Building a Balanced Investment Portfolio: Combining Illiquid Assets like Real Estate with Liquid Investment Products

Investing wisely involves balancing long-term growth with short-term liquidity. This short blog delves into the benefits of combining illiquid assets, like real estate, with liquid investment products, such as stocks and bonds. By integrating these diverse asset classes, investors can build a solid and sustainable portfolio that offers the potential for substantial capital appreciation while maintaining the flexibility to meet immediate financial needs. Discover how this strategic blend of investments can provide stability, risk management, and financial growth for a well-rounded and resilient investment strategy.

 

ILLIQUID ASSETS

 

Illiquid Assets are the assets that cannot be quickly sold or exchanged for cash without a substantial loss in value. Real estate, private equity, and certain collectibles fall under this category. 

 

The main benefits of Illiquid Assets when it comes to Real Estate are as follow:

• Potential for High Returns: Real estate can offer substantial capital appreciation over time.
• Diversification: Reduces risk by spreading investments across different asset classes.
• Income Generation: Rental properties can provide a steady income stream.

LIQUID ASSETS

 

In contrast, Liquid Assets are the assets that can be quickly converted to cash with minimal impact on their value. Liquid Assets are investment products such as, stocks, bonds, mutual funds, and ETFs.

The main benefits of Liquid Assets can be summarized in the following three points:

• Flexibility: Easy to buy and sell, providing quick access to cash.
• Diversification: A wide range of products to suit different risk profiles and investment goals.
• Market Participation: Allows investors to capitalize on short-term market movements.

 

How individuals and/or corporations who have exposure to Physical Real Estate can benefit from introducing Investment Products to their portfolios to combine the benefits.

 

Physical real estate by nature is a longer-term investment with the potential to appreciate over time and contribute to the long-term growth of the portfolio. However, it lacks the short-term liquidity. Investment products ensure that investors have access to cash when needed, enabling them to meet short-term financial needs without liquidating illiquid assets, such as real estate, while participating in long-term growth and short-term income needs through diversification by sector, asset-class, and geography.

 

Why Diversification matters when it comes to Risk Management.

 

It matters because it reduces the overall volatility of the portfolio. Real estate often does not correlate directly with stock market movements, providing stability during market downturns. In addition the investor is able to spread risk across different asset classes to minimize the impact of poor performance in any single investment or an overweight exposure to a single asset class.

Real estate can provide rental income, while investment products such as stocks and bond can provide a steady stream of income through dividends and interest income. The income generated through these investments can add a layer of financial stability, re-investment of distributions, or income during retirement. Liquid assets, such as investment products come with one additional benefit, Capitalizing on Market Opportunities. Liquid assets allow investors to take advantage of market opportunities as they arise without needing to sell off real estate holdings.

 

In conclusion by combining illiquid assets like real estate with liquid investment products creates a well-rounded investment portfolio that offers both long-term capital growth and short-term liquidity. By strategically balancing these assets, investors can achieve financial stability, capitalize on market opportunities, and effectively manage risks. This approach not only enhances portfolio performance but also ensures that financial goals are met both now and in the future.

 

To cultivate a robust and enduring investment portfolio, it's advantageous to blend both illiquid and liquid assets. Whether you're seeking clarification, a complimentary review, or a bespoke strategy tailored to your unique objectives and risk appetite, don't hesitate to get in touch via the contact information provided below. Start your journey towards a balanced investment approach today, paving the way for a more secure financial future.

 

The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances.