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Investing 101

How to invest in REITS to minimize volatility

September 24, 2018

When the stock market goes up one day, and then goes down for the next few days, then up again, and down…you get the picture…that’s what you call stock market volatility. If you don’t have the stomach for it, real estate investing is an option you might want to explore.

What can you do about it?

One thing even new investors understand about a portfolio is the concept of diversification — blending a variety of asset classes to reduce exposure to risk. There are different forms of diversification and at some point further diversification within an asset doesn’t really eliminate that much more risk. For example, diversifying not just among different stocks, but utilizing different types of assets, is how an investor can mitigate risk. Even with a well-diversified stock portfolio, an individual is still exposed to market risk which cannot be reduced by adding additional stocks.

The goal is to find assets that are not correlated with stocks – meaning its less influenced by the stock market’s volatility.

Asset correlation is a measure of how investments move in relation to one another and when. If two assets are considered to be non-correlated, the price movement of one asset has no effect on the price movement of the other asset.

There are many alternative investments to choose from, but real estate is undoubtedly a significant element of asset allocation, and for centuries, real estate ownership has been the hallmark of the elite in most societies and continue to be the asset class of choice for the wealthy.

Real Estate, like any investment, can go up and down in value, but it never goes to zero value, unlike an investment in stocks where a company can go out of business and the stock becomes worthless.

If you’re thinking about diversifying away froms stocks and considering if real estate investing better for you, there are many benefits to the latter, especially in the new alternative form of investing in the form of crowdfunding.

Benefits of Real Estate Investing Via Crowdfunding

A study by the Harvard Business Review in 2013 entitled “Crowdfunding’s Big-Bang Moment” noted that the “JOBS Act was the catalyst needed in order to democratize commercial real estate investing and open new doors of opportunity.”

According to a recent article in Forbes, less than 10 years from now the real estate crowdfunding industry is expected to be valued at more than $300 billion…a nearly ten-fold increase from today’s industry value of just over $34 billion.

That’s an explosive amount of growth over a very short period of time!

Here are some of the reasons why so many people are investing so much money in real estate crowdfunding:

1. Participate in large, high-quality real estate investments with small amounts of capital

2. Choose specific properties to invest in thanks to the transparency of crowdfunding or…

3. Select from funds that match individual investment strategies such as income, growth, or more aggressive venture capital portfolios

4. Balanced blend of both active and passive investment allows investors to analyze individual opportunities while leaving the buying, managing, and selling to experienced real estate professionals

5. Crowdfunding allows deals to be executed quickly resulting in increased opportunities for real estate investors

If you’re thinking of diversifying away from the stock market roller coaster and exploring real estate investing, check out how we can help you grow wealth.

 

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