The importance of a diverse portfolio

The term “don’t put all your eggs in one basket” from 400 years ago, is still true today.  Wise investors are wary to have all their interests in one asset class.  They hold investments across a variety of options because while all investments come with risks, diversification helps reduce the overall risk.

An investor’s real estate portfolio should contain a diverse collection of properties to create a perfect balance of risk and opportunity.  Diversification also increases the potential for capital appreciation.  A diversified portfolio might include these 3 types of properties: a smaller unit in a well-established location near the city center, a student property near a top university, and a property that may be up-and-coming outside the city.

The first property will have steady annual price growth and maintain a consistent rental yield, the second property might have a slower price growth but have higher yield, and the third property will see the strongest growth in both property price and rental yield.  

The mistake most investors make is they buy three of the same type of property (usually the third type in the example) and sometimes it works well but a lot of times the location needs 10 or more years to reach its full potential.

Source:

https://www.worldfinance.com/wealth-management/the-importance-of-a-diverse-property-portfolio

FOLLOW US ON SOCIAL