Discover Real Estate
Real Estate and Diversification
Diversification is one of the key tenets of a successful investment portfolio. Exposure to different asset classes and sectors can be beneficial, in order to reduce your risk and maximize your potential returns. Real estate can be an option to achieve this ideal diversification.
The most common tactic investors use to create a balanced investment portfolio is to spread their money across three popular classes of assets: stocks, bonds, and real estate.
Each of those assets plays a different part in balancing an investment portfolio. For example, stocks are known for their potential to generate higher returns in comparison to fixed-income securities, but they are also very volatile. Bonds tend to be much less volatile than stocks, but they tend to offer lower returns. Real estate falls somewhere in the middle: it is not as volatile as stocks, but it can offer higher return potential than bonds.
Wealth preservation is a strategy that involves investing in assets that will maintain or grow in value over time. Many investors believe that real estate is one of the best asset classes for wealth preservation. Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate. But probably not just any real estate. Ultra-rich people are known for owning high-quality, income-producing real estate, like downtown high rises and multifamily apartment complexes.
According to TIGER 21, high net-worth individuals invested the vast majority of their wealth into real estate at nearly a 30% allocation in 2021. Private Equity and Public Equity are trailing closely behind.
There are a number of reasons why real estate is considered to be a favorable investment.
First, it is a tangible asset that you can see and touch. This makes it less volatile than stocks, which can go up or down in value very quickly. Second, real estate is in demand: people will always need somewhere to live! This means that, over time, the value of your property is likely to increase. Finally, real estate can generate income: you can earn rental income from your tenants or invest in short-term rentals.
All investments carry risk and real estate has its own unique challenges. If you're a landlord you're subject to occupancy risk - the risk that your tenants will move out and you won't be able to find new ones. You're also subject to interest rate risk - if interest rates go up, your mortgage payments will increase. And finally, you're also subject to property value risk - if the value of your property decreases, you may find it difficult to sell or refinance.
This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security which can only be made through official documents such as a private placement memorandum or a prospectus. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Neither Concreit nor any of its affiliates provides tax advice or investment recommendations and do not represent in any manner that the outcomes described herein or on the Site will result in any particular investment or tax consequence.Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Concreit does not guarantee its accuracy.