Registered Investment Advisors (RIAs) play a crucial role in helping their clients diversify investments to meet key financial goals. Diversification is a strategy designed to reduce risk and optimize returns by spreading investments across various asset classes, industries, and geographic regions. By recommending private mortgage funds like the EP Guardian Fund managed by Enact Partners, RIAs can offer their clients a powerful way to enhance their portfolios, providing benefits such as higher yields and exposure to reduced market volatility.
Here are some key considerations for why investing in a private mortgage fund could make sense for your clients.
1. Risk Management
Reducing Exposure to Individual Assets—Diversification minimizes the impact of a poor-performing asset or sector on a client’s overall portfolio. By investing in a mix of assets, such as stocks, bonds, real estate, and private mortgage funds, RIAs ensure that losses in one area may be offset by gains in another. Private mortgage funds, in particular, provide an additional layer of protection by being less correlated with traditional markets.
Mitigating Market Volatility—Spreading investments across different asset classes helps clients weather market downturns and reduces overall portfolio volatility. For instance, when stock markets decline, investments in private mortgage funds may maintain or increase in value, offering a stabilizing effect.
2. Enhancing Returns Over Time
Optimizing Risk-Return Tradeoff—By diversifying across various types of investments, RIAs aim to maximize long-term returns for a given level of risk. Private mortgage funds often offer higher interest rates compared to traditional fixed-income investments, thereby optimizing the risk-return tradeoff and enhancing overall portfolio performance.
Capitalizing on Market Opportunities—A diversified portfolio allows clients to tap into a wider range of investment opportunities, including private mortgage funds. These funds enable access to niche markets and potentially lucrative deals in real estate, which might be overlooked by larger financial institutions.
3. Reducing Concentration Risk
Avoiding Over-Exposure to Specific Companies or Sectors—Ensuring clients don’t concentrate too much of their portfolio in a single stock, industry, or sector helps reduce concentration risk. For example, if a client’s portfolio is heavily invested in technology stocks, a downturn in the tech sector could result in significant losses. Including private mortgage funds in the mix can mitigate this risk by diversifying into real estate.
4. Aligning Financial Goals and Risk Tolerance
Customizing to Client Needs—RIAs create diversified portfolios that align with clients’ financial objectives, risk tolerance, and investment time horizons. Younger investors with longer time horizons might benefit from the aggressive growth potential of private mortgage funds, while retirees might appreciate the steady income these funds generate.
Balancing Growth and Stability—Including both growth-oriented and income-generating investments, such as private mortgage funds, helps clients achieve a balance between wealth growth and capital protection. These funds typically generate regular interest payments, providing a steady income stream.
5. Improving Liquidity
Ensuring Access to Cash—A diversified portfolio often includes a combination of liquid and illiquid assets. RIAs help clients maintain liquidity to meet short-term financial needs without having to sell long-term investments during unfavorable market conditions. Private mortgage funds can offer predictable returns, contributing to the liquidity mix.
6. Tax Efficiency
Managing Tax Implications—RIAs can structure diversified portfolios in a tax-efficient manner using tax-advantaged accounts, such as IRAs or 401(k)s, and selecting investments with favorable tax treatment. In some cases, interest payments from private mortgage funds can enjoy preferential tax treatment, allowing clients to retain more of their earnings. Diversification also enables tax-loss harvesting, where losing investments can be sold to offset gains, reducing tax liabilities.
7. Increased Resilience
Spreading Investments Across Geographies—Diversification reduces exposure to risks associated with a single economic or political environment. Private mortgage funds often invest in various real estate markets, offering geographic diversification, and types of property, resulting in a varied asset class.
8. Long-Term Stability and Confidence
Smoothing Portfolio Performance—Diversification smooths portfolio performance over time, reducing the frequency and magnitude of losses. Private mortgage funds tend to be less volatile than the stock market, helping to maintain stable returns. This stability allows clients to remain invested for the long term without reacting emotionally to market fluctuations.
9. Hedging Against Inflation
Including Inflation-Resistant Assets—RIAs often include assets that hedge against inflation, such as real estate, commodities, or Treasury Inflation-Protected Securities (TIPS). Private mortgage funds, secured by real estate, can protect client purchasing power as inflation rises.
The EP Guardian Fund
The EP Guardian Fund is a private mortgage fund investment opportunity that offers accredited investors stable monthly cash flow with a focus on capital preservation. The Fund offers investors an opportunity to invest in a diversified portfolio of short-term loans secured by commercial real estate, non-owner occupied residential, construction, fix and flip, mixed-use, and similar investment properties across the western United States—without the responsibility and stress of managing real estate assets.
Enact Partners, as Manager of EP Guardian Fund, has delivered annualized yields between 8% and 11%—with no losses—since the company started in 2013.
Let’s Talk About Investing
Let’s explore how investing in the EP Guardian Fund can help your clients protect wealth, optimize returns, and create diversified portfolios.
(760) 407-3045 | [email protected] | www.enactpartners.com
