A core aspect of building your property investment portfolio is diversification. By investing in various property assets across different classes, Investors can reduce their risk exposure. The total portfolio return is safeguarded in the event that an investment may underperform.
The riskier an investment is perceived to be, the higher the returns expected. There are 2 main types of risk:
: Company or industry specific risk that is unique to every investment. The risk can be mitigated through diversification as the risks are usually not correlated with other investments.
The volatility of a portfolio can be reduced by increasing the number of assets held, particularly if the assets are negatively correlated. That is, when investment A decreases in value, investment B increases.
When assessing risk exposure, it is important to look at the portfolio as a whole. A portfolio with adequate diversification will have a lower risk profile than that of the investments on their own, without sacrificing returns. Categories of risk associated with real estate investment include:
Real estate has characteristically been a difficult asset class to achieve diversification; however technology has allowed innovation to change this. Investing in real estate via crowdfunding, such as via the CrowdfundUP platform, gives the Investors the opportunity to diversify across multiple real estate investments. The small minimum investment required to invest via crowdfunding lets investors spread their capital across various property classes including residential and commercial and across different locations.
Diversification is important and is the cornerstone of all esteemed investment portfolios because it reduces risk while maintaining high returns.
The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.
