasonable. I wasn't fully invested until Mar-15. Then there is 5-6 months before charge offs begin Aug-15. Then the decline of returns due to charge offs. There is no discontinuity where I stopped reinvesting. Fewer dollars invested less interest returned, just drop off as charge offs continue. Also my principal invested today is less than 8% of what it was at its peak. Whatever my returns are now they shouldn't move the overall needle much.

Prosper says my annualized returns are 3.36%. This looks a bit better: