Prosper.com Year 4 Performance Update

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My experiment with peer-to-peer lending at Prosper.com continues, and it’s been another busy year.

The platform has seen some impressive growth, both in terms of the number and volume of “originations,” and the number of lenders competing for the most attractive loans to lend on.

As my idle cash began to grow, I sought out a smarter way to deploy it and began using Lending Robot, which has worked out pretty well so far.

(Your first $10k is managed for free!)

Summary

My loans are earning 11.77% (“seasoned” — up 0.33% from last year) and 11.62% (overall — down 0.5% from last year), better than the rates currently advertised on the homepage. The “seasoned” number contains only notes that are at least 10 months old.

prosper seasoned returns 2015

(Most defaults happen early in the repayment cycle, so sharing a seasoned number only is a more accurate view of the potential long-term returns. This is the first time I can remember seeing a “seasoned” number higher than the “all notes” figure.)

My investment strategy remained pretty much the same as last year, but with the addition of the Lending Robot automation.

In an effort to deploy some of the idle cash, I opened up investments to some select B and C grade notes, which historically haven’t done as well for me.

I used the NickelSteamroller historical performance data to try and dial in the risk factors that had the biggest impact and the highest returns.

The annualized returns are looking pretty good for 2013 and 2014:

prosper annualized returns by year

Returns by Loan Grade

Take a look at my returns by loan grade (the lower the grade, the riskier the loan):

These are for the seasoned loans:

returns by loan grade 2014 seasoned

And for all notes:

returns by loan grade 2014 all

Allocation

Because of the markedly higher returns among the lower-grade notes, I’ve tried to skew my portfolio toward those. But sometimes they’re increasingly hard to come by and 7-8% is still better than having the funds sit in cash and earn 0%.

For that reason I’ve dialed in the Lending Robot tool to seek out some B and C grade notes I hope will have higher-than-average returns. I get an email every evening telling me what they bought on my behalf.

prosper 2015 current allocation

With the help of Lending Robot my cash balance has gone done relative to last year, which is a good thing. If I can’t deploy it into more loans I’d be better off withdrawing it and shifting it to another investment vehicle.

Chargeoffs

In total, 11.2% of my loans have defaulted, and another 5.7% of the active notes are currently delinquent.

If those numbers seem high, keep in mind I’m primarily investing in high risk, high return notes.

Cash Flow by Month

I started tracking cash flow a couple years ago as part of my passive income goal. This figure includes payments received less chargeoffs.

  • January  $228.77
  • February  $120.82
  • March  $335.87
  • April  $295.07
  • May  $248.91
  • June  $219.61
  • July  $178.22
  • August  $108.64 <– starting to get a little nervous here!
  • September $141.11
  • October  $257.68
  • November  $162.16
  • December  $210.39
  • AVERAGE  $209/mo

The monthly cash flow is down about $20 per month on average compared with last year. I’m not sure what the cause is other than perhaps the downwind impact of having a lot of idle cash for much of the year, since the percentage returns are approximately the same.

Reinvestment

I’d like to try to get to $500 a month here. If not, I might slowly start withdrawing and seeing where else I can put that cash to work.

Strategy

My initial investment was allocated automatically across a diverse portfolio of loans of all grades. No other filtering criteria was used.

Turns out, that’s not the smartest way to do peer-to-peer investing. Since then, I’ve started to use some of the filters available to hand-select the ones I think will perform well based on my default study and some historical data made available on sites like Nickel Steamroller.

I haven’t yet opened an account at Lending Club, Prosper’s primary competition.

Still a pretty fun and exciting way to invest. If you want to get started with an account of your own, be sure to hit up my affiliate link so I get some credit!

prosper returns $209 per month

7 thoughts on “Prosper.com Year 4 Performance Update

    • Thanks Michael. I started out w/ $5k as my baseline experiment but have added to that over time as the performance has proven itself. The real key is being able to buy a wide enough swath of notes so you’re good and diversified. My total principal is around $18k or $19k, and the overall account value is around $25k.

  1. Hey Nick,

    Awesome stuff here.

    So, if you are earning on avg 11.77%, but your default rate (not including delinquencies is 11.2%, how is this really worth the investment and tying up of capital?

    Does the delinquency only impact a smaller portion of the loan?

    Shawn

    • The ROI percentages are calculated after taking all the defaults/delinquencies into account — so the average “sticker rate” on the loans is quite a bit higher, and then it gets knocked back down to that 11-12% after the defaults.

      When a loan defaults, you write-off your principal loss. So if the borrower stops paying after a couple years, you’ve probably collected $15 of your original $25 investment, so you’d write-off the $10 difference as a loss.

      • Ahh, that makes sense then. Well, I’m going to be taking a look at this as a “passive” income stream option then. Those are some pretty smart return with the right $.

  2. Can you write off the defaults on your tax return, even if you are an employee for your primary source of income?

    What if you start an LLC that does just this lending idea?

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