Beating Broke

Personal Finance from the Broke Perspective

Lending Club Returns 1Q2012 Update

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If you’ve been following along, you know that I’ve been performing a bit of an experiment.  I’ve been taking 10% of my earnings from this and other online ventures and splitting it evenly between Lending Club and Sharebuilder accounts.  The idea was to see what kind of returns I could get from the two, and to test for stability.  I’ve been running the experiment for a little over 6 months now, and I’m calling it done.  The difference has been so drastic, that I don’t think there’s any point in running it any longer.

In short, Lending Club is kicking Sharebuilder’s butt.  Really, the only thing that the Sharebuilder account has going for it is that the chance of default on any of the investments is extremely low.  So, I suppose that it is possible that in 5 or so years, the gains on the Sharebuilder account could potentially be better.  However, as I’m about to show you, the short term results are strongly in Lending Club’s favor.

My Lending Club Returns

As of today, Lending Club is telling me that I’m seeing a return of 13.15% on my account.  My Sharebuilder account is currently reporting a return of -16.42%.  It doesn’t take a math major to come to the conclusion that Lending Club is performing far better.  To date, with a bit over 2 years of total history, I haven’t had a default in my Lending Club account.  I’m pretty sure that has more to do with just getting lucky, than with any effort of my own. Some other interesting numbers, besides the return: The portfolio has grown enough that it brings in enough in principle + interest payments to reinvest monthly now.  The monthly interest gains, as of the end of March, have now exceeded $4 monthly.  It’s not much, but it’s been fun watching that number grow.

My Lending Club Portfolio

Open a Lending Club AccountWhen I first started out investing in my LC account, I was investing in mostly A, B, and C investments.  I’ve recently shifted that to be mostly C and D investments. Why?  Well, as I mentioned in my post on selecting Lending Club investments, I have to purchase my investments through their trading platform rather than directly invest in the loans.  What that means is that in most cases, I have to absorb a small percentage of profit to the original investor.  So, a loan that has an actual interest rate of 14% might only return 11% to me because I bought it at a higher price than what it was worth in principle at the time.  Because of that, I have to invest in the higher grade loans in order to maintain a higher return rate.  But, I’m OK with that.  Even the worst graded loans that LC has are still well above what a traditional bank or credit union would lend to.  And, at less than $25 per investment, I can afford to take the risk.  I’ve diversified the account so that one or two defaults isn’t going to destroy the account.  Sidenote: If you can buy your LC loans directly, I suggest you check out Peter at SocialLending.net’s post on how he’s investing in 2012. He’s got several filters and some interesting insight into how he’s set up his investing that are worth the read.  They’re somewhat useless to me because of the way I have to invest, but will be useful to someone who can invest directly.

Lending Club, Going Forward

With the end of the “experiment”, I’m now putting the full 10% that I had been splitting into my Lending Club account.  The overall total for the account is still at less than 3% of my overall investment portfolio (including retirement investments), but it is growing.  At some point, I’ll have to decide if I want to continue to add to the account or not, but with the returns that I’m getting, and the luck I’ve had in the default area, I can’t see wanting to stop investing in the account.

Have you given Lending Club a try yet?  How have your returns been?  What’s your default rate?

Win the Lottery? Stay Anonymous, or No?

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With the big lottery drawing over, and the winners slowly being announced, there’s some talk about some of the winners remaining anonymous.  Apparently, it’s only an option in certain states, so some have no choice.  But, if you won a major lottery, would you remain anonymous if you had the option?

Lottery Winners Barbara and Michael Ayres © by Montage Communications

In some ways, at least locally, I would think it would be nearly impossible to truly remain anonymous.  There are certain services, like financial planners, investment advisers, and even bank tellers that you’d need the use of.  And, despite the fact that most of them have some ethical requirement to keep your information confidential, it seems like word always leaks out in some way.  Eventually, anyways.  On a more national and global level, it might be a bit easier to maintain your anonymity.

I think I’d like to attempt to remain anonymous should I win a lottery.  Publicly announcing it is sure to bring an onslaught of people, businesses, and organizations to your door (figuratively and literally) looking for funds.  There’s even a chance, albeit small, that you could end up with threats of injury should you say no to a handout.  Obviously, friends and family are going to find out, and some will likely ask for money, but I’d rather deal with just a few people asking rather than half the country.

Of course, making the announcement that you’ve hit it big has it’s upsides too.  You’d be an instant celebrity of sorts.  Depending on the size of the winnings, locally for sure.  If you’d have won the Mega Millions lottery and not had to share it, you’d have likely made it onto several lists of the richest people.  Done properly, the money could be used for lots of good, and that usually draws publicity too.

What would you do?  Anonymous or not?

Fast Food: Get What You Pay For?

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McDonalds Holmesglen - Nikon D60 No-Flash © by avlxyz

My family went through the drive through of a local McDonalds recently.  (Ok, it was last night)  We were buying food for ourselves and a couple of friends who had recently gotten home after a couple of weeks away.  They, for obvious reasons, wanted to just relax, and not have to cook, but were too happy to be home to go out.  So, since we were already visiting, we offered to go and get some food.  Subway was the first choice, but, it turns out, they were closed for Easter Sunday.  So, McDonalds it was.

We went through the drive through, ordered our food ($40), and then waited while they made up the food.  They were waiting on an fryer of chicken nuggets to finish up, so we even got to go to the special parking space that they have for cases like ours.  A few minutes later, out comes one of the McD’s workers, with our bag, and happy meals.  Awesome.  We’re on our way.

All the way across town, we start opening bags, and divvying up the food.  Cue disaster.  You might think disaster is too strong of a word.  But, if you have children who have their expectations set, and then those expectations are crushed, you know it is the right word.  Funnily, the kids’ meals were the items that were the closest to right.  We ordered four adult value meals.  Two of them were identical except for one minor adjustment of having no onions.  Using the convenient labels that they stick on the burger boxes, we gave those out, only to find that the labels were wrong.  The burgers were right, they just had the labels crossed.  The one order of chicken nuggets that we ordered (and waited for) had no sauces (or so we thought).  Then, the kids opened their meals.  Instead of caramel sauce for their apple dippers, they had honey mustard sauce.  Well, that’s where the sauce went for the chicken nuggets!  The biggest part that they messed up?  There were no fries!  None!   And no straws, either.  What a complete disaster of a trip.

Of course, having spent $40 on food, and only getting half the order right, I was a bit upset.  But, then I got to thinking, did I get what I paid for?  Well, in a more philosophical sense, not in a precise sense.  Set aside the healthy-ness concerns of fast food.  When it’s all said and done, should we expect that our orders won’t be right, the food won’t look like it does on the menu, and that we are just a dollar bill passing through to be collected and sent on our way?  Just how much should we expect from our fast food exchanges?