The start of 2022 has been fairly unkind to stock investors. For weeks now, stocks have been sitting in correction territory, and while that's not an alarming amount of time, it's unsettling.
What's scary, though, is that we don't know how long it will take for stocks to recover from this recent downturn. Concerns about inflation and tensions overseas are both contributing factors to a decline in stock values, but all told, there's a lot of uncertainty ahead.
Unfortunately, this won't be the only stock market correction investors will have to endure. Corrections tend to happen somewhat frequently. And sometimes, they can evolve into a full-fledged stock market crash.
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If you're worried about the latter, it pays to consider branching out into the world of real estate. In fact, your real estate investments could be a lifeline when stock values tank. Here's why.
1. You can tap your home equity rather than liquidate stocks at a low
Investors are frequently told to leave their portfolios untouched during a stock market crash to avoid locking in losses. But when a need for money arises, that becomes less feasible.
If you load up on a few income properties, though, then you may not have to resort to selling off stocks at a loss when you need money. That's because you may have the option to borrow against the equity you have in your investment properties.
Of course, it can take time to build up that equity. But if you hold your properties for years, there's a good chance they'll gain value the same way stocks tend to gain value over time.
2. You can use rental income to offset losses in your portfolio
Owning rental properties is a great way to generate consistent income. And that could come in very handy in the event of a stock market crash. If you have rental income flowing into your bank account, a temporary loss in your stock portfolio is something you might ride out more easily.
3. REIT dividends can minimize pain when stocks are down
It's possible to invest in real estate without buying physical properties. Instead, you can load up on real estate investment trusts (REITs).
REITs are companies that own and operate residential or commercial properties. There are different REIT sectors you can invest in, and as is the case with stocks, diversifying is best. That could mean owning some combination of industrial, data center, healthcare, and retail REITs.
Now, often, you'll find that REIT values fall when stocks are on a downward spiral -- though not always. Even so, the great thing about REITs is that they typically pay higher-than-average dividends. And when stock values are plunging, having that extra income in your portfolio could help limit the damage.
Stock market crashes can be difficult even for the most seasoned investors. But diversifying into the world of real estate could help you get through the next prolonged downturn. So, it pays to explore your options in that regard, whether by virtue of buying homes to rent out or investing in REITs and enjoying the ongoing income they produce for your portfolio.
