Your investment portfolio can serve a few purposes, but it’s mainly there as a retirement fund for most people. That means that many people take a more risk-averse approach near retirement. This helps protect your portfolio from dramatic losses at the end of your career.
Of course, another hallmark of a good portfolio is diversification. In essence, you spread your investments over different industries to encourage growth and shore up losses. With so much economic upheaval in the last year or so, many people are now looking at alternative real estate investment as a way to diversify their portfolios.
How can an alternative investment strategy improve your portfolio? Keep reading for an overview.
What Are Alternative Investments?
Traditional investments include things like stocks, bonds, and liquid capital, such as a savings account. Ideally, these all provide a profitable return over time. On that view, alternative investments mean any investments that fall outside those general parameters.
So, for example, someone could buy up gold and store it in a safe. Gold always holds some value and typically accrues more value over time. That makes it one kind of alternative investment.
Alternative Real Estate Investment
For all practical purposes, real estate investment is only alternative in that it’s not a stock or bond. It typically falls into three general categories of risk.
A low-risk real estate strategy is if you buy an existing property that has high, stable tenancy.
A medium-risk real estate strategy might involve buying properties that need renovation. You go in knowing you must invest in renovations and plan on selling for a profit or moving in tenants.
A high-risk real estate strategy is a new real estate development that hasn’t broken ground yet. Projects like that offer no guarantees of a return on investment.
You can also work through real estate investment companies.
How Real Estate Investment Improves Your Portfolio
Ongoing volatility in the stock market makes results there painfully unpredictable. You might see big wins or big losses or both across your investments there.
Low-risk and even medium risk real estate investments offer a stabilizing force in your overall portfolio. Let’s say you make a home investment and then rent the home out. You get stable incoming revenue and you get the long-term value of the property itself.
That’s something that you cannot count on with the current stock market.
Is Alternative Real Estate Investment for You?
For some people, the relative stability of an alternative real estate investment makes it valuable. It’s still a decision you should consider.
You can often leave managing your investment portfolio to an investment advisor or broker. Alternative investment management typically calls for a more hands-on approach.
At a bare minimum, you must find people to manage the upkeep and lease management of the property. You can also take on those tasks yourself if you’re up to it. If you don’t mind that level of involvement, real estate investment may well prove a good fit.
Looking for some more finance tips? Check out some of the other excellent articles on this site.