Benefits of diversification
These charts illustrate how diversification-spreading an investment equally across hundreds or even thousands of Notes-can drive more solid returns. Lending Club investors with more diversified accounts have generally experienced less volatility and more solid returns than investors with more concentrated holdings. Diversification increases when you purchase additional Notes related to different borrower loans.
Diversification Can Reduce Volatility of Returns*
This chart demonstrates how greater diversification, or owning more Notes, can reduce the volatility of returns. Moving from left to right in the chart, the number of Notes per account increases and the lines in the chart get closer together. This illustrates that as accounts hold more and more Notes, each Note represents a smaller portion of the total and their returns may become more stable and consistent.
Chart includes accounts that have a weighted average Note age of 12 months or older, hold at least 5 Notes, and have not transacted on the Note Trading Platform.
Owning 100+ Notes Reduces Risk in Your Returns*
Chart includes accounts that have a weighted average Note age of 12 months or older, and have not transacted on the Note Trading Platform.
This chart shows that diversified accounts-those with at least 100 Notes of relatively equal size-are more likely to have positive returns.
- Accounts with more than 100 Notes and with no Note representing more than 1% of the total account value are the most likely to have positive returns.
- Accounts with fewer than 100 Notes and with some Notes possibly representing more than 1% of the total account value are the most likely to have negative returns.
What is Diversification?
Diversification is a way to manage investment risk by spreading your dollars across many different investments to reduce the exposure to and the risk of a single investment. Investing in a combination of assets that are not correlated can lead to a return with lower volatility and less unique risk.
Example of the Power of Diversification
Diversification helps to limit the impact of any single charge off by spreading your money across many different Notes. For example, say you have $2,500 to invest in Lending Club Notes. You could invest:
- $2,500 in one borrower; or
- $25 in 100 different borrowers.
If you invest in one borrower and that borrower becomes late and the loan eventually charges off, you could potentially lose 100% of your total investment amount.
If you invested a relatively equal amount in 100 different borrowers and that same borrower becomes late, your potential loss on that particular Note would be limited to 1% of your total investment amount.
How you can diversify at Lending Club
Automated Investing is an easy way to create a diversified investment. You set your investment criteria and Automated Investing will place orders for Notes as matching inventory becomes available.
Browse the loans listed on our platform and manually pick the borrowers you want to invest in one by one. You will find credit and loan information in each listing.
Get started right away Open an Account
Lending Club Notes are offered by prospectus filed with the SEC. Please consider the risks of investing.
* Information in these charts is for information only. It is impersonal and not individualized for any specific investor's financial situation and is not investment advice. These charts are not intended to be, nor should you interpret them to be, a prediction of how a particular portfolio will actually perform. You should always carefully consider investments in any security and you should be comfortable with your understanding of the investment. You may also consider consulting investment professionals.
1 Adjusted NAR is a return measure that models potential losses on a loan prior to that loan being charged off. Adjusted NAR is calculated using the formula described here. It is based on monthly borrower payments actually received net of Lending Clubâs service fees, actual charge offs, recoveries, and estimated future losses. To estimate future losses, we apply a loss rate estimate to the outstanding principal of any loans that are past-due but not charged off. The loss rate estimate is based on historical charge off rates by loan status over a 9-month period. Historical returns are not a promise of future results. Lending Club Notes are not insured or guaranteed and investors may have negative returns. Individual portfolio results may be impacted by, among other things, the diversity of the portfolio, exposure to any single Note or group of Notes, as well as macroeconomic conditions.
2 90th Percentile: 90% of accounts have returns that are less than or equal to this value.
3 Median: Half of accounts have returns that are less than or equal to this value.
4 10th Percentile: 10% of accounts have returns that are less than or equal to this value.