Exploring Returns on Lending Club Investments: A 7-Year Journey
Over the past seven years, my investments on the Lending Club platform have yielded impressive results, providing a consistent return that has consistently met my expectations. In this article, I will share my journey, insights, and the factors contributing to my success.
Sustained Returns on Lending Club
My investment experience with Lending Club extends well over seven years, during which time I have been focused on building a conservative portfolio consisting of A, B, and some C-rated notes. My overall average returns have been around 5-6% pre-tax, which reflects the stability and reliability of this investment avenue.
It is worth noting that while my returns have remained as advertised, they have lagged behind the performance of the stock market. However, this aligns with my diversification strategy, as I anticipated that would be the case during a period of strong market performance.
Diversification and Long-Term Benefits
I have recently diversified into a retirement savings account by opening an IRA on Lending Club, complementing a traditional taxable account. Additionally, I have rolled over funds from my old 401Ks into this IRA, further enhancing my long-term investment strategy.
This diversification plays a critical role in mitigating the risks associated with any single investment. While these investments may not perform as well as the stock market during a boom, they offer a more stable and predictable return, which is crucial for a long-term investment plan.
Performance During Economic Downturns
Even during a recession, my experience with Lending Club suggests that my returns may drop significantly, and a higher proportion of loans may default. However, my focus on higher-grade notes helps to minimize the risk of such severe downturns. In 2018, my Lending Club portfolio outperformed the stock market significantly, and I anticipate that this trend will continue in future market downturns.
Current Investment Status and Expectations
As of now, my investments on Lending Club are yielding approximately a 6% return, which is notably better than what traditional savings accounts offer and significantly better than the returns achieved in my Wealthfront investments this year. I have made relatively modest contributions so far, but I have seen promising results with only one loan performing significantly behind schedule out of a total of 16 investments.
One challenge is the liquidity issue; the returns are currently tied up in loans that may take several years to mature. Over this period, the stock market could experience another boom, which highlights the importance of diversifying across multiple asset classes.
Strategic Considerations for Lending Club Investors
TL;DR: Consider Lending Club as a balance between long-term banking investments like certificates of deposit (CDs) and more liquid investment opportunities like individual stock purchases. It offers the potential for higher returns but comes with the limitations of illiquidity and the predictability of a long-term investment horizon.
While my experience with Lending Club aligns with my personal investment goals, it’s important to recognize that these opinions and statements are my personal views and do not reflect any employer-related activities or affiliations.
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Tags: Lending Club, Investment Returns, Diversification