If you consider yourself a savvy investor, but you’re only investing in equities, then you’re fooling yourself. A good portfolio needs plenty of diversification, and there are a number of alternative asset classes that provide a fantastic risk-reward ratio and plenty of additional benefits that you can’t access with stocks. Real estate is one of those asset classes and in many ways, it is a superior investment to stock investing.
Let’s look at why that’s the case:
Less Volatility
If you look back at real estate performance over time, it’s been much more stable and less volatile than the public stock markets which tend to ebb up and down with macro-economic conditions[1]. Real estate has remained a good long-term investment throughout and has only had one or two major dips – which were followed by swift recoveries. People are always going to need housing, so it’s one of those asset classes that will remain relevant no matter what else is happening in the world. This is especially true as the urbanization trend continues to push forward. Real estate in major cities continues to see demand increase and that’s not something that’s going to turn around any time soon.
Low Correlation with Public Markets
True diversification comes from asset classes having very little correlation, so that when one goes through difficult times, the other one can pick up the slack. If you look back through the past few decades, real estate has almost no correlation with public markets [2] which makes it the perfect hedge for a well-balanced investment portfolio. We’ve seen in recent weeks the chaos that can be caused in public markets by items in the news, or shocks to the economic system. In moments like those, it pays to be in real estate which is somewhat shielded from those movements.
Consistent Cash Flow (Passive Income)
When you buy a stock, you are relying on capital growth to make your money and that is not guaranteed. Even if they do pay dividends, they tend to be small and often inconsistent. Real estate on the other hand provides a consistent income in the form of rent – which continues to return your investment on a regular basis as you hold the investment[3]. This is passive income that you can use immediately – or choose to reinvest. This flexibility gives you a lot of control over your investment, something you don’t get with stock investing
Those are three key reasons why you should be considering real estate investing as a substitute or addition to your stocks. If you don’t have the capital to invest in individual deals yourself, you can look at crowdfunding options like those offered by Stake. With Stake you can get easy access to high-quality real estate opportunities for as little as 2000 AED. But whichever way you go, it’s a no-brainer to get some real estate exposure in your portfolio – it wasn’t voted the best long-term investment for individual investors[4] for nothing.
[1]https://www.nerdwallet.com/article/investing/real-estate-vs-stocks-which-is-the-better-investment
[2]https://fundrise.com/education/why-real-estate-is-less-volatile-than-the-stock-market
[3]https://passiveincomemd.com/real-estate-vs-stocks-an-investing-showdown/
[4]https://news.gallup.com/poll/309233/stock-investments-lose-luster-covid-sell-off.aspx
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