When it comes to your portfolio, there’s one thing that will never change: The market may be volatile but diversifying is considered an important strategy. Properly allocated risk protects you from the ups and downs so you can sleep soundly at night no matter what happens in unpredictable times.
Investing in real estate is a smart decision for investors. In today’s uncertain climate, with COVID-19 adding yet another layer of unexpected change, savvy buyers know that they need to choose recession proof investments like housing over riskier ones such as stocks or bonds if they want their money safe and sound when things get tough again soon enough!
At first glance, diversifying your investment portfolio may seem like a daunting task. But don’t worry! With these questions and more from our list below, you’ll be able to get started on the right foot:
How Much Are You Willing To Gamble?
Diversification is one of the most important aspects when it comes to investing. Sure, there are risks inherent in every investment but what we want our clients to know though. Diversification can help you hedge against unsystematic risk, aka stock market volatility. It spreads your investments across different asset classes so even if an individual one crashes like equities – which are prone to fluctuations in price. Diversifying reduces the amount that could potentially go bad overall because they’re invested also other assets such as bonds or real estate.
Figuring out how much volatility you’re comfortable with can be difficult. There are a few general rules though: those looking for lower risk tend not to invest in assets that have high returns, and vice versa if they want more of them!
Have You Adjusted Your ROI To Accommodate Risk?
Of course, as an investor you want to get the highest returns at a level of risk that is comfortable for your portfolio. Calculate what this means by calculating Risk Adjusted Return On Investment. This metric helps you determine the potential return at a certain level of risk. Your goal? To maximize it.
Are Your Assets Closely Correlated?
The key to reducing risk is choosing assets with the least amount of correlation. That means investing in asset classes that do not react similarly during market volatility.
Oil stocks are correlated with each other, so when one falls prices, the others tend to follow. However if you have low correlation assets like real estate they won’t be as affected by this news because it’s not at all related in any way.
A mix of stocks and bonds isn’t enough to achieve true diversification. When reviewing your portfolio, look for a wide range of asset classes that also includes assets like real estate or commodities as well; cash will always be important in case you need it. Reducing correlation can be a great way to reduce risk and increase your investment’s stability. Different asset types have different horizons with varying rates of return.
Have You Accounted For Inflation?
Even if your investments show a return, inflation can knock them back down. Over time the dollar tends to lose its value and we all know how expensive things cost these days! Say you have a 4% annual return, but inflation rises 3%. This means your wealth is growing slower than it sounds. Hard assets, such as real estate can be an excellent hedge against inflation. Not only do these valuable investments typically rise with the rate of increase in prices.
Do You Have A Clear Strategy?
Just because you own a range of investments doesn’t necessarily mean that they’re adequately diversified. A truly effective strategy will account for correlation, which can be hard to detect and understand in the first place.
Keeping an eye on your investments is important, and it’s the first step toward true diversification. We always suggest speaking with a professional who can help you make the best choices for yourself.
Investing in the right property can be a smart move for anyone who wants to diversify their portfolio. Diversifying investments reduces correlation and helps protect against market volatility, which is why Florida Property Warehouse has such great real estate opportunities available!