Is Your Portfolio at Risk if the Market Crashes?
If the title of this article grabbed your attention, you’re likely not new to the world of investing. You are likely very familiar with the word “diversification”, and you may have even read my article, Don’t Put All Eggs in One Basket. Hence when looking at your 401(k) portfolio or your IRA you know that it may include, but not limited to stocks, bonds, and mutual funds, which in other words, are securities. This is when an alarm should go off in your head because securities’ performance directly correlates with the stock market.
So, to continue our discussion of risk versus reward strategy, we know the rule of thumb that the higher the risk the greater the reward. However, the opposite is true as well; the greater the risk the greater the loss. When the stock market crashes due to a macroeconomic impact, all of its belongings follow along and follow suit, so the question you should ask yourself is, where does it leave your 401(k) or IRA investment? Or worse yet, what’s left of your investment and how long will it take to recover? There are some tough questions all of us have to take into consideration when deciding on the diversification strategy and in what to invest!
So, what is the solution to this problem? Don’t limit diversification to securities. All you need to do is add another safe, yet high yield asset type, such as a commercial real estate investment, to your investment portfolio. This way you can take advantage of a decreased the risk of your overall portfolio while reaping the benefit of equal parts, safety and value. Granted, real estate market may also be volatile, and had undergone fluctuation. However, this risk can easily be hedged because a real estate asset would be purchased by an experienced operator with multiple exit strategies in mind. In addition, the real estate asset also allows for a healthy cash flow that further minimizes the impact of the overall market on your investment. To become a partner in a commercial real estate syndication, often times you need to be Accredited Investor. But don’t worry if you are not yet accredited because there are offerings for Sophisticated Investors as well. Besides, if you’re working on your career or on expanding your business, you may be closer to your “Accredited Investor” status than you think!
To summarize, the goal of diversifying your portfolio is to minimize the risks while maximizing the overall return of your portfolio. Hence, adding a mix of real estate assets to your stock market assets achieves this goal. Are you ready to diversify your portfolio? You can determine that by reading “Where to begin when it comes to passive real estate investing?”
