A few weeks ago, we explored the question – what to do with a lump sum of cash.
After going through the research process, I decided that I wanted to diversify how I invested the money and where I invested the money.
I actually ended up putting some money in four of the five possible places I explored in that post.
- Local credit union – 12% of the total. Return of 3.01%.
- Accounts with a sign up bonus – 24%. Return of 4-5%
- Lending Club – 12%. Anticipating at least 6-7%.
- Bank Direct – 52%. 1 AAdvantage mile per dollar per month.
Even though I’ve previously invested in Lending Club, this was my first time to take a larger chunk of cash and invest it in Lending Club.
I felt comfortable investing in Lending Club for three reasons:
- It’s an investing environment I understand. People have been paying interest on loans for a long, long time.
- There’s a measurable relationship between risk and reward.
- The track record of those investing in Lending Club. Peter Anderson at Bible Money Matters had returns around 12%. Five Cent Nickel is earning returns around 7%.
Why Lending Club?
I knew that I could create a very conservative portfolio and end up with over 3%, which is the best no-risk rate I was able to track down. It was my goal to diversify where I invested the money and how I invested the money at different places. Diversification is the key. Even if my Lending Club fund preformed poorly, they would have a relatively small impact on the overall return on the total lump sum.
What Strategy Did I Use?
There are people who have created some very technical and time consuming strategies for investing at Lending Club (see this post). However, in my case, I simply wanted a conservative portfolio that would earn at least 5%. I focused mostly on the top A and B rated loans. I didn’t want to take the time to look closely at each one. (Perhaps I’ll pay for that in the future.) However, when you’re investing in hundreds of notes, it would become a full-time job to screen each loan individually. As such, I developed a quick scanning method as I did my investing.
Craig’s Lazy Man How to Get Started Investing at Lending Club Strategy
Step #1: I started by using the “Build a Portfolio” option. When you use this feature, Lending Club generates a list of notes that fit into a portfolio mix of loans based on lender letter grade. Conservative portfolios will mostly be composed of A and B graded loans. I did do a few C, and D loans, but a very, very small percentage.
Step #2: I customized my search results by only selecting loans for 36 months. It’s less profitable to do this, but I didn’t want to tie up the funds for five years.
Step #3: Reviewed the loan purposes. Every borrower indicates what their loan is for. For example, “Debt Consolidation”, “Paying Off Credit Cards”, “Small Business”, etc. I focused on lending to those who were looking for loans for credit card or other debt consolidation. I specifically avoided funding requests for small business, vacation, or repair loans.
Tip: If I weren’t investing in a lot of notes, I’d probably take more time to review each note looking at the inquires, open credit line, and income. Here’s a good list of possible filters to use.
Step #4: For the sake of diversification, I tried to limit my investment to $25 per person. I figured the more loans I had, the better. At times, the suggested portfolio would have amounts greater than $25, and occasionally I wouldn’t change the loan amount.
Step #5: Wait a few days and take the uninvested funds (loans that didn’t get fully funded) and reinvest them by starting back at step #1. If a loan you’ve picked is not fully funded, then the money goes back into your cash pool. It can take weeks to get all your money invested, depending on how much you actually invest.
I’ve attached some images so you can see how this works.
While I really like the idea of Lending Club, you should know that this is not an expert test approach. Instead, I wanted to introduce Lending Club to those of you who might not know about it in case it might fit well with your investing needs. I’d suggest you start small and take some time to learn about Lending Club if you’re interested in investing with them.
In about six months or so, I hope to update you on the investing progress, but I think that Lending Club has shown that it’s here to stay, and it does provide another investment opportunity for those looking to diversify their investments.
If you wish to open a Lending Club account, you can click here. This is an affiliate link, and I will get a commission if you use my link to sign up for Lending Club.
If you wish to borrow money from Lending Club, you can get information here.