Lending Club Blog

Five Year Review: Lending Club Notes Outpace Stocks and Bonds

For most of us, five years may not feel like a whole lot of time. But for many investors, the past half-decade probably felt interminable. Let’s recap a little of what investors have experienced over the last five years:

  • After hitting a high in 2007, the stock market dropped by more than 50% until it bottomed out in 2009.[i]
  • The S&P 500 also saw a doubling in its volatility, as measured by standard deviations, at the bottom of the bear market in 2007-2009.[ii]
  • Large-scale bankruptcies like those of Lehman Brothers and Washington Mutual launched a meltdown of the financial industry that’s still being felt today.
  • Greece, Italy, and Portugal currently teeter on the brink of extreme financial distress.

Not the sunniest picture, is it?

How The Past Five Years Have Impacted Investors

I’m no macroeconomics expert, but from where I sit, it sure looks like there is more uncertainty ahead. After five years, what does the average long-term, buy-and-hold investor have to show for his experience (beyond some massive financial bruising and a growing distrust of the stock market)?

Well, for starters, markets haven’t really gone anywhere. I think it’s fair to describe the after-effects of the past five years as:

  • feelings of loss of control (NYT)[iii]
  • expectations of further chaos (BMO)[iv]
  • more young investors planning to pull money out of the stock market (NYT)[v]
  • trust in the financial profession at a historical low (EdelmanTrustBarometer)[vi]

Does that sound a bit like you, your friends, your family…?

It’s been a long slog in the markets, and as a result, many investors are now searching for a better way to invest.

Lending Club: A Novel Idea That’s Generated Five Years of Consistent Returns

Contrast the experience of stock market investors with the experience of investors in Lending Club Notes over the past five years. Lending Club has produced positive quarterly returns since inception—for 21 straight quarters.[vii]

It was five years ago that our company first began offering borrowers a better alternative to high APR loans from faceless credit card companies. When Lending Club opened its doors for business, it did away with many of the inefficiencies of the credit business by making lending more transparent and convenient.

It was a novel idea that consumers would be able to borrow money to consolidate their debt, do home improvements, pay for life events—anything, really—and that investors should be able to invest in their credit. More novel still was that in the process of doing so, borrowers could now access personalized credit at rates that were frequently materially lower than those being offered by credit card companies.

On the other side of the coin, after five years in business, Lending Club has also turned many of us into lenders. Individuals now have the opportunity to invest in [viii] notes that are tied to numerous personal loans, supporting an innovative lending platform and earning market-beating returns in the process. Heck, if you are looking for an investment for your retirement planning, you can even invest  in Lending Club Notes by opening an IRA now. [ix]

Lending Club Investors’ Performance Over the Past Five Years

In contrast to the roller coaster ride experienced by stock market investors over the past five years, Lending Club investors should be quite satisfied with performance they’ve seen.

Below, we’ve compared the five-year performance of a composite of all Lending Club Notes with the performance of an S&P 500 ETF ($IVV)[x] and a High Yield Corporate Bond ETF ($HYG)[xi]:
Total Return chart

1. Source: www.ishares.com. The iShares Core S&P 500 ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P 500. Presumes dividends from dividend paying equities in the index were reinvested. Results are net of fees and expenses of the ETF.

2. Source: www.ishares.com. The iShares iBoxx High Yield Corporate Bond Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx Liquidity High Yield Index, a corporate bond index compiled by Market Indices Limited. Presumes interest payments and principal were reinvested. Results are net of fees and expenses.

3. Presumes selection of a portfolio matching overall performance of the portfolio of the Lending Club platform as a whole, taking account of defaulting Member Dependent Notes and servicing fees and presuming reinvestment of all principal and interest payments into additional Member Dependent Notes with matching performance. Actual performance of any portfolio of Member Dependent Notes by an investor may vary. Past performance does not guarantee future results.

Average Annual Return chart

1. See disclosures in table above for information regarding the descriptions and general methodologies of the iShares IVV and HYG ETFs. Source: www.ishares.com.

2. For 2007, results are annualized based on total returns from July 2007 through December 2007. For 2012, results are annualized based on total returns from January 2012 through September 2012. All results are net of fees and expenses.

Range of Total Returns chart

1. See disclosures in table above for information regarding the descriptions and general methodologies of the iShares IVV and HYG ETFs. Source: www.ishares.com.

2. For 2007, results are annualized based on total returns from July 2007 through December 2007. For 2012, results are annualized based on total returns from January 2012 through September 2012. All results are net of fees and expenses.

What you can see from the data is that Lending Club Notes have had higher total returns, higher average returns, and higher minimum returns than the S&P 500 and a representative index of high-yield corporate bonds.

True, there weren’t any massive one-year returns with Lending Club Notes, but neither were there any one-year slumps. Instead, over the past five years, Lending Club Notes have provided consistent returns for investors from 8.5% to 10.1% annually.[xii]

In fact, 93% of Lending Club investors with 800+ Notes earn net annual returns between 6% and 18%, and 100% of investors with 800+ Notes have experienced positive returns. (800 Notes can be purchased with a minimum investment of $20,000).[xiii]

We’d say those are some pretty impressive numbers.

