How to Diversify Your Portfolio in 2022-2023?

For an individual, arriving at a formula that maximizes returns while minimizing risks is much like locating the Holy Grail. Unfortunately, this is an equation that changes with several factors – performance of markets, industry cycles, and individual risk profiles et al, the elusive quest never really concludes. One sure way, however, of mitigating portfolio risk is through diversification.

Equity

Equity remains a popular investment option with individuals of all types. Since the value of equity assets largely depends on market factors outside of one’s control, it makes for a highly volatile investment route.

Mutual funds

Mutual fund is well suited for individuals with cash in hand, but limited knowledge of the working of share markets. A mutual fund offers security against market fluctuations by pooling money from different individuals and parking it in various equity or debt instruments. The basket of investments is carefully managed by experienced professionals in exchange for a fee. Similar to equity, the value of a mutual fund depends on market factors which makes it a volatile investment.

Debt instruments

In India, investing in a debt instrument is considered the least risky, and is consequently the most popular option. Investing in debt instruments such as fixed deposits, National Savings Certificates (NSCs), and Public Provident Funds (PPF) protects the investment portfolio from the volatility posed by equity and mutual fund investments, and so offsets the risk. Debt instruments have two primary characteristics – a regular but fixed mode of income, and guaranteed safety of the principal invested. However, playing safe almost ensures that returns never get a leg up over taxation and inflationary pressures.

A hot new option – fractional commercial real estate

Real estate continues to be the one option that can turn a canny individual into a millionaire the quickest. In fact, most high-net-worth individuals across the globe have maximized their wealth by owning real estate. The fly in the ointment is that an individual must carefully vet the property under consideration. This is time-consuming, cumbersome, and could easily go wrong due to a lack of expertise and experience. Post-purchase, the asset needs to be owned and managed which is time-consuming as well. This clearly makes for a stressful proposition.

A viable new alternative is to own fractional commercial real estate. Here, the money from various individuals is directly invested in a property, mostly commercial. This option allows an individual to seamlessly enter and exit the asset without the hassles of the ownership process. Hence, an individual can bypass the illiquid nature of real estate ownership. It should be considered a great long-term option and is a relatively new addition to an Indian’s portfolio allocation

What are the benefits of managed commercial real estate?

• Secure monthly rental payments from strong credit-rated tenants
• Tenants fund the furnishing and fit-outs of premises which ensures tenant-asset stickiness
• Contractual rental yield + potential appreciation of 12% to 20% due to rental escalation and market appreciation
• Minimum downside risk due to hard asset ownership compared to any other asset classes
• Unique investment to diversify portfolio consisting of traditional equity and debt instruments
• All the expenses for owning an asset are the bare minimum and predictable

The individual is ultimately responsible for building a well-performing and diversified portfolio so making an informed choice is crucial. Choose fractional real estate as a rock-solid option for your portfolio.