Real estate investment protects you from inflation as well as the portfolio diversification benefits of owning a physical asset. Real estate is a tangible asset that can always be monetized through renting or residing in the property purchased, regardless of financial market conditions.
The tangibility of real estate also affords property owners with a sense of stability during bear markets or short-term stock sell-offs.
For your personal portfolio, it will be very much advisable that you should invest in real estate which is undoubtedly a significant element of asset allocation.
Let’s talk about the diversification benefits of direct and indirect real estate investments.
This is more of you obtaining what is referred to as Asset Allocation.
What is an asset allocation?
This is basically an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.
Do you know that there are three main asset classes?
Yes and they are:
asset classes have different levels of risk and return so each will behave
differently over time.
Someone may ask, why is it very important?
It is because, there is no simple formula that can find the right asset allocation for every individual. However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.
To achieve this, you can follow through life cycle funds. This is also known as target date. These are attempts to provide investors with portfolio structures that address an investor’s age, risk appetite and investment objectives.
A portfolio on the other hand is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art and private investments.
This is done directly by investors and managed by financial professionals and money managers.
An investment portfolio can be thought of like a pie that is divided into pieces of varying sizes, representing a variety of asset classes and or types of investments to accomplish an appropriate risk-return portfolio allocation.
Understand that a portfolio is a basket of assets. These are myriads of ways to position yourself to regularly earn from a onetime investment via your physical asset(s).