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The benefits of: Diversifying your portfolio

Last updated: 4th January 2021

You know we love buy-to-let property, but there’s no harm in diversifying your portfolio. Diversification can help you keep hold of more of your money – and assets.

For example, if you invested every single penny into the stock market and it crashed – what would happen? You’d lose your initial investment as well as what you’d gained in interest.

The same could happen with property.

Maybe not quite as quickly.

But it’s possible.

All investments have risks.

The good thing about investing in property is that it’s widely known as one of the safer investments to choose from. Particularly if you’re investing for long-term gain. There’s a free course on how property can make you rich in the long-term here.

Investing for the long-term is undoubtedly where you’re going to see your biggest returns. And this is where it comes in handy to educate yourself on concepts such as the 18-year property cycle, to make sure you’re not investing at the wrong time.

Diversification doesn’t need to be in the form of stocks vs property, or gold vs bitcoin. If property is for you, you can diversify your portfolio in other ways.

The pros of diversifying your portfolio

Diversification allows you to spread risk across your portfolio. And one way you can do this, is by making sure your portfolio isn’t made up of just one investment type – or one investment strategy.

This won’t be right for everyone, so it’s important to get clear on your goals to make sure any strategy you run with is aligned with your end outcome. And there’s a number of property investment strategies to choose from.

Let’s take the strategy of holiday lets and the 2020 coronavirus pandemic as an example. As soon as we went into a national lockdown, most income came to a grinding halt for anyone who owned a holiday let. Although if you were savvy, like this investor we interviewed on The Property Podcast, you would have been able to flip a bad situation on it’s head.

However, if you had a mix of holiday lets and buy-to-let properties, you still would have possibly had at least one stream of income you could rely on.

It’s all about location

One of the easiest and most sensible ways to diversify your portfolio is by investing in different locations to the ones you’re used to or feel comfortable with.

It’s about stepping out of your comfort zone.

A location that’s suitable for one property type won’t necessarily be suitable for another. If you decide to invest in a rural location, then a standard buy-to-let property might not be as in-demand as what you might find in a busy city centre. Your target rental market might be much smaller.

Something else you need to consider with location is the supply and demand of the property type you’re looking at. If somewhere is oversaturated with HMOs and a simple Rightmove check confirms that they’re available to let in abundance, why invest in one?

Of course, if the rental market demands more HMOs (i.e the demand is high but the supply is low), then that’s a worthy investment consideration.

Research is your best friend with any investment. We can’t stress the importance of due diligence enough when investing in property. We did a handy video of why you should walk away from a deal over on our YouTube channel which will give you some firm pointers of what to avoid when looking to make a new purchase.

And in terms of what you should be looking for in a property, here’s a resource on the fundamentals that you can use as a bit of a checklist when you’re doing your research.

Is property still the best asset?

The main thing to remember is that no matter how bad the market gets, property will never lose it’s full value. Yes, there may be the odd dip in the market, but as long as you’re looking to invest in property for the long-term and you’ve invested wisely, your investment will always bounce back in-line with the property cycle.

The UK property market is one of the most robust and stable markets to invest in, globally. And even in the most challenging of years (yes, we’re referring to the crazy year of 2020), and even in times of a global pandemic and an official recession, property is still considered one of the best asset classes of all time.

Before you dive in and invest, we’ve got a couple of videos that we recommend you watch. The first is evaluating whether these property expenses are worth it before you splash the cash. The second gives you seven ways you can boost your property profits.

Should you be diversifying your portfolio in 2021?

Unsurprisingly there’s a lot of scepticism as to whether you should invest in property this year. But does that mean you should avoid diversifying your portfolio in 2021? Or is now the perfect year to do just that?

You know what our answer would be.

Maybe you’re wanting to invest in property but you don’t have the cash to do so right now. No problem, here’s six different ways that you can raise the money to invest in property.

Or, how would you like to invest a little bit of money into property, without taking on all the time, effort and risks of a property? Sounds too good to be true, right?

Well it’s actually possible. It’s called investing in a property fund and we discussed that very topic on The Property Podcast towards the end of last year.

So there’s plenty of ways that you can look into diversifying your portfolio as well as your assets and making your money work both smarter and harder.

You may just want to keep an eye, and an ear, out for what we’ve got coming up this year. It might be just the thing you’ve been looking for.

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