Strategic Diversification your portfolio and your IRA funded LLC
When investors diversify their portfolio, they are attempting to reduce risk (variance) by offsetting losses from one investment with gains from another.However, when it comes to selecting the proper investment vehicle on the interrelationship of their returns, most investors go awry.
For example, is diversification really being accomplished if the investment being added reacts similarly to other investments in the portfolio?If you have two or three mutual funds that invest in similar asset classes, you haven’t diversified.You have not reduced the nonsystematic risk portion of your portfolio effectively.The funds you have will tend to move together without offsetting any losses.
The proper way to strategically diversify your portfolio would be to add a security or an investment asset that behaves inversely to your current holdings.By adding an investment with an inverse relationship, you have a better chance of offsetting losses from your portfolio.This is how nonsystematic risk is reduced.By adding investments that do not move in a similar fashion, you will reduce volatility of your portfolio.
How do you know which investments to add that will reduce nonsystematic risk?The proper way to add an asset that will reduce nonsystematic risk is to run a regression analysis to determine the correlation coefficient.Correlation in our example can be defined as how the returns of an investment asset vary with respect to other investment returns.Having an accurate assessment of the behavior between the past returns from different assets will allow you to optimize your objective - to reduce nonsystematic risk in your portfolio. A portfolio with a correlation coefficient of less than one should reduce nonsystematic risk more effectively than a portfolio with a higher correlation coefficient.For those of us that are not math oriented then simply add and investment medium that is completely different in nature than what you are used to.For example if you invest in traditional investments then try a non-traditional investment.
What types of assets are there?Well for investment purposes there are traditional investments : stocks, bonds, CDs, annuities, ect.There are also non traditional investments: real estate, joint ventures, timber, private note financier, ect.
Also consider that if you have a self directed IRA that owns and LLC you can easily diversify that retirement portfolio.
The IRA funded LLC and investing in loan sales
Yes, with an IRA funded LLC you can invest in loan sales. Only engage in the purchase of bulk loan sales if you have an understanding of how this market works.
A loan sale is a sale, often by a bank, under contract of all or part of the cash stream from a specific loan, thereby removing the loan from the bank's balance sheet.
Typically, sales contain loans that have similar characteristics. The loans are refined into pools according to specific criteria. Pooling considerations may include loan size, quality, type, collateral and location.
Are these good investments?Every interested party, based on their own circumstances, must determine whether loans are a suitable investment. Prospective purchasers must have the financial sophistication and resources sufficient to evaluate and bear the economic risks of such loan purchases.
Are distressed or troubled loans the only ones up for sale?No. The loan portfolios of failed financial institutions usually contain a variety of performing and non-performing loan products including mortgage, commercial, consumer loans, etc.If you deicide to purchase loans always ask to review the files.
Prospective purchasers should review the loan files.Organizations that sell loans encourage file reviews. Interested parties must contact the selling organization to schedule due diligence appointments. Look out for bulk sales on nonperforming loans hitting the market (read this article) - http://findarticles.com/p/articles/mi_m5072/is_n32_v15/ai_14342051
Be advised that asking price in a loan sale is the equivalent of a listing price in the sale of real estate property. Bidders should not rely on the asking price to establish their bid, but should formulate bids on their own analysis.
*We do not endorse any of the following service providers but we list them so that you have a starting point in your loan investments.
Site Navigation 
