Author Topic: Lending Club investors (hoping for KC area but anywhere is okay)  (Read 5605 times)

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Lending Club investors (hoping for KC area but anywhere is okay)
« on: February 10, 2013, 03:38:28 PM »
Just looking for some tips on this. I'm looking to opening up a LC account this year for 5k but before I do I'm reading up on as much as I can. Hoping for some local guys in Kansas City to show me the ropes but if that isn't available, I'd take any tips from around the world as well. My background is I'm 27 and making enough that I'm able to save up 5k for putting into a roth ira. And since I found out lending club is open for roth ira investment, I was hoping to do that. I just wanted actual details on what all this entails before setting off on this investment. The fees, taxes, amount of time invested, etc.

From what I've found out so far, the 5k initial deposit the first year will keep the ira account fee free, then another 5k the second year will keep it fee free then on. The average terms of the loans in LC from what I've gathered average about 2-3 years, which means this falls under long term gain and are taxed with the capital gains rate? But since it is a roth ira, I'm not sure how the taxes are actually figured, if the long/short term investment even matters or not since I won't be withdrawing it until I'm retired. If this turns out to be good, I might make a second account for normal investment so I can use money before retirement at a later point.

I'm really hoping to just find someone to show me the ropes as the saying goes so I don't have to jump into this cold.

Rangifer

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #1 on: February 10, 2013, 08:25:14 PM »
You don't have to worry about taxes since it is a roth ira.

Mike

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #2 on: February 11, 2013, 01:48:42 AM »
A) There are no taxes imposed on a Roth IRA, so you're good there.
B) Loans mature in 3 years or 5 years - there are no other terms offered.
C) Invest the minimum ($25) per loan in order to maximize diversification ($5k = 200 notes).

Beyond those things, it's really just a question of your risk tolerance and desire to micromanage the investment.  You can either pick a one-size-fits-all portfolio offered by LC (quicker), or you can choose all the notes yourself by applying a filter to screen everything.  The negative of having LC do it for you is some of those underlying loans will be declined in LC's review process, so you'll get that money back a few days later and have to select notes again to invest it.  If you apply a filter on your own, you can only have the site show you loans with verified income and/or ones that are already approved by LC to reduce/eliminate this annoying problem (but you then must spend time scrolling through all the notes to select what you want - which can take quite awhile when you're investing thousands of dollars at one time).

I find it far easier to invest no more than ~$250 at a time.  Trying to select over 10 notes in one sitting is more time than I want to spend doing that sort of thing.

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #3 on: February 11, 2013, 03:31:24 AM »
question, does the term of the loan 3 years for $25 mean I only get about $8.33 + interest per year for 3 years? Or can they pay it back earlier?

And this $25/note thing, is every note at $25, so if someone wanted to borrow $5k, they would buy up 200 notes? Or do they just buy up 1 note at $5k?

I don't mind the micromanaging, I do that each day with my stocks, for about 2-3 hours in the morning after working the night. I'm not a day trader by any means, I just like watching it go up and down (it doesn't cause me any stress, I just find it fun to watch) and looking for future investments. I'd just split my time  between stocks and lending club then.

Anyone know how lending club compares to just dividend stocks? Namely I've been buying some with dividends close to 10%, same return as on lending club. Just wondering there's any benefits from using lending club for this type of passive income vs a dividend one. Example is I've been buying up the MVO stock, about $26/share (same as the notes on lending club). MVO has a 14% dividend which is also comparable to lending club. I'm just curious as to why lending club would be worth it over dividends. I know stock prices/dividends can drop depending on economy, but notes can be defaulted on/late payments. But notes can never increase in value while the share price has a chance to.
« Last Edit: February 11, 2013, 03:37:07 AM by eyem »

Mike

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #4 on: February 11, 2013, 11:41:49 AM »
question, does the term of the loan 3 years for $25 mean I only get about $8.33 + interest per year for 3 years? Or can they pay it back earlier?
Both are true.  If they pay it back early, you lose out on interest you would have received and have to reinvest the money.  I have around 1000 loans outstanding right now, and 70 of them were paid off early.
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And this $25/note thing, is every note at $25, so if someone wanted to borrow $5k, they would buy up 200 notes? Or do they just buy up 1 note at $5k?
You can invest a minimum of $25 per note, or if you choose, you could invest any amount up to the amount of the note that has not yet been funded (if you have the money in your account to do so).  I view it as the difference between buying individual stocks vs index funds; as a general rule, you'll do better going the diversification route as opposed to putting all your eggs in one basket. 
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I don't mind the micromanaging, I do that each day with my stocks, for about 2-3 hours in the morning after working the night. I'm not a day trader by any means, I just like watching it go up and down (it doesn't cause me any stress, I just find it fun to watch) and looking for future investments. I'd just split my time  between stocks and lending club then.
Much of the effort will be determining how to set your filter.  Once you have that part taken care of, it's easier.  Looking at the individual loan postings is where the drudgery sets in.
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Anyone know how lending club compares to just dividend stocks?
LC is more like buying bonds (interest income, risk of defaults).

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #5 on: February 16, 2013, 07:43:59 AM »
If anyone uses LC through the roth IRA, can I get some input please? I'm still waiting to save up $5k to open it for the no fee ira account >.> So in meantime I'm researching.

