The best investment plans include diversification. If you read investment articles and listen to advice from the greatest financial advisors around, you will gather the same strategy—diversify your portfolio. It’s the best way to protect your finances and investments, along with maximizing earning potential.
Why is diversification so important? Let’s take a simple example to understand diversification. First, consider oil prices being low across the globe. If oil is low, and you’re invested only in oil, then your investments will be down because they aren’t diversified. However, if you were invested in oil and steel, then a drop in oil won’t affect you as much because your steel investment is likely to go up. Why? Because people might buy more SUVs or trucks because the price of gas is cheaper to fuel larger vehicles - and those vehicles require steel to manufacture.
By diversifying your investments, you’re protecting yourself because the market will go up and down each year, and some markets will grow much larger than others.
How Does Real Estate Create Diversification?
Having a mix of real estate investments in your portfolio will further diversify your portfolio and lead to additional gains. Historically, real estate investments go up even when stocks go down. Real estate often has a low correlation with other asset classes. It stands on its own, which means it provides tremendous diversifying power. Of course, there are times when real estate suffers along with other assets, such as the Great Depression and during the Great Recession.
Real estate is also backed by being brick and mortar, whereas stock in a technology company could result in serious loss if the technology grows unpopular or outdated (which can happen quickly in today’s market). People will always need houses. They won’t always need a particular technology. Therefore it’s a completely different form of investment.
Consider this: the average yield of stocks in the S&P 500 index is only 2.29%. Granted, some stocks will surely shine bright and if you keep your finger on the pulse, you can maximize your yield. However, real estate has the potential to yield more on average.
How Should I Start Diversification?
Here at Memphis CashFlow, we make diversification easier than trying to do it alone. With an investment group, you can get professional help and insight from people who know the Memphis real estate market well and know how to navigate the process of investing. We can help you acquire a Memphis property for investment in, and even work with you fill the property with qualified tenants.
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