A diversified investment portfolio can give you security and stability in times of uncertainty. In this article you will discover the importance of diversifying your portfolios with varied assets, especially with real estate.

What is an investment portfolio?

An investment portfolio is the set of financial assets that an investor owns. These assets can be stocks, real estate, bonds, CDTs, etc. The goal of this portfolio is to find the best possible combination and maximize capital.

According to Sabrina Castelli (2022), an entrepreneur in the financial sector, this portfolio must obey a series of characteristics before being formed. These include the risk profile, long-term goals, and current life stage. It is not the same to create a portfolio with 20 years to do it with 50.

What asset class is it made of?

Any asset that represents an income can be part of this portfolio. Although thousands of new options have come out in recent decades, these are the most classic and represent the most volume:

All investment instruments have a risk, a return and specific characteristics. The perfect mix will depend on your risk aversion and investment objective.

The magic word when creating an investment portfolio is: risk. Risk is determined by volatility, that is, how much its price moves from one period to another. If the price does not change much, it is considered conservative and if it does, it is considered risky.

It should be noted that although an investment is risky it does not mean that it is bad. On the contrary, it means that this portfolio is willing to assume higher volatilities in search of higher returns in the long term.

With that in mind, all investments are distributed into three types of risk:

  • Conservative
  • Moderate
  • Risky

If your desire is to create a customized portfolio, the first thing will be to know your investor profile. After a test, you may be profiled.

How to diversify an investment portfolio with real estate?

Real estate investments have historically been considered a haven for periodic rents and appreciation. Even when the global situation is uncertain, people need housing. In addition, according to Fernando Martinez (2022), a housing specialist, properties always tend to be valued. However, this will depend on the city and the projections.

Miami, for example, is a city that in recent years has been a magnet for investors. According to Guillermo Olmo (2022), of the BBC, people buy homes in Miami for its tax benefits and for the lifestyle it offers. Due to that high demand, home prices grow.

So how do you leverage real estate to diversify your portfolio?

1. Make a budget

The first thing is to put your income and obligations on paper. That will show you whether your investment portfolio is viable or not. Remember that many of these investments are medium and long term, so you need to make sure that investing will not prevent you from meeting your financial obligations. This is known as budgeting.

2. Proper distribution of money

Investing only in stocks, for example, can be risky. If something happens in the stock market, your entire portfolio would be compromised. Therefore, the recommendation is not to invest in a single market. If you have diversified your portfolio with varied assets and one fails, the others will raise the investment. This is called diversification.

3. Design a financial strategy

A good investment in real estate also includes how it will be paid: will you seek financing or will you do it with savings? In any case, understanding the numbers will help you know how long it would take to meet your goals and at what cost. Designing a strategy is the shortest path to returns.

4. Define your investment objectives

Finally, an investment portfolio must be 100% aligned with your objectives. If, for example, your goal is to invest in products with a lot of liquidity, stocks or real estate may not be your thing. Conversely, if you have a surplus of capital and can wait a few years in order to achieve higher returns, alternative assets are your thing.

Why is Florida a good fit for your investment portfolio?

Florida is a diverse state with a lot of cultural offerings. Many people outside the United States go looking for property because they know what it can offer. According to the Miami Realtors Association (2021), this year saw the highest number of sales in nearly 30 years.

Given this explosive interest in Florida’s real estate market, the idea of investing makes a lot of sense. The main attraction for investors is the tax burden and future projections. In this state there is no income tax, and the quality of life is good. So, diversifying the investment portfolio is a guarantee of security. If you want to enter the real estate market in Florida, at PFS Realty we can help you. If that interests you, do not hesitate to contact us.

References

Castelli, S (2022). What is an investment portfolio and how to put one together. Forbes. https://www.forbes.com.mx/que-es-un-portafolio-de-inversion-y-como-armar-uno/#:~:text=La%20especialista%20se%C3%B1ala%20que%20un,materias%20primas%20y%20productos%20derivados