Reduce Risk with Diversified Investments Including Securities and Real Estate
Financial planners routinely advice their clients to balance out their investments. They recommend a diversified portfolio that includes some riskier investments that offer a higher rate of return coupled with more conservative, secure options that feature a more moderate return on investment or ROI. One way in which a more balanced portfolio can be established is by investing in certain securities or stocks as well as real estate. You can select from certain stocks that are classified as being a bit riskier but have a higher potential ROI. You can balance that risk off by including some of your money in investment real estate.
Common Challenges Associated with Stocks Classified as Being Riskier Investments
The most significant risk associated with stocks that present the prospect for a higher return but are chancier that some other investment options is loss of money. Needless to say the primary objective of creating an investment portfolio is to make money, not lose it. In the greater scheme of things, you do open the door to the prospect of a high return on a riskier investment but you also expose yourself more significantly to losing money.
Another common risk associated with stocks that have the potential for a higher return is what is known as price volatility. In other words, these types of securities can face pretty significant market fluctuations. You may find that a higher risk stock is cycling downward at a juncture in time when you really desire or even need to divest.
Finally, another downside to investing in a riskier stock is found in the stress that it can cause you. When you place your hard earned money into an investment you certainly will experienced a certain level of stress. This level of stress can be magnified when you place a portion of your money into a riskier security investment. In the final analysis, not only do you need to consider the financial and economic risks associated with a certain type of investment but you need to pay heed as to how a riskier stock may impact your overall emotional state in the short and the long term.
Counterbalancing Common Challenges Associated with Stocks Classified as Riskier Investments
As noted previously, one of the overarching benefits of investment real estate is that it can provide a more conservative counterpoint to a portfolio that includes riskier securities. Investment real estate in fact provides a specific counterbalance to the trio of most common challenges potentially associated with a riskier investment in securities.
First, while your money is at greater risk when placed into certain security investments, purchasing investment real estate is an ideal counterbalance to that risk. Of course, there can be downward shifts in real estate market value. However, when that happens, in the not too distant future, the lost value of a real estate investment usually is recovered.
Second, investment real estate also provides a sharp counterbalance to the potential of market volatility associated with the stock market and particularly riskier securities. The stock market, and riskier stocks, can experience sharp value shifts upward and downward. On the other hand, generally speaking real estate tends to maintain a fairly stable upward curve when it comes to market value. As noted, there can be spikes downward, but they are not as regular in their occurrence when contrasted with stock market gyrations.
Finally, while there exist stressors associated with owning investment real estate, most of those can be addressed through the hiring of a capable property manager. The level of stress which some people experience in owning stock, particularly riskier securities, has no comparable situation when it comes to owning investment real estate.
Generally Higher Portfolio Returns
Research demonstrates that a portfolio that strikes a balance between riskier securities counterbalanced by more conservative investment real estate ultimately resorts in a generally higher return over the long haul. With the presence of more conservative real estate investments in a portfolio, you will not feel as compelled to dump riskier stock when it appears those securities are heading to what might prove to be a downturn value. With a balanced portfolio, including investment real estate, you put yourself in a better position to see your riskier stock holdings rebound after a sharp spike downward.
In the absence of an investment in real estate you lack a resource that provides you a foundational basis you outlast a downturn in value of a riskier securities investment. Financial planning experts are nearly unanimous in noting that in order to optimize the potential return in an investment -- whether risky or more conservative -- you do need to attempt to hold on to the investment for as long as possible. This includes being able to effective ride out market gyrations of different types.
No matter the underlying reason behind creating a meaningful investment portfolio, starting the process of developing such a portfolio earlier in your adult life is advisable. By commencing the development of a well-balanced portfolio earlier in your life, you place yourself in a more certain position to be able to meet your important goals and objectives. This includes being able to have a suitable amount of money for your proverbial Golden Years.