A good investment portfolio is diversified into various investment types to provide protection. This diversification means blending traditional investment strategies and alternative investments. One alternative investment type that should be included in every investment portfolio is shares in a mortgage pool managed by a Mortgage Investment Corporation (MIC).
We’ve explained what mortgage pools are, what MICs are, and the benefits of a MIC vs. DIY mortgage investing in past articles. This article will explain how every investment portfolio can benefit from allocating a percentage of investment capital into MIC-managed funds.
Real estate has always been a popular market for investing. However, it isn’t always the most accessible market to get into, let alone see returns right away. As housing prices continue to rise and interest rates remain relatively low despite projected increases in the coming months, MICs provide access to the private mortgage market without the volatility of ownership. There is also added safety with a MIC, thanks to the experts who carefully select the mortgages that make up the fund.
Savvy investors are looking to alternative markets to offer greater returns. The traditional 60/40 portfolio, with 60% invested in stocks and 40% in bonds, is not providing investors with sufficient returns. The average return from a MIC is between 5 and 8%, while a 10-year Government of Canada bond offers an average return of 1.5%.
Another benefit to investing through a MIC is seeing returns sooner. Because MICs operate similarly to a mutual fund or exchange-traded fund (ETF), investors have more protection thanks to diversification. Investors also start seeing returns sooner thanks to the interest fees collected from borrowers. Rather than managing a rental property, investors do not have any hands-on property maintenance or managerial responsibilities, and their investment isn’t tied up in the market value of a single property.
It’s still good to have a certain percentage of your portfolio in traditional investment vehicles like bonds. However, bonds have not faired well during the COVID-19 pandemic as prices rose and yields dropped, making them unappealing to investors. Public markets such as stocks and bonds are at the mercy of public and global events that impact the markets. Private investing and alternative assets can provide some shelter from these same events.
No investment strategy is completely safe from market shifts. We all witnessed this in the 2007/08 financial crisis that impacted real estate. However, the benefit of investing in mortgages is the additional security of not owning the physical property should there be market volatility. The borrower still needs to pay the loan back, or the lender takes the property as collateral. For investors in a MIC, the corporation handles recouping losses and selling properties in the uncommon situation where a borrower defaults.
As the real estate market continues to grow, many investors are afraid of a burst in the housing bubble. However, most experts and advisors do not see this happening as more safety features have been implemented since the 2007/08 crisis to prevent this. Canadians also have an excellent history of paying their mortgages, with delinquency rates being just 0.28% during the pandemic. Risk assessment strategies used by MICs help to reduce these risks further.
Our team has been successfully helping investors to meet their goals through our pooled funds since 1994. If you’re ready to start seeing the benefit of private mortgage investing in your investment portfolio without the headache of private ownership, our team is here to answer your questions. Get in touch with Jordan today to learn more.