In a fantastic mark of my own procrastination, I’ve never talked about my relationship with Lending Club here in depth. For those of you who still haven’t heard of them, Lending Club facilitates lending from one person to another person. Instead of holding onto deposits and lending them out to whoever they choose as a traditional bank would, Lending Club cuts out the work of the middleman and puts the onus on the investor to choose who to lend money to. This results, in an ideal world, in lower interest rates for borrowers and higher interest rates for would-be depositors.
Since its inception ten years ago, this peer-to-peer lending site has slowly become a mini-darling in the personal finance sphere. Mostly this happened after the big boy himself said he was experimenting with it in September 2012. That was about 18 months after I started using the site, I might add. I started as an investor (read: lender) at Lending Club in April of 2011. Since then, the total amount of loans at Lending Club has exploded, from about $500 million when I joined, to well over $18 billion today.
Initially we got returns around of 12 or 13%. But as the loans have gotten older and more people have defaulted,our returns have pretty much flat-lined around 9.5%. That’s still really good, and though I haven’t invested anything new in a year, preferring instead to max out all of our tax-advantaged retirement plans, I don’t have any plans to withdraw from the account either. And since they enabled automatic re-investing based on your own customizable filters, I spend hardly any time on the site anymore.
It’s time for portfolio talk! Don’t you all love it when bloggers talk about their portfolio? Is the market up? Is it down? What’s your portfolio doing? “How’s your plutonium?” What, you don’t love the jibber-jabber about the current state of “the markets” or, god forbid, individual companies?
Me neither. We’re not supposed to be paying attention to this stuff, the ups and downs and whims of the market. When it comes to your investing, what is important is your asset allocation. That’s why Vanguard’s webcasts and podcasts so boring. The point of every discussion ends up being, “We recommend a long-term view based on your goals, and to not pay attention to short-term market movements.”
So what has our asset allocation looked like?
First, let’s take a look at what it used to look like, many years ago. I was looking through my old files for things to throw out and I found my original 457 Plan paperwork. Just for laughs (gags) here’s what my contributions looked like when I started my first real job:
Yes, that’s 25% in Emerging Markets! What was I thinking? I’ll tell you what I was thinking. One, that Emerging Markets had been on this insane hot streak for a few years, and two, that emerging markets by definition have nowhere to go but up, right?
Well, incredibly, Emerging Markets did go gangbusters for my first year of investing, with something like a 40% gain, and then spent the year after that losing the entire gain. Lesson learned! Emerging Markets are a nice thing to have as part of a diversified portfolio, but it shouldn’t be a main focus, because their charts look like a Richter scale during an earthquake.