Property Investment: Diversifying Your Portfolio
Have you already invested in property and would like to diversify your portfolio further? Portfolio diversification has long been established as an effective way to protect your investments. Here we will outline some options for diversifying your real estate portfolio.
Property
Despite the current global economic situation and the increase in the price of living due to inflation, which we have seen over the past year, there is still a need for affordable homes. Before considering diversification with other asset classes, such as crypto or stocks, you can start with your property portfolio. You could diversify by asset type, class, or by the time you hold property.
Multi-family homes, in particular, are highly sought after due to the competition for properties increasing in areas such as London. You have two options buy a ready-to-move, a turnkey property, or one that requires some work to make it profitable. Another opportunity to further diversify your real estate portfolio is by investing in a holiday rental property. You can potentially get a greater return for your investment and income from a holiday rental in the right location.
Stocks
Many seasoned investors follow a 60/40 rule, which means that the greater percentage of your investments are in stocks, and the remainder is in fixed-income classes. If you are already interested in real estate investment and are new to stocks and bonds, thankfully, there are now easy-to-use apps and platforms that make the leap a bit easier. Picking the right investment app is not a process to rush, however. It’s vital that you take the time to assess each investment app, check ratings, and fees, and look into whether or not the Financial Conduct Authority regulates the app.
Of course, a straightforward app is a preferable option for real estate investors. They’re seeking a sleek and sophisticated interface with built-in analysis tools and robo-advisors, which Investopedia defines as ‘automated, algorithm-driven financial planning services with little to no human supervision’. Many platforms also now give investors access to crypto markets as well as traditional stocks, which can also be a long-term investment strategy for diversification. It’s perhaps no surprise that apps with the aforementioned features frequently come out on top in the rankings.
Commodities
Another interesting opportunity for investors to diversify their portfolios is with commodities. Especially in times of inflation, this asset class is considered to provide a level of stability and protection to a portfolio. As with all investment options, commodities also come with risks and are significantly impacted by geo-political conditions, weather, natural disasters, etc. The impact of world events on commodities was clearly demonstrated by the massive increase in the price of crude oil, which exceeded $120 per barrel at one point in 2022.
Depending on your level of experience and knowledge of the markets will influence what percentage of your portfolio you should invest in commodities. The most straightforward way to trade in commodities is with exchange-traded funds (ETFs).
Keep in mind that you can diversify your portfolio either with a variety of assets or different asset classes and industries. How you diversify often depends on your age, risk tolerance, and long-term goals. Once you get the hang of diversification, take it a step further to include more adventurous assets such as collectibles, art, or NFTs.
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