There Is a Better Way: Solid Returns with Lower Volatility

In addition, Lending Club investors haven’t seen a great deal of volatility in their returns over the past five years. Returns were stable and consistent, with 21 consecutive months of positive returns.[xiv]

As Lending Club celebrates our five-year anniversary, we look back and congratulate our investors who have been able to perform so well with us. We also look forward to the future and hope that investors who have struggled in the stock market will stop by and give our platform a try.

We are standing by…

What has your experience been with Lending Club notes? We’d love to hear from you in the comments!

 


[i] Based on the price action in the S&P 500; data from http://www.spindices.com/indices/equity/sp-500.

[v] http://bucks.blogs.nytimes.com/2012/05/29/younger-investors-jaded-about-the-stock-market-survey-finds/, citing Charles Schwab Quarterly Retirement Pulse Survey, May 29, 2012, conducted by Koski Research.

[vii] Based on platform performance as of October 16, 2012.

[xii] Based on platform performance as of October 16, 2012.

[xiii] Return calculations based on accounts that have invested in 800 or more unique borrowers. 800 Notes can be purchased with $20,000. All data as of October 16, 2012. The availability of Notes/unique borrowers is dependent on your investment criteria. There is no guarantee that you will be able to invest in 800 or more Notes/unique borrowers promptly, if at all. The foregoing is not directed to the specific investment objectives, financial situation, or investment needs of any particular person and should not be considered investment advice. You should consider reviewing the prospectus with a financial advisor prior to investing. Past performance is no guarantee of future results.

[xiv] Based on platform performance as of October 16, 2012.

Wednesday, November 7th, 2012 at 5:00 pm

Comments (8)

  1. Plasticman:

    In November of 2007, after reading a Barron’s (Electronic Investor)
    column titled ” AT LAST, A BANK OF YOUR OWN” I decided to give
    Lending Club a try as soon as I get “Free Money” like an IRS tax
    refund as I was very doubtful that the Investment would work. I won
    a SLOT Tournament on a CRUISE SHIP and invested in Lending Club’s
    Prime Borrowers. I Now take the first week of the months payments
    (principal & Interest) and Pay ALL My MONTHLY BILLS-EVERY
    MONTH. All the remaining P.&I Payments for the rest of the
    month along with my Social Security CHECK are re-invested in
    Lending Club Loans! My N.A.R is 8%-9% so I’ve NEVER LOST A PENNY of
    PRINCIPAL!! Manny thanks to our C.E.O.and staff especially the
    kind,supportive, and effective COLLECTION Department!
    Q.E.D.Plasticman

    November 10th, 2012 at 11:03 am

  2. Lelala:

    We’ve followed your story so far and what you’ve achieved, your
    results are very very impressive and a good example of a people
    orientied & people driven economy. In the long run, we will see
    more and more such decentric approaches, not that there is any
    canibalism in market-shares regarding to traditional banks, lending
    clubs will just be another & new pillar of a modern
    frictionized financial system. Regards

    November 10th, 2012 at 11:32 am

  3. Download Game Komputer:

    Supporting an innovative lending platform and earning
    market-beating returns in the process.

    November 13th, 2012 at 12:23 am

  4. I am satisfied with the results in my Lending Club account.
    Currently making 13.21% return and having no single late, defaulted
    or charged note in my portfolio. i published my portfolio review
    here: http://hellosuckers.net/?p=563 so you can review if you want.
    I am reinvesting all my proceeds and contributing new money on
    monthly basis and I must admit I am outperforming my stock market
    trading portfolio, investing portfolio and even 401k portfolio.
    However I am not giving up on stock market, but that’s a whole
    different story.

    November 15th, 2012 at 1:07 am

  5. I also agree with something relative to an innovative lending
    platform that may shock the market. Very good research,
    congratulations for the article

    November 16th, 2012 at 4:34 pm

  6. Phil Johnson:

    I’ve started out over the last year with small investments of about
    $25 a month. And I’m seeing a consistent return of over 13% which
    kills just about anything else going right now that’s this easy to
    get into. The screening process appears to be fantastic. Especially
    because I know a couple deadbeats that got turned down. ;) Great
    job all the way around and I’ll be upping my investments this next
    year.

    November 21st, 2012 at 7:23 am

  7. Franklin:

    I am a member. These returns assume you have a balanced portfolio
    including borrowers who have a high default risk. My portfolio is
    weighted lower risk and the yield is around 6%.

    November 21st, 2012 at 12:36 pm

  8. Josh:

    My wife and I have invested in many many different online programs
    that turned out to be ponzi schemes. We’ve lost more than our fair
    share on EVERY account trying to find that investment that we can
    count on to be there, that had good returns and didn’t tank when
    some other entity sneezed throwing the stock market into turmoil.
    Over the years I have become extremely skeptical of online lending
    and “investments” because of this. After doing some research and
    looking into what others have said about lending club, she took one
    final chance and invested a little bit into LC. As the return grew
    and she continued to research LC, she found it’s BBB rating and
    more articles from well known sources had nothing but good things
    to say about it. Fast forward over a year. We are maintaining a
    401K and IRA portfolio(s), but are putting much much more into LC.
    I’ve become much less skeptical about LC, though I am still waiting
    for the bottom to drop out. Our LC account has out performed ALL of
    our retirement accounts COMBINED. I have to admit, I am much less
    wary about putting my $$ into LC now, than a year ago, and my
    wife… we’ll she’s rather addicted to note buying.

    November 21st, 2012 at 1:13 pm

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