Does the LC roth ira options only include LC? Or can I open up a roth IRA with them  but have investment options for other things such as mutual funds/stocks/etc? In case LC doesn't return as well as I hoped and I could diversify out of it without moving the account so I could continue with LC as well, just not for bulk of money

edit: just speculating here since person above said LC was more like bonds than dividends... with people saying bond market will collapse when interest rates go up, what do you think LC will do when it does? If LC rates go up, people will be less likely to borrow from it as well?
« Last Edit: February 16, 2013, 07:47:41 AM by eyem »

frugal_engineer

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #6 on: February 16, 2013, 02:05:03 PM »
Quote
edit: just speculating here since person above said LC was more like bonds than dividends... with people saying bond market will collapse when interest rates go up, what do you think LC will do when it does? If LC rates go up, people will be less likely to borrow from it as well?

Thats certainly possible, but people will always need to borrow money.  Keep in mind that for a roth IRA, you're looking for long term stability and growth, not necessarily big gains at high risk which is what lending club represents.  I've had an account open for about 4 months with a $2k initial investment and it has been performing well beyond my expectations.  That being said, I'm well aware of the high risk and I made sure not to put in an amount greater than what I can afford to lose. 

If you're worried about diversification, I might recommend starting your Roth with Vanguard with most of your amount and putting a smaller amount into lending club to experiment, learn how it works, and gain experience before you put big money into it.

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #7 on: February 16, 2013, 08:38:56 PM »
what is the high risk of a grade A though? I mean if one is to trust what LC says about themselves...
https://www.lendingclub.com/public/how-we-set-interest-rates.action
the best Grade A hsa to offer is 0.98% risk, and you get 6% interest on that... where else can you get that kind of return with under 1% risk?

even with vanguard, if you look at how they performed at the ALL time link, you can see it had 2 big drops, 1 in the last 10 years.
http://www.google.com/finance?q=MUTF:VTSMX

Of course this LC stuff is new to both me and just overall as a industry so speculating 40 years into future is a mute point. I just wanted to know what people have seen in LC so far that makes them think it isn't good for a roth ira/long term investment.

The reason I think about diversification is because I have a stock account for stocks, I use my 401k for mutual funds. And was planning to use LC as another type of investment in place of real estate. I'm in no condition to try it myself (financially and plain not interested at the moment in landlording)
« Last Edit: February 16, 2013, 08:41:49 PM by eyem »

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #8 on: February 16, 2013, 10:10:58 PM »
I'm pretty sure that, unless you live on the MO side of KC, you can't invest in LC. We live on the KS side and KS is not on the list of states that allows investors to invest in 'Lending Club types' of loans. I think you also need a certain amount of assets or income level before you can invest in LC as well.

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #9 on: February 16, 2013, 10:41:59 PM »
I live in MO, and I barely meet the minimium amount

but I thought KS was on list of LC states
http://blog.lendingclub.com/2010/10/25/welcome-kansans-lending-club-personal-loans-are-now-available-in-kansas/ edit: sorry I think I misread it, says you can borrow from LC, not invest
« Last Edit: February 16, 2013, 10:45:53 PM by eyem »

unflinching

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #10 on: March 21, 2013, 06:08:17 PM »
I have $21,500 in a LendingClub Roth and $15,000 in a normal account. I never invest more than $25 in any single note, so I have over 1,000 notes.

The returns are fine, they're a net positive which is all I care about. There are lots of defaults but as long as you spread your money around it evens out.

If you invest $25 you stand a chance of "losing it all," if you invest $40k across a pool of borrowers, it works out rather nicely.

YMMV

Alex in Virginia

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #11 on: March 21, 2013, 08:28:53 PM »
I put $20,000 into Lending Club a few weeks ago.  I didn't find it particularly hard or time-consuming to pick out the notes on an individual basis.  At $25 a pop, I've got 800 notes now.  Took a few days to build up to the 800, but no big deal. 

I'm only moderately picky.  Here's my screening criteria: no ratings lower than D... only 3-year loans with a maximum loan amount of $15,000... only loans for credit card or debt consolidation.  And that's it.  The website takes your criteria, screens the open loans at the time for those criteria and displas a list (really a menu) from which you select the loans you want to put money in and "click" them into a cart -- same as if you were buying widgets.  The website doesn't screen for loan amount, though, and that's where I do my squinty-eyed thing to make sure I don't click on some guy wanting $35,000.

It was the luck of the draw, really, but here's my loan breakdown based on rating: 25% A... 44% B... 25% C... 6% D.  Blended interest rate (before baking in the defaults) is somewhere between 12 and 12.5%.  Net will probably be somewhere between 8 and 9%.

We'll see what happens, won't we?!

Alex in Virginia

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Re: Lending Club investors (hoping for KC area but anywhere is okay)
« Reply #12 on: April 15, 2013, 05:51:51 AM »
Hey - I have a couple simple question that I know could be answered by LC customer service, but I figured I'd ask here since I'm sure someone else has the same questions:

Can you set it up to automatically deposit the interest payments into an external checking account each month or do you have to move it yourself each month?

If so, is there an option to reinvest principal and keep interest?

If someone pays off a loan early or defaults on a loan, does Lending Club send you some kind of notification?  I'm concerned about the loans that are being paid off early because it could be very tedious to constantly need to login to see if there is any capital from the paid off loans that needs to be invested.  Thanks.