Studies of Life

Learning by doing.

IsePankur / Bondora Returns after 14 months: 19.83% ROI

13 July 2014 by Jim


This is a series of posts on my personal returns of investing in Bondora. The previous post was about the results of investing for 10 months in Bondora. Since this post was published, I have found a way to increase the annual return of my Bondora portfolio with little work. Check it out.

Screen Shot 2014-07-13 at 11.47.23 AM

After 14 months of investing with the peer-to-peer lending service Bondora, I have to say I’m more than happy with the returns so far. As you can see here, the amount that is 60+ days overdue is still small at about 3.9% of my total portfolio, and according to the current marketplace statistics, which include all loans on Bondora, the global default rate for all Bondora loans is 5.78%, so I am still below the global rate so I will slowly approach that as my portfolio matures. The only point at which I would worry about the default rate would be if my personal default rate was higher than the global default rate. That’s when you need to act and look at whether you’re doing something wrong. Otherwise, you’re good to go.

The global return is still 21.6% per year, which is pretty damn good. As Bondora explain on their website, even most of the defaulted loans get paid back eventually, just not in time. So look at those payments like a bonus if and when they do occur.

Marketplace statistics
JUNE 2014 JUL 2014
(until 09.07)
Applications signed (€) 18,273,470 5,228,078
Applications approved (€) 1,850,070 544,508
Applications funded (€) 1,542,934 381,097
Current default rate 5.37% 5.78%
Net return rate 21.9% 21.6%

My ROI oscillates around 19 % ROI, so I’m not quite as good as the global return rate. This is to be expected since I basically do not do anything with the portfolio, except withdraw about 2% of the capital capital every month to add to my savings account. My account value is still growing, though, so I am getting more than 2% monthly return. If you take a more active approach and regularly sell overdue loans to invest in new ones, I suppose you can boost the return by a few percentage points, but I prefer the passive approach since I don’t want to think about money everyday. And especially in the context of stock investing, I recommend that ‘lazy’ approach to everyone out there. Nothing causes more bad choices than daily tracking of the stock market. Just because you can look at minute-to-minute changes with today’s electronic tools does not mean you should!

The net return rate is really everything you need to know, since that takes into account all overdue and defaulted loans as well. If that return rate looks good to you, you don’t need to worry about anything else.

But for the curious, here’s a chart of the missing payments (both overdue or defaulted) on a monthly basis:Missing Payments on Bondora

As you can see they are hovering around 15% of all payments, which is fine. This explains why the net return rate is 21% but many loans are signed with 26 – 30% interest. The difference is explained by defaulting loans. You have to keep in mind that unlike a normal bank which thoroughly checks customers before approving a loan, Bondora is limited in this regard. It effectively works like a kind of last-resort lending service for people who do not want to go to a bank for any reason there may be. But the enormous market for Bondora makes up for this slight decrease in borrower quality. That’s why you have to keep your bid amounts small(ish): if you have 10’000 to invest, do not invest 1000 per loan. Instead, go for 50 or 100 at most. At 100 per loan, this means you 10’000 € portfolio is spread among 100 borrowers. That is proper diversification.

Below is a chart of the monthly cashflow so far. As you can see, the difference between principal amount (light green) and total amount (dark green) is the interest. If I stopped investing new money now (which I won’t) then the part of interest in each payment would slowly decrease over the coming 5 years until all the loans are paid back. This is logical: when you sign a loan agreement, a large part of your initial payments will be interest (because the amount outstanding is quite large and generates a lot of interest debt) but over time this amount shrinks and the principal becomes the larger of the two. As I said, this is only relevant if you stop investing. If you continue regularly investing money, as I do, the line will at least stay horizontal or even rise (as it did in my case in the past few months because I heavily injected funds, which I now do more moderately because my portfolio is quite large already).

Cashflow Bondora

If you have any questions, drop me a line!



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