The Pitfalls of Trust Deed Investing - Pitfall 3
Updated: May 17, 2021
Are you really diversified?
PITFALL #3 - Lack of Diversification
When investing in the stock market, do you put everything in your entire portfolio into one stock? Would you put your entire life savings in to one property? Of course not, it just does not make sense.
If you allocated $100,000 of your portfolio in Trust Deed investments, you should not put the whole $100,000 in one Trust Deed investment. You need diversification across borrowers, location, and asset type.
“You need diversification across borrowers, location, and asset type."
If you are investing in Trust Deeds and you are with a mortgage broker that only specializes in one state, California for instance, that is not diversification. If you invest with a company that only has one borrower, is that good diversification? What if the borrower mismanages funds one year and files for bankruptcy? Or maybe they are only underwriting loans on residential property. Would that be good diversification? No, that is lack of diversification and that is a huge pitfall. When you are looking at investing in Trust Deeds you do not want to put all your eggs in one basket. When you invest in the stock market you do not invest your entire portfolio in one stock. What is going to happen to your portfolio if you put all your eggs in one basket and the market crashes? Your entire portfolio just went to hell in a handbasket.