Both Lending Club and Prosper have had a trading platform for several years now. Some investors are very active users and sell notes on a regular basis whereas others never even register for the trading platform.
Selling Notes at Lending Club
At Lending Club investors have the flexibility to sell any note they own, as long as it isn’t in default. At any one time around 15% of the notes on Folio are for loans that are late. Many of these notes are discounted heavily and get picked up by those investors with a high risk tolerance.
That leaves 85% of the notes for sale on Folio that are now current. When I checked today that number was in excess of 44,000. Clearly a lot of people see value in putting their notes up for sale.
Selling Notes at Prosper
Prosper has a less vibrant secondary market because they don’t allow additional states like Lending Club does. They also do not allow lenders to sell late notes, which reduces the popularity of the platform. Sellers have a choice to sell their notes at a fixed price or with an auction model.
As of this writing there were just under 9,000 notes for sale (all of them current) on Prosper which is about 20% the size of number of current notes for sale at Lending Club. But there are plenty of buyers on Prosper as well particularly for notes priced at a discount.
Are you an active or passive investor?
This is the key question. Some investors monitor their accounts daily putting notes up for sale every day and couldn’t imagine doing it any other way. These are active investors.
Then there are the passive investors. They make their investments and then pay little attention to them. They may login to their account regularly to make reinvestments but they are not interested in monitoring their accounts closely.
I fall into the passive investor camp. It may be surprising for someone who spends all day every day learning about and discussing p2p lending but I consider these investments passive. I want my money to grow with as little effort as possible. I like to automate as much of the process as possible so I don’t want to be selling notes on a daily basis on Folio.
Now, let me be clear. I am not saying my way is the best way. It is quite possible to earn a higher return by monitoring your portfolio closely and putting your notes for sale on Folio. But each person has his or her own investment style and the passive approach works for me.
One of these days I would like to do an experiment where I take half of my portfolio and sell every late note and put my current notes up for sale as well. Do this religiously for three months and then see how the returns differ. I suspect that over the long run returns would be better with this active approach. If anyone has conducted an experiment like this please let me know.
So, I am interested to hear from others. Do you consider it crazy not to take advantage of Folio or do you prefer to let your investments take care of themselves? Please share your thoughts in the comments.
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.