Too many times have I seen a well-intentioned person, struggling to set themselves up for the future and ensure a comfortable life, find themselves left with their hat in their hand after an investment (that they thought would pay off) left them with nothing.
It’s tough to watch and I hate seeing it. It amazes me how many people are willing to dump their life savings into the next big thing. They pour years of cash into some startup that is “guaranteed” to be worth billions, even though the company hasn’t made any money. Or they buy a piece of property without fully vetting the risks to get it while the price is “good”.
Diversification is the idea that you can reduce risk by allocating your investments among different financial categories, instruments and industries. Your portfolio should be spread out sufficiently so a catastrophe is one area doesn’t wipe out your entire worth. When that startup turns out to be a money pit, you aren’t wiped out.
Remember Enron? The employees made the mistake of investing everything in that company. When it turned out the company’s financials were poor, the bottom fell out and thousands of people lost everything they owned – their life savings and their employment. They weren’t diversified; they put all their eggs in one basket.
Diversification doesn’t mean you reduce your income or overall wealth. That’s a common misconception. You just spread out how your money is making money.
So you are taking advantage of a 401k and/or an IRA. But what happens when you’re ready for more? Like I said, it’s important to diversify your portfolio; to spread out those investments to avoid tragedy. To that end, many investors are turning to real estate as an investment uncorrelated with stocks.
You could invest in an REIT, but the payouts are small and there’s nothing you can look at and say, “I own that.” You can’t learn very much detail about each property because they are managed elsewhere, by someone you don’t know.
Crowdfunding is becoming popular because it gives savvy investors the ability to own real properties as part of a fund. You aren’t kept out of the loop and the dividends from rent are very real and often paid monthly. It’s an excellent product to have in your portfolio simply because it’s so fundamentally different than anything else you might have and a tangible asset.
Furthermore, the real estate market has built-in protections that others don’t. If you owned airline stocks, a change in FAA regulations could drive the price down for everyone. But rarely will a single action or policy change affect the entire real estate market in the country. Typically any market swings are localized. While social, economic or political changes can decimate (and even eliminate) some markets, real estate will always be around.
Hopefully that helps you understand how diversification helps you. When you’re ready to invest in real estate, contact us.
Written by Mark A. Mascia, President and CEO of Mascia Development
Mark manages the investment and operating activities of Mascia Development, a diversified value real estate investment firm that acquires, owns and manages retail, medical office, family offices, multi-family, and industrial real estate properties in the most promising long term growth areas nationwide. Through crowdfunding, they create powerful real estate opportunities for high net worth individuals.
A fully integrated real estate company, Mascia Development has in-house capabilities in acquisitions, financing, re-development, and construction; and their principals have experience in property and portfolio management, leasing, and maintenance.
Mark has a strong career in real estate, previously managing a property of portfolios valued over $1.1 billion. Mark has worked at Archstone-Smith (a former publicly traded REIT) and Monument Realty, one of the largest office real estate developers in the Washington, DC metro area. Mark teaches real estate development and finance at New York University.
For more information, visit www.masicadev.com.
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