Real estate investment has long been more popular than it sometimes gets credit for. In recent years though it’s become particularly trendy. Just this year in fact, a study indicated that Americans now prefer investing in real estate to buying and selling stocks. That has not always been the case, and it speaks to the state of the market.
With that said, real estate can also be a challenging environment! While there are some areas in which housing prices tend to rise consistently, there are others that are more volatile. To that point, our guide to investing in real estate specifically pointed out that the Miami property market can be a little bit of a roller coaster — as can those of Manhattan and a few other major urban areas.
This is all well and good for those who figure out how to read trends, time their investments, and remain patient enough to profit. At the same time however, a volatile market is excellent incentive to diversify. What we mean specifically is that if you are investing in real estate in a more up-and-down area it’s also a good idea to spread out some of your capital in other markets, so that you don’t risk losing too much on a downturn. The last thing you want is to have all of your investment funds tied up in Miami real estate during a downward trend.
Keeping this in mind, we have a few simple but strategic diversification options specifically for those who invest in real estate.
If you want to diversify but you’re primarily interested in sticking with real estate, investing via REITs is an option worth pursuing. If you’re not familiar with the term, REIT stands for “Real Estate Investment Trust.” It is basically a fund filled with small stakes in different real estate assets that you can buy and sell almost like a stock market asset. One perk of this option is that it is inherently diversified within the real estate sector, with different assets in any given fund representing independent potential. Another upside is that an REIT is simple to trade, whereas trying something like stock trading as a means of diversification involves a lot of effort.
If you’re interested in diversifying beyond real estate entirely, the gold market can make for a suitable alternative specially because of its association with stability. While it’s a total misconception that gold is always going up, the asset does have a history of moving relatively calmly, trending up in the long term, and withstanding downturns in other markets. If this all sounds appealing for diversification, gold ETFs specifically make for good options essentially for the same reasons we highlighted REITs. First, it’s an “exchange-traded fund,” meaning it bundles gold-related assets into a single chunk such that it’s inherently diversified within its space. Second, because it exists as a single bundle, it is similarly simple to trade.
Mutual or Index Funds
Our final suggestion is to explore mutual and index funds, which basically take the convenience aspect of REITs and gold ETFs but apply it to stock markets. A mutual fund is a bundle of stocks that are managed by a professional (or group of professionals). An index fund is more like a stock market REIT, in that it basically automatically tracks the values of its bundled assets. In either case though, you have the ability to buy in and share in the profits or losses without having to manage trading decisions along the way. Once again, it’s a means of diversifying with ease and without saddling yourself with a busy day-trading responsibility.
You have many opportunities beyond these to diversify your portfolio, even if your primary focus remains on real estate. But these represent some simple and logical options worth looking into.