You'll often hear that having a diverse investment portfolio is essential for growing wealth. Also, the more diverse your holdings, the more protection you get during periods of market turbulence.
It's definitely not a bad idea to develop an investing strategy around stocks. Not only has the broad market performed well for decades, but stocks, despite their risks, are actually a somewhat predictable investment. Anyone who's owned stocks for years knows that the market will rise and fall through the years but that ultimately, it has a solid history of recovering from downturns and rewarding investors who stick with it.
But stocks shouldn't be the only asset in your portfolio. And if you need to branch out, you have options. Cryptocurrency has become increasingly popular over the past few years, and many investors have had success with it. Similarly, there's always the option to branch out in your portfolio by investing in real estate.
The question is: What's the better choice for you?
Two completely different beasts
Asking yourself whether you ought to diversify with real estate versus crypto is a bit like asking yourself if you'd like a cheese sandwich or a new video game. They're just two completely separate investment routes, and it would be unfair to say that one is the better choice than the other.
What you should know, however, is that each option carries its own risk. And you'll need to assess that risk to determine what route to take in your portfolio.
Here's a look at each.
The upside to crypto is getting to make lots of money if the value of your digital currencies soars. The downside is taking on the risk of intense volatility and an investment that could one day be worth nothing.
If crypto doesn't become a more widely accepted form of currency, its value could wither. Similarly, if it becomes too heavily regulated or restricted, the demand for it could shrink, leaving you with major losses in your portfolio.
Granted, you can argue that you might buy shares of a stock that are one day worth nothing. But if that were to happen, it would be a function of that specific company, not an entire market shriveling into oblivion. And because crypto has only been around a little over a decade and its future is so speculative, there's a chance that digital currencies could actually be worthless at some point.
Real estate investing has its risks too, but you can mitigate them depending on the approach you take. If you buy income properties, you subject yourself to a host of risks -- tenant damage, vacancies, rising property taxes, and ongoing repair costs, to name a few. But will you run the risk that your home might one day be worth nothing? Probably not.
Homes, like stocks, have a long history of gaining value over time, so if you buy an income property and hold it for many years, you could end up with quite a nice profit on your hands down the line.
But the beauty of getting into real estate is that you don't even have to buy properties -- and take on the risk of owning them -- to branch out into that arena. You could instead add REITs, or real estate investment trusts, to your portfolio.
REITs are companies that derive revenue from properties. They're similar to stocks in that many trade publicly, pay dividends, and can potentially gain value over time. But because REIT values don't always rise and fall with stock market movement, they're a viable means of diversifying.
Like stocks, REITs can lose value. But you can also track a REIT's financials for warning signs that it's going to tank. It's harder to do that with crypto.
What's the right call?
A diverse investment portfolio could be your ticket to financial security and long-term wealth. But whether you branch out with real estate, crypto, or a combination of both is ultimately your call.
It's always important to do your research before expanding your horizons. There are thousands of digital currencies out there, so if you're going to go the crypto route, figure out which one makes sense for your portfolio. And within the realm of real estate, decide if you have the appetite for physical properties -- if not, look into different REIT sectors to narrow down your choices.
There's much to be gained -- and lost -- by buying crypto and real estate. But the more thought you put into your decision, the greater your chances of ending up happy with it.