21 Aug A Balanced Portfolio
In property investment, balance portfolio means a number of things but there are two components which most experts hold to be true.
– A balanced portfolio has depth
– A balanced portfolio has width
Depth means having enough properties in your portfolio so that you do not have to rely on any specific house or apartment. Width means having enough diversity in your portfolio that a geographical or product specific slump wouldn’t have the same impact. For example, people who invest in apartments are often advised to have a number of houses also to act as a, “hedge,” in case of an apartment excess in the market.
This can be looked at from two ways. As an experienced investor with a number of properties, the depth portion of the equation may be solid. However, if all those properties are apartments in the same complex, and another similar complex was to be developed nearby, then there could be some significant exposure to a slowing down in equity gains.
If however, you are a first-home buyer and don’t have a large investment portfolio, you should consider both the quantity and quality of your potential portfolio. Consider the area you are purchasing in, and then the type of property you will purchase next. Your second purchase may be in a different city to expand your width, or you may purchase a different type of property to reduce exposure. It may seem unthinkable to you that your first home can be the beginnings of a wealth creating vehicle that can put you on the pathway to property investment success, and financial freedom but through thinking of your first home as the beginnings of your portfolio, you can put yourself in a good position for growth in the future. After all, many people leave their first home until later in life and lose the equity they could have gained as a result. Through acting now and focusing on growth, you can avoid losing in the long-term.
Regardless, it is helpful to start thinking about your second property when purchasing your first and always remember to seek qualified advice.