As a followup to my previous article on tracking Lending Club investments in Quicken, I wanted to share how I account for defaults. If you’ve been reading my updates, then you’ll know that I had a borrower default last fall. It wasn’t until recently, however, that I decided how best to tackle this situation in Quicken.
Tracking notes in Quicken
As a quick refresher, I track my loans under a mock security name of “LC Loans, ” and with a stable share price of $1. If I invest $25 in a note, I “BUY” 25 shares of LC Loans. As principal is repaid, I “SELL” the appropriate number of share. Interest payments are recorded as dividends (DIV), and so on. I do this on a monthly basis with a single, aggregated BUY, SELL, DIV, etc. transaction. But I hadn’t figured out the default thing until this past weekend.
How to record defaults
As it turns out, the solution is very simple. In this case, it was a $25 note that went into default, and the borrower never made a single payment (nice, huh?). Initially, I thought I’d simply record a “SELL” transaction in Quicken for 25 shares of “LC Loans” at a price of zero. Unfortunately, Quicken wouldn’t let me assign a share price of $0.
My workaround was simply to leave the share price at $1, and to record a $25 “commission” in the commission field. The end result is that I deducted 25 shares of my investment without adding any cash value to my account. This has the same net effect of selling them for $0/each, or just magically erasing them.
As for timing, I recorded this transaction during the month in which the loan was finally declared a lost cause (November 2009). Quicken now gives me a completely accurate picture of my true portfolio performance, including the effects of both idle cash and loan defaults.
Any other suggestions?
If you have any tips or tricks for tracking your Lending Club investments, please share them in the comments. While the above approach doesn’t allow you to track things on a note-by-note basis, it’s very easy to implement, and gives you accurate numbers for your portfolio as a whole.