It is well-known that expansive investment portfolios provide better returns than those that are narrow or non-inclusive; indeed, Investopedia tells us that “diversification is the most important component of reaching long-range financial goals while minimizing risk,” the overall aim being to “maximize return by investing in different areas that would each react differently to the same event.”
Financial professionals agree that a properly diversified portfolio needs to be spread across a wide range of sectors; variety is the key here, not size – it’s no good to have a massive portfolio that only covers a small number of industries. It is advisable to include alternative investments in any portfolio, of which real estate is an essential addition. Projections from David Swensen’s Yale Model suggest that those who include alternative investments such as real estate in their portfolios will outperform those who do not.
Real estate provides a more stable foundation for your portfolio because it is not subject to the same fluctuations as other investment options like stocks – you’re investing in actual bricks and mortar rather than rumours or the efforts of one group of people. And now is starting to look like a good time to get involved in property investment: real estate in the US was up 13.9% towards the end of 2015, according to America’s National Council of Real Estate Investment Fiduciaries. Real estate’s position as a prime alternative investment solution is now so established that property routinely makes up an integral part of the large investment strategies of top universities such as Yale or Princeton.
And there’s now an even more enticing aspect of real estate investment: with the recent rise of Real Estate Crowdfunding, property investment has gone global. Now that non-accredited investors can take part in real estate investment, more people than ever before are going to be entering the property market, which will most likely result in a boost in development due to more available funds. And because Real Estate Crowdfunding is done entirely online, location is no longer an issue – a smaller investor in the UK can put money into a high-end property in Miami with just a few clicks. Property investment is now very much a global affair; in the US alone, foreign buyers bought up $102.6 billion worth of residential property between 2015 and 2016, according to Realtor. What this means is that your portfolio can now include stakes in multiple properties across the globe, therefore markedly increasing diversification and cutting potential risk.
Diversification is investment’s buzz-word for a reason – it works. Make sure you have all bases covered by including some kind of real estate investment in your portfolio; that way you can benefit from one of the market’s more stable alternative investment options.
by Bricksave CEO Tom de Lucy
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