I am happy to report my initial experiment with peer-to-peer lending at Prosper.com has been a success.
My investment has earned 11.11% so far, far greater than the <1% that money was earning in savings. There is more risk and it’s not as liquid but I’m happy with the results.
As part of my goal of earning $1000/mo in passive income by the end of the year, I doubled my initial investment in Prosper.
With Prosper now making up a bigger part of my portfolio, I thought it would be wise to do some more homework on peer-to-peer lending and see if there were any best-practices to reduce the risk and improve the returns.
During this research, I came across an extremely valuable site called LendStats.com. There I discovered that some top Prosper lenders were earning 17-18% on their money!
LendStats publishes the actual historical performance data of Prosper loans and you can use over 20 different filters to see which types of loans did best. It’s very cool to do the sensitivity analysis and see which factors make the biggest impact.
You can also see which loans these top-earners are bidding on. When in doubt, follow the leader, right?
Last year, my Prosper investments were basically on auto-pilot; I took whatever loans their system offered me and didn’t even really know these various filters were available.
Now I’m shifting toward a strategy of higher risk/higher return loans using the filter factors that have performed well in the past. I’m eager to see see what kind of impact that makes on the numbers.
With peer-to-peer lending, charge-offs are a fact of life. So far, 3% of my loans have been charged off, and another 2% are delinquent. These losses are factored in to the returns and I should have a big enough cushion to guard against future defaults.
On the other side, 7% of the loans have been paid of early, which is great because you can turn around and re-invest that money so it continues to grow.
Did You Know?
Prosper integrates with Mint so you can track a snapshot of investment portfolio all in one place.