If you are currently investing with Lending Club, or thinking of doing so then you will want to read on. Below are the four things you absolutely must do to be successful when investing in Lending Club loans. These tips are based on extensive research and experience by p2p lending experts and a review of return data provided by Lending Club. As with any investment, there are no guarantees, but following this advice will put you in the best position for success.
Tip #1: Diversify Your Portfolio
P2P lending, like any investment, is exactly that: an investment. It is not gambling. Therefore, you should not try to pick a small number of high interest loans and hope that you get lucky. With a good p2p lending investing strategy your portfolio can outperform the averages of the lending platform. In order for any strategy to be effective the portfolio must contain at least 100 loans. According to Lending Club, accounts with at least 100 notes of equal size have positive returns 98% of the time. This is an excellent track record and should not be ignored by investors.
Tip #2: Use Manual Investing
Automated investing is popular among investors and is heavily promoted by the lending platforms. Keep in mind that it is in the best interest of the lending platforms to get your money invested quickly and to keep it invested as much as possible. This allows them to keep a higher loan volume. But is it in your best interest to do so? Not necessarily. The reason for this is that
automated investing only allows you to use a limited number of criteria. Research has shown that these criteria are not sufficient to allow an investor to select quality loans. In fact additional evaluation with extended data provided by the platform is necessary to help ensure an increased return. So, to maximize your success you must use manual investing.
Tip #3: Choose Wisely
Not all loans provided to investors have the same likelihood of default. Knowing how to select loans based on the borrower’s data will ensure that your portfolio has a high rate of return. Of course, the key is knowing which criteria to use. This requires expert evaluation that can only be found with lending club investing strategies from skilled professionals. Lending Club provides over 75 pieces of borrower data for every loan made available to investors. With over a hundred loans available at any given time, this represents an enormous amount of data to analyze. Professional have the tools and resources to do this analysis every day.
Tip #4: Be Patient
Holding your money and waiting for a good investment will cost very little in terms of lost interest, but can increase your portfolio rate of return significantly. If a portfolio is returning ust six percent per month, then holding cash for one month on average will cost ½ of one percent in lost earnings. However, finding high quality loans can increase your annual return by several percentage points. This is clearly a worthwhile tradeoff. The bottom line is that buying poor quality loans can be very costly as their default rate will be higher. If you are just starting peer to peer lending investing then it may take some time to get your cash fully invested. This should not cause you to worry. If you have a large amount to invest then you may want to make multiple deposits to your account over an extended period of time.
Putting It All Together
P2P lending can be an excellent alternative to other fixed income investments, and can even provide returns comparable to stocks. However, most investors will not see this kind of performance. In order for you do see these kinds of returns you must follow these tips very carefully over the long term. If you do then you are very likely to not only exceed the average returns across all Lending Club loans, but you may even see returns in excess of ten percent per year, every year.