Why First Trust Deeds Offer an Attractive Risk/Reward Ratio

Current economic times do not bode well for the stability of financial markets. Most investorsretain sizable holdings in cash or equivalents thus depressing the interest rate. The prudent investor fears this economic uncertainty but also yearns for more sizable yet safe returns.

To this end, trust deed investments should be carefully considered as an option in any investor’s portfolio. This investment vehicle is suitable for corporations, pension plans as well as for individual investors. A first trust deed offers a prudent combination of outstanding security and superior returns.

CD’s & Bank Rates Vs. First Trust Deeds

Current CD, bank and treasury rates are at historical low levels. Banks are advertising, indeed touting, rates of just over one percent. This rate means that if you put 10,000 dollars in a CD or bank account AND wait an entire year, your financial institution will reward you with a crisp 100 dollar bill. If you’re lucky they’ll throw in an extra fiver for the compound interest.

Of course, your bank will argue that your principle is secure. It is, except for the “inconsequential” risk of inflation. After all, when has inflation ever reared its ugly head in the last twenty minutes? Not to make too light of the subject, but inflation risk has been an ever present concern for the American investor for the past 100 years. It is simply a fact of life.

Trust deed investments allow the prudent investor to leverage the value of his money while creating a hedge against inflation. This financial instrument will pay anywhere from 6.5 to 11 percent. In addition, funds are received on a monthly basis and the loan is backed by a real asset that is not diminished by inflation.

High Yielding Dividend Stocks & Bonds Vs. Trust Deeds

On the other side of the risk/reward ratio is risk. There are innumerable high yielding “junk’ bonds as well as any number of high dividend producing stocks. As any seasoned investor understands, these high yields come with considerable risk. High yield bonds are subject to default and your principal can be completely gone in an afternoon. Similarly, a dividend cut by a high yielding stock will see the underlying stock price, along with your principle, drastically reduced.

In the current market, the highest, stable, blue chip stocks yield in the 3-4 percent area. Anything higher indicates a lack of confidence by the market that the stock can sustain the yield for any significant period of time.

While trust deed investments can yield ten percent per year or more, they avoid the problems of principal loss of both bonds and stocks. Instead of a promise, every first trust deed is secured by a lean on a hard asset, namely a real estate property. In the event of default the deed holder becomes the owner of the property.

This situation might be a problem if you didn’t want to become a landlord, but it is not as significant as it may seem. Every first trust deed is structured so that the monies leant are a fraction of the real value of the property, while typical loans are made in the region of 60 percent loan to value. Investors should feel comfortable with the fact that, in the event of default, they are receiving title to a property greater than the loan amount, and will be able to recoup their investment.

First Trust Deeds

All investments come with risk and first trust deeds are no different. Nevertheless, in today’s financial climate of low rates and economic instability, an investment in a high yielding trust deed that is guaranteed by a hard asset should be part of every savvy investor’s portfolio.