When it comes to property investing, the data has clearly revealed that rich people succeed more in earning returns. Whats their secret? Diversification. They simply diversify their wealth across various asset classes. Essentially, rich people have more money; and more money equals the ability to invest in more things.
Unfortunately, without access to large funds, most people lack the ability to diversify their income. Let’s take a look at the graph below that shows how the top 1% of society invest their wealth compared to people in other wealth brackets.
On first glance, what do you notice?
Source: Survey of Consumer Finances and Financial Accounts of the United States*
*Although the graph above is US-centric, this type of asset allocation for the wealthy is seen across geographies and is independent of location.
If you answered, “The top 1% diversify better!” You’re spot on. Take a look at how well the rich have distributed their assets.But if you’re thinking, “The top 1% don’t put a lot of money in real estate,” you’re wrong. Here’s why: rich people invest less in real estate proportionate to their wealth. Let’s use an example to explain what we mean.
Case Example: Sarah vs Adam
Sarah has a total personal investment portfolio worth $10 million and has invested 20% of her portfolio in direct real estate (she has invested $2 million). All of her real estate assets are rented out, which means she gets a regular stream of passive income. Conversely, Adam has a total personal investment portfolio worth $300,000 but he’s invested 50% of it in direct real estate, which means he’s invested $150,000 Unlike Sarah, Adam lives in the property he bought, which means that it doesn’t generate rental income for him. Even though Sarah only has 20% of her wealth tied up in real estate and Adam has 50%, who has invested more money in real estate? Sarah, of course! Sarah has invested more in direct real estate in absolute terms, but relatively she’s invested much less than Adam. Adam wants to diversify and invest in other things like stocks and bonds, but he needs to free up capital or find a way to make more money. He just doesn’t have the resources. So how can Adam start investing like the rich? Simple: by allocating a similar portion of his income toward real estate assets. At SmartCrowd, we understand that the most expensive investment most people make is real estate (and often times it’s their homes). We decided to give everyday individuals access to the same opportunity wealthy people have by allowing individuals to invest in properties at a fraction of total prices. Even though SmartCrowd is a crowdfunding REIP, real estate should never be the only investment you should be looking at. In fact, it’s smart to diversify across different assets! So what are you waiting for? If you want better diversification of your investments, invest in real estate the smarter way and benefit like the rich.
Are You Ready to Begin Your Investment Journey?