[Update: There is a post out now for my 2014 investment criteria.]
My most popular post from last year in terms of both comments and page views was my How I am Investing post. I have had numerous requests from people asking if I will be updating it for this year. The answer is yes. What follows are complete details of how I am investing in both Lending Club and Prosper in 2013.
You should keep in mind that this is not investment advice nor do I recommend you follow my strategies. I adhere to an aggressive strategy that includes plenty of the higher risk loans which leads to many defaults. Every investor needs to determine the level of risk they are comfortable with and invest accordingly.
Investing with Multiple Accounts
If you saw my p2p lending investment update last month you will know that I invest in a total of six different accounts, four at Lending Club and two at Prosper. To avoid investing in duplicate loans I have made my investment criteria mutually exclusive meaning there is no overlap of loans between the filters.
How did I come up with this strategy? I have spent many, many hours on Nickel Steamroller, Lendstats and Prosper Stats backtesting hundreds of different combinations of credit criteria. This brings up an important point. My investments are based on analysis of the historical loan data and there is no guarantee that the loans will perform in a similar way going forward. Still, I believe that this data is the best tool we have in trying to achieve above average returns.
My strategy in 2013 is quite similar to what I did in 2012 with just a few minor changes. The good news is that I have been investing in some of these filters now for over 12 months and I can track their results by keeping these notes in their own portfolio. To make these comparisons more useful I have included the estimated ROI of each filter from Nickel Steamroller. Also, because I have an investment track record with some of these filters I have included the estimated ROI from my own portfolios where applicable.
Investing at Lending Club in 2013
Lending Club Filter 1 – High Income
Estimated ROI from Nickel Steamroller: 14.49%.
My portfolio estimated ROI: 14.00%. Average note age: 10 months
Link to Lending Club Filter 1 on Nickel Steamroller and Lendstats
Loan Grade: D, E, F, G
Inquiries = 0
DTI% <= 23%
Open credit line >= 8
Public records = 0
Monthly income >= $7,500
Loan purpose: All except other, small business and vacation
States: exclude CA
Lending Club Filter 2 – Medium Income
Estimated ROI from NickelSteamroller: 12.36%
This filter changed late last year so I have no valid performance data on my own portfolio yet.
Link to Lending Club Filter 2 on Nickel Steamroller and Lendstats
Loan Grade: D, E, F, G
Inquiries = 0
DTI% <= 20%
Open credit line >= 8
Total credit lines >= 15
2 Yr Deliquencies = 0
Public records = 0
Monthly income >= $3,000 and < $7,500
Loan purpose: All except other, small business and vacation
States: all included
Lending Club Filter 3 – Inquiries 1+
Estimated ROI from NickelSteamroller: 12.20%
My portfolio estimated ROI: 12.76%. Average note age: 11 months
Link to Lending Club Filter 3 on Nickel Steamroller and Lendstats
Loan Grade: E, F, G
Inquiries >= 1
2 Yr Deliquencies = 0
Public records = 0
Monthly income >= $7,000
Loan purpose: All except small business
States: exclude CA
You can see that the main difference between Filter 1 and Filter 2 is the stated monthly income. I use that field to ensure that there is no overlap between loans when I am investing in multiple accounts. You will also notice that both filter 1 and filter 2 use inquiries = 0 as a criteria so this opens up the door to use Inquiries of one or more for Filter 3.
One point I should make is that if you use the Lending Club website to invest then you will not be able to use these filters as is. The filtering capabilities on their website are not flexible enough to allow for this kind of precision and some fields such as monthly income are not even available. I believe serious investors should not use the Lending Club website to invest. There are four better options available today:
- Peercube.com – the most extensive filtering. Can save your own comments on the loans and invest directly by clicking on the loan URL.
- InterestRadar.com – portfolio monitoring, custom backtested strategies and the ability to invest directly.
- NickelSteamroller.com – Great filtering capabilities and the ability to invest directly.
- Download Active Notes Spreadsheet – all available loans are available as a download from the Browse Notes page on Lending Club – there is a small Download All link in the bottom right of the page. Then you can do the filtering in Excel and copy and paste the loan URL in Column Z.
Investing at Prosper in 2013
Prosper Filter 1 – Previous Borrower 0-1 Inquiries
Estimated ROI from Prosper Stats: 17.82%
Link to Prosper filter 1 on Prosper Stats
Loan Grade: D, E, HR
Payments on previous loans >= 18
Number of late payments <= 9%
Allow credit score drop up to 40 points
Inquiries = 0
Current delinquencies <= 2
Prosper Filter 2 – Previous Borrower 1-5 Inquiries
Estimated ROI from Prosper Stats: 16.94%
Link to Prosper filter 2 on Prosper Stats
Loan Grade: D, E, HR
Payments on previous loans >= 12
Number of late payments <= 10%
Allow no credit score drop
Inquiries >= 1 and <= 5
Current delinquencies <= 1
Debt-to-income ratio <= 60%
Prosper Filter 3 – New Borrower 1 & 3-year
Estimated ROI from Prosper Stats: 15.32%
Link to Prosper filter 3 on Prosper Stats
Loan Grade: D, E
Loan term: 1-year, 3-year
Total payments billed = 0 (signifies a new borrower)
Inquiries = 0
Current delinquencies = 0
Total credit lines >= 16
Debt-to-income ratio >=10% and <= 40%
Employment status: exclude Unemployed, Not Available
States Income: >= $25,000
Prosper Filter 4 – New Borrower 5-year
My estimated return on Prosper Stats for Prosper Filter 4: 15.20%
Link to my results for this filter on Prosper Stats
Loan Grade: C, D, E
Loan term: 5-year
Total payments billed = 0 (signifies a new borrower)
Inquiries >=0 and <=1
Debt-to-income ratio >=10% and <= 40%
Min Expected Return: 13%
Each of my Prosper filters are also mutually exclusive with two filters for repeat borrowers (Filter 1 and 2) and two for new borrowers (Filter 3 and 4). Within repeat borrowers I separate the filters based on number of inquiries and within new borrowers I separate the filters based on loan term. I have these four filters all setup on Automated Quick Invest.
Now, I want to explain my Prosper Filter 4. This is a relatively new experiment that I started almost a year ago when Prosper introduced the idea of minimum expected return and so far it is performing quite well. But this is still very early days. My average note age is just 7 months and these are all 5-year loans so they have a very long way to go before we can make any definitive statements about this filter. I am tracking the loans through note size – every one of my Prosper Filter 4 loans has been an investment of $30. I have recently increased that size to $60.
Prosper’s site has much better filtering capabilities than Lending Club’s so you can easily setup these searches there. Alternatively you can use Prosper Stats to do your investing. You can save these searches and use the “Matching Active Listings” tab and click on the link there to invest in each loan one by one.
Strict Loan Filtering
I want to point out that both my Lending Club filters and my Prosper filters are fairly strict meaning that there are not a lot of loans to choose from. This is fine for my purposes but if you want to invest a large amount of money quickly it will be difficult with these filters. If you are looking to do that I suggest you start with my Super Simple High Return Strategy which is much more broad.
So, there you have it. These are the criteria I am using to invest today. I do make tweaks to my investments on a regular basis but I am quite happy with this set of filters today. You can go ahead and use these filters yourself if you like. Or I am happy for you to critique them and provide your own suggestions in the comments.
