Putting New Money to Work vs Reinvesting

I have been thinking lately that there are really two kinds of investing when it comes to peer to peer lending. When you transfer money in to Prosper or Lending Club you have a large amount of cash waiting to be invested. Then once this cash is invested you will get repayments coming in regularly that will slowly build your cash reserves for reinvesting.

This difference is highlighted when you put in a large amount of money, say $5,000 or more. Now, staying diversified (at the $25 minimum) this will mean you will invest in 200 notes or more. But once you are fully invested, an account of $5,000 will only generate $50 – $100 per month depending on the terms of the loans in the portfolio. So you go from investing in 200 notes in one hit to reinvesting in around 4 notes a month. Clearly a different approach is needed.

When Investing New Money in P2P Lending

With new cash in your account you have to balance putting your money to work quickly versus refining your filtering criteria. With my new Lending Club Roth IRA, I started investing back in May and I am only two-thirds of the way towards full investment. I have decided I would rather take additional time to invest in just the specific loans I want rather than investing my money quickly. This money for the Roth IRA came out of a money market account earning 0.08% so I feel that I am not missing out on much by investing slowly.

I wouldn’t recommend the way I invest to everybody. Many new investors may not have the patience to take this much time to invest. In fact, if you are a new investor you could easily use one of the investing tools on Prosper (Quick Invest) and Lending Club (Portfolio Builder) that allow you to invest your money quickly.

If you want to put your cash to work this way then I would just choose some loan grades, depending on your tolerance for defaults, add the filter inquiries=0 (my favorite filter) and invest. Most new investors are excited to get started and with this approach you may well be able to put all your cash to work in one day.

For example, of the 785 loans on Lending Club at the time of this writing around half had zero inquiries. A similar proportion is available on Prosper. If you choose a couple of loan grades you can put your money to work right away and be fully invested in just a few clicks of your mouse.

Reinvesting Your Cash

Once you have all your cash invested in notes you can afford to be much pickier with your investments. This is when I recommend you spend several of hours on Lendstats familiarizing yourself with the various filters and their resulting estimated ROI. Then you can decide exactly which filters you want to apply to your reinvestments.

When you filter down the available loans with your new criteria you may well find more loans available than funds. In this case I would still stick with your $25 minimum investment (unless you already have more than 500 notes) and do one of two things. Refine your filtering criteria further or just read through the loans and eliminate some loans based on loan descriptions or questions and answers.

Of course, if you have a great deal of patience then I always recommend doing extensive research and understanding how to generate the best returns on your money. If you are happy to invest slowly you could take the approach that I do and be very selective on which loans to invest in from the start. You will likely end up with a higher ROI by doing this. And it will also mean you have a consistent portfolio of loans.

How have others done it? Did you invest your initial cash quickly or slowly? As always, I am interested to hear your comments.


  • Peter Renton

    Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.