Historically, the most significant part of investor portfolios consisted of equities and bonds. However, over the last 20 years, real estate has become a global asset class in much the same way as equities and bonds. This is because there has been an increase in investor demand to move beyond traditional asset cases in curating an investment portfolio. This blog will explain what an investment portfolio is, and it will cover why real estate should be a part of your investment portfolio.
When wanting to invest, it is essential to know what an investment portfolio is. Simply put, an investment portfolio is a collection of different investment assets. This portfolio can hold stocks, bonds, real estate, and more. No investment portfolio looks the same, as portfolios can include several combinations of assets. Investors aim for a return by mixing these assets in a way that reflects their risk tolerance and financial goals. By diversifying your investment portfolio, you are reducing the risk.
A real estate investment portfolio consists of investment assets in the real estate sector. These assets are all held by one group or individual. Even though all portfolios look different, they have one similar function: They all help real estate investors get closer to achieving their financial goals. Many investors dream of building a portfolio that will let them achieve financial freedom. However, some use their portfolios to achieve more tangible goals, such as saving for retirement.
Real estate can be one of the most challenging investment challenges. For that reason, many investors overlook investing in real estate, even though it is a valuable portfolio diversification tool. Real estate offers a slow and predictable rate of return over the long run. Furthermore, it can be a great way to build long-term wealth.
When investing in real estate, there are several advantages for the investor. First, real estate investments are directly under the investor’s control as things related to the physical property and tenants can be controlled. Second, when investing in a stock, you hold it for a period and hope to be sold for a profit. As the stock’s success depends on company management and their corporate success, you have no control over the success of these types of investments.
Another advantage is that real estate is one of the few assets that reacts proportionally to inflation. As inflation goes up, housing values and rents go up as well. Though real estate, in general, is a good hedge against inflation, rental properties that are released every year are especially effective. As a result, monthly rents can be adjusted upwards in inflationary periods.
One of the first steps in the investment process is creating your portfolio. Part of this process is asset allocation. This describes how you break down an investment portfolio based on the asset class—an asset class is a category of different securities. Examples are bonds, shares, and equities.
It is important to mix these different securities to reduce the risk on your investments. How you want to combine your securities is your own choice. Diversification is a primary key when creating your portfolio. However, always make sure that you mix your securities in a way that reflects your risk tolerance and financial goals.
As mentioned before, your investment portfolio should consist partly of real estate. Max Crowdfund is a real estate crowdfunding platform located in Rotterdam. Max Crowdfund allows people to invest from €100. This makes crowdfunding accessible to investors with different wallets. Furthermore, the investor can easily spread their investment over several projects due to the low investment amounts, reducing the risk in the investor’s portfolio. Besides, Max Crowdfund offers investment opportunities in multiple countries, which means that investors can diversify their investment portfolios.
Written by: Donna de Vries