Diversifying Investments

Why Diversifying Investments is Important and How to Do It Right?

If you’re new to the world of investing, you’ve probably heard that you should diversify your investments. You know that it’s a good idea to invest in a variety of short-term and long-term assets, but do you really understand why diversification is so crucial?

At its most basic, the idea behind diversification is protection. If your funds are spread over a range of different assets, no single market event can do major damage to your portfolio. In addition to this, if you mix long-term investments with slow rates of return with shorter-term, more volatile investments, you can effectively stabilize your portfolio in order to take advantage of those short-term investments while maintaining a hedge against an unpredictable market with your long-term investments.

Real estate is one of those long-term investments, and, in fact, it is one of the very best investments to help you both stabilize and diversify your investments. That said, not all real estate investments have the most stabilizing effects. For example, real estate trading and house flipping are both short-term investment strategies that can help you grow your wealth a great deal. However, if you already have a number of short-term investments in your portfolio, real estate trades aren’t necessarily the best additions from the standpoint of financial stability.

So, how can you diversify your portfolio and create financial stability while you grow your wealth? First, you must embrace the fact that diversification is not a one-time act. You cannot simply purchase a property that you intend to be a long-term real estate investment and expect to be finished. You must understand the balance of your investments, and you must have a plan for your asset mix. This is why so many savvy investors enlist the aid of diversified realty advisors.

When you choose how you’ll diversify your portfolio, you’ll need to decide whether you want a conservative asset mix that will lean toward preserving your funds and hedging against inflation or an aggressive mix that will lean toward rapid growth of wealth and slightly less stability. You can, of course, also choose a path that lies somewhere in between these two, and you can change your asset mix, as well, to meet your short-term and long-term goals for your portfolio.

REITs and Other Real Estate Funds are a Good Start

Of course, if you want the freedom to trade assets and make changes to your portfolio, you will need to look into how you’re investing in different markets. For example, investing in a real estate investment trust (REIT) is very much like investing in the stock market. Instead of stocks, though, you purchase shares of real estate investments that the trust purchases and maintains.

Because you’re investing in shares of real estate instead of purchasing buildings and properties outright, it is easier to buy and sell and to move assets around in your portfolio. However, do not assume that just because you decided to purchase shares with an REIT that you won’t need diversified realty advisors to help you make the purchases and sales you need to put your portfolio where you want it.

Check Up on Your Mix

Whether or not you have plans to change your asset mix, you should not neglect it. Schedule regular checkups on your portfolio and your assets throughout the year. Checking once per quarter is a good plan for most investors, though this can vary depending on your mix, the market, and your advisors’ recommendations.

Working with a real estate investment group or firm can also help you maintain the right balance in your portfolio. The real estate and investment experts employed by these firms can help you find the investments that best match your goals. With the right advisors in your corner, you can pursue growth and stability at the same time.