Could Your Portfolio Benefit from Diversification through Real Estate Investment?

By: Max Sharkansky, Managing Partner
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Appealing Option

In recent months, investors – including average working Americans with 401k accounts – have wondered whether they might actually have some reason to fear that the nearly-decade-long bull market is finally coming to an end.

Especially with growing stock volatility, investing in real estate can be an appealing option. While some markets are softening, many opportunities for real estate investment present strong and steady returns.

Further, in uncertain times, real estate can also offer the added benefit of diversification to a retirement portfolio.

Diversification isn’t about eliminating or even necessarily reducing risk. Rather, it helps to create a dependable portfolio that can, ideally, withstand variable factors for both the short and long term.

Real estate is also an industry that offers several opportunities to diversify within the sector.

Related:Commercial vs Residential Real Estate Investing

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Portfolio Resilience

For example, those who choose to diversify with real estate can further explore opportunities to strengthen the resilience of their portfolios through investing in different asset types and geographies.

Each sector within real estate comes with its own risks and benefits, with residential and commercial property types affected by ever-evolving social, political, and lifestyle factors to differing degrees, so it can make sense to consider becoming involved in more than one depending on investment goals.

When it comes to geography, varying the regions you invest in can be an excellent way to diversify and protect your portfolio.

Not only can this strategy allow you to benefit from both slower-growth and hot, booming markets – it also prevents an entire portfolio from falling prey to a single, localized event, such as a policy change or natural disaster.

Partnership & Methods

Another way to diversify within real estate investing is through partnerships and methods.

While owning a single family or smaller multi family rental property outright is a common real estate investment that individuals and families make, becoming involved with REITs (where you would technically own a share of a company that owns real estate), funds, or syndicates is another way to ensure you don’t put all your eggs in one basket.

That said, it is important to keep in mind that more is not always merrier and strategic investors must determine the right mix for them – not necessarily invest in a little bit of everything.

If you are considering diversifying your portfolio, discuss your goals and options with a trusted financial advisor and conduct extensive research before making any investment.

Related:How Real Estate Funds and REITs Compare