Recently I was evaluating my investment goals and the way I was saving money for investing. In many of my previous posts I preached a way of saving into non transaction fee mutual funds, which would allow investing small amounts let’s say $50 every month without paying a fee. Then I could see something I didn’t like. Those funds locked my money for 6 months. If you sell prior to that test period you will pay a back fee. Another issue with this is that the return on those mutual funds was very low, many times they didn’t even keep up with the market and in many occasions lost value.
Yes in a long term, the mutual funds can be a great tool, but they didn’t look great to my purpose.
And I didn’t see a great opportunity I had right under my nose. Investing with Lending Club. Yes, that investment can lock your funds for up to three years, but you can always sell on the secondary market FolioFn and raise your cash back.
At first I was scared of this, thinking that I could be losing money when selling on the secondary market, but over the time I realized – not necessarily!
I’ve been investing with Lending Club for three years and since the beginning I was able to reach 12.83% annual return rate, no delinquent or late notes and when needed I was able to sell notes without having negative impact to my return rate. After almost three years of successful investing with Lending Club I realized that this may be the vehicle I was looking for and which can help me to park my small money, grow them on a nice high interest rate and relatively safely.
I redirected all my savings to my Lending Club account and I also decided to take some risk and use leverage to boost my account value and get more money back home. I took a loan of 2000 dollars at 7% interest rate and invested that loan in my Lending Club 12.83% rate netting 5.83% return home. I am paying the loan from my regular paychecks which totals some 61 dollars per month, but my Lending Club “loan portfolio” is paying me some 63 dollars monthly back, which I decided to reinvest and use it to pay the original loan back only if i won’t be able to pay it back using my paycheck proceeds. This looks to me like a nice plan, so after three years I will repeat the process, borrow another 2,000 dollar or more and invest it.
However, this approach may not be suitable for everybody. You have to know how to invest with Lending Club and protect your current investments. On the Internet you may find a lot of negative articles of people with bad experience or low return on investment results. When I was reading through some of those articles, I could see how badly managed their portfolios were. Loses can be avoided if you know how to do it. Next time I will try to write about some of the techniques you can use to protect your portfolio and get rid of the notes before they turn bad.
Before then, here are the charts of the current value of my Lending Club account and monthly payments (principal and interest):