What is diversification?
Diversification is a method to protect an investment portfolio from risk by spreading the investments in the portfolio across multiple assets and asset classes. It basically means, do not put all your eggs in the same basket but spread them out across multiple baskets.
Why diversify?
By diversifying, you can limit exposure to risk and ultimately build an investment portfolio that's potentially more stable and profitable. Portfolios that are highly concentrated in one asset (think: shares in one company, bitcoin, a single rental property,...) or a single asset class (Think: stocks, crypto,...) are much more prone to higher volatility, unstable returns, and possibly lower earnings and losses.
Real estate is a great way to diversify!
Real estate is a great way to diversify your portfolio because of its historical low correlation with the stock markets. This means that stocks and real estate don’t necessarily go up and down together in the same period. Furthermore, real estate generally offers two ways of earning: rental income that is periodically paid out and appreciation of its value over the long-term. So even if housing prices are having a harder time, the rental income still gives you a potentially stable return on your investment.
So sure, stocks, ETFs, funds, crypto can all be great investments, but by adding real estate you can reduce your risk and create a more stable and profitable portfolio.
