As we head into the Fall, investors are starting to think ahead to 2018 and where to put their money to work next year. Market indices continue to hit new highs and experts disagree on whether the stock market is overvalued. If it is, a correction could be imminent; if not, this bull market could still have room to run. This questions where to invest in 2018. One thing everyone can agree on is that all bull markets eventually end, the only question is when? No one can answer that question definitively, but you can — and should — take steps to position your portfolio for the future, no matter what it holds.
A good place to start is by reviewing your target asset allocation, which is the percentage of your portfolio you would like to have invested in each major asset class, and comparing this to what you actually hold. If you haven’t looked at this in a while, you may find you hold a much higher percentage of stocks than intended, due to the strong performance of the equity markets in recent years. An asset allocation far off your target means your portfolio risk may no longer fit your risk profile and it’s time to rebalance your portfolio.
Rebalancing is the perfect time to figure out what investments would best help you meet your investment goals. If you’re like most investors, you probably have some combination of stocks and bonds in your portfolio, either directly or though mutual funds and ETFs.
Increasingly, investors are adding investments beyond traditional stocks and bonds. The alternative asset category has exploded in recent years as investors look for ways to increase portfolio return and manage risk, but many of these products have high fees and mediocre returns. Moreover, many alternative investments have complex strategies that are hard to understand, leading many people back to something they’re comfortable owning: real estate.
Investors who want to own real estate could buy Real Estate Investment Trusts (REITs), but publicly traded REITs are subject to stock market volatility and non-traded REITs usually have high fees and limited liquidity. Traditional private placement real estate is shielded from the vagaries of the stock market, but typically requires an investment of $50,000 or more. If these options aren’t for you, consider crowdfunding real estate.
Crowdfunding real estate platforms are disrupting real estate. They let investors own an interest in real estate, usually through a limited liability company (LLC) with as little as $5,000 and unlike those other vehicles, you can select the exact properties to invest in. It’s important to select a reputable platform you can trust.
Read the bios of senior management and look for significant real estate expertise. After all, crowdfunding may be relatively new, but real estate isn’t and it’s an industry where experience truly counts. Make sure the website is informative and easy to use. The investments should be explained clearly with enough information to make an informed choice and investor support if you have any questions.
After you’ve found the platform, examine the investment offerings. While the type of property, expected return and investment period are all important to consider, don’t forget the most important item: fees. In other words, how much will it cost to hold this investment? Fees reduce your investment return and can set you back before you’ve begun. Some crowdfunding real estate platforms charge a 2% property acquisition fee, so for every $1,000 you invest with them, only $980 gets invested in real estate. This may not sound like a lot, but it means the first 2% the property earns doesn’t benefit you, it just gets you back to where you started.
Since fees are a drag on returns, savvy investors look for no-fee funds that put all their money to work for them. DiversyFund has pioneered the first no-fee crowdfunding real estate fund, the DiversyFund Income Fund. Just as crowdfunding disrupted real estate, DiversyFund is disrupting crowdfunding through a vertically integrated structure that controls costs and allows better control of outcomes. Since DiversyFund doesn’t collect fees, their interests are aligned with the interests of their investors.
With so many investment choices out these, it’s easy to be paralyzed by indecision, but that won’t get you closer to your goals. Instead, determine an asset allocation that fits your objectives and risk tolerance, then look for low-cost investments to fill each category. Consider adding alternative investments to your portfolio for diversification, making sure you understand them thoroughly before you invest. Alternative investments don’t have to be complicated to work for you. If real estate makes sense for you, look into crowdfunding. After all, real estate has always been a way to build wealth, crowdfunding just brings it into the 21st century.