You know the old saying, don’t keep all your eggs in one basket?
It actually makes a lot of sense. If you have all the eggs you own in one basket and something happens to it - you’ll be left with one big gooey, eggy mess.
But if you have eggs in a few different locations, your eggs will be safe. There will always be some intact no matter what happens.
The same applies to your investment portfolio. It’s important to spread your investment dollars in a strategic way across different assets (and categories) to manage your risk. The market is unpredictable and you never know what’s going to happen. Having a diverse collection of investments protects you from this risk.
The truth is:
Diversifying your portfolio makes you a smart investor and helps your money grow.
How Diversification Works
Stocks and investments can drop in value at any time. On February 5th of 2018, the Dow fell 1,175.21 points - the biggest one-day point drop in its history. If all of your investments were in stocks, you would NOT have been happy.
A diversified portfolio earns the highest return for the least amount of risk- because it has a mixed of fixed income, stocks, commodities and other types of investments. This variety guarantees that no matter what the economy does, some of your assets will benefit.
So, why does this work?
It’s because in a diversified portfolio, your assets don’t correlate with each other. They are wildly different and therefore, when one rises the other falls. So, the assets that experience loss in any situation will be offset by the assets that benefit.
Plus, this also lowers the risk of your entire portfolio being wiped out by any single event or change in the market. You won’t be dependent on the highs or lows of a single market - which makes it a lot easier to sleep at night.
Tips for Diversifying Your Portfolio
Although real estate is generally considered one of the safest types of investment, diversifying is really important in real estate investing. Investors with varied portfolios are the ones who really succeed.
There are many ways that you can improve the diversity of your real estate portfolio. Here are some investing tips and strategies to keep in mind when you are planning your next move:
Diversify Geographically
One way to add variety to your real estate portfolio is to choose properties in a range of different locations. Every geographical region has its own pros and cons and comes with its own set of risks.
One strategy is to focus on having some properties in primary markets with higher populations such as the large cities around you, as well as properties in smaller secondary and tertiary markets such as small to medium-sized towns.
You can also invest in real estate in different countries, which adds even more diversity to your portfolio. (Plus, if you invest in a home somewhere beautiful - you’ll have a great destination to enjoy on your next vacation!)
Every part of the world will offer different benefits and can be highly valuable to an international portfolio. Of course, before you invest in a foreign market it’s important to do plenty of research so you know the specific characteristics of where you are buying.
Invest in Different Types of Property
Another way to diversify is to invest in different types of properties. If you were investing in stocks you wouldn’t want to buy only one industry-specific stock category - so why would you invest in one type of real estate property?
It’s a smart move to spread your investments throughout different property types including hotels, commercial properties, family homes, vacation homes, industrial property and more. This will protect you from any big losses in any particular category.
Look for Diversity Within Diversity
You can spread your risk, even more, when you seek out investments that have diversity within themselves.
For example, let’s take a look at a fractional property ownership option like Partbnb. This is a type of investment that allows other shareholders to join in and share ownership of a vacation rental property. This will split the cost, so you won’t have to pay the full price for the vacation home.
When you invest with Partbnb, the expert team does the research for you - choosing the property that will get the best yield from Short Term rentals. The team will also get the property ready, renovating it, decorating it and listing it on online booking sites such as Airbnb and VRBO.
Every month you’ll receive your share of the profit the property generates, which you can choose to withdraw or re-invest. Plus, if you want to spend your vacation at the property, you’ll get a discounted rate.
This type of fractional ownership is advantageous for those who want to diversify their portfolio because it is even more flexible than owning an entire property yourself. You’ll be able to access your investment at any time, buy or sell parts of it and monitor its performance.
Always Be Adjusting
A real estate investment portfolio doesn’t have to be something that is set in stone. Although it’s beneficial to have a clear strategy in place, your portfolio can be tinkered with, refined, altered and improved at any time.
You can always change your investing plan as your life evolves and changes. The right balance of portfolio assets for you at the moment might not be perfect for you 10 years from now. Your real estate portfolio is a dynamic thing that can always grow, evolve and change.
Fractional Ownership: A Smart Investment
Here at Partbnb we offer the opportunity to own a slice of paradise that’s just the right size for your portfolio. We are preparing to launch for pre-orders this January, so join our wait list to receive an email as soon as we go live!