Risk vs. Reward investment decision

16 Replies

While comparing investment opportunities an investor needs to assess risks associated and then expect a commensurate return. What would be your advice on the levels of risk-reward grading of the following Real Estate categories?

How would you compare the risk rewards matrix of these versus lets investing in the stock market riskier assets (leveraged ETFs or High Yield, junk bonds etc.)?

Please advise from a passive investor perspective looking to invest around USD 25 to 30k who is non accredited.

  • 1)Public REITS
  • 2)Private non-traded eREITS (example Fundrise, RealtyMogul etc.)
  • 3)Owning residential rental property
  • 4)Passive partnerships investing in Mortgage Notes.
  • 5)Investing in publicly trading riskier asset classes (example High Yield bond, Leveraged Product, Inverse ETFs etc..)

Public reits  the others if your not accredited are non starters and if that's all the capital you have u don't have enough to own notes or the asset.. one bump in the road could put you in trouble.

@Sandeep Anand Legally and practically, your option set is limited at the 25-30K mark. I wouldn't invest in any privately held, illiquid assets like (2) (I would NEVER invest in a non-traded REIT!) (3) or (4), if you have liquidity constraints over the next 2-3 years. Your best bet would be (1) - public REITs.

Why does (5) have to be riskier asset classes like high yield bonds, leveraged products or inverse ETFs? Most professional investors don't even touch inverse ETFs because they are notoriously hard to value and offer little to no benefits as investments. They barely pass muster as ultra short-term trading instruments. 

Essentially, you have to figure out your circle of competence, your goals and objectives and liquidity constraints. You have little leeway when investing with a smaller pool of capital i.e. each mistake has a disproportionately magnified effect on your portfolio.

I maybe wrong but I thought Fundrise and RealtyMogul have funds for non accredited.

Leveraging 30k as a down payment to get a 125k property is not an option?

However my question was more to analyze these asset classes from a risk reward perspective. It is quite clear that one bump down the road would wipe it out. But I am seeking some analytical thought on the risk reward spectrum for these categories. It's a different question.


@Omar Khan So let's assume that 30k is not my entire capital pool but my risk capital distinct from my portfolio/Net Worth/Savings. What would be your analysis of each of the investment categories I mentioned.

I had used High Yield or Leverage as an example you can assume any riskier asset class publicly traded in the stock market. what I am seeking is a way to assess say the risk involved in investing in a specified category versus another and the commensurate return (reward) I should expect keeping non-financial aspects out of the decision.

So again, for example, hypothetically I invest this 30k in a Public REIT I should expect maybe a 5% (assumed with no basis) return YOY or I buy a High Yield ETF that returns 11% (again assumed with no basis) versus if I leverage this to buy a residential property then how to asses this on the same risk-reward spectrum and compare the two?

@Sandeep Anand Investing in houses is possible. These will just be ultra illiquid assets. Therefore, you will be SOL if you need the money - liquidity constraint. 

It's a different ball game if 25-30k is playing money. In that case, you will still have to ask yourself: What is my circle of competence?

That should determine what area you play in. E.g. if you are a prop trader with a big balance sheet/trading systems, you can trade in and out of inverse ETFs all day. 

This strategy does not work if you're the average investor with a job that is not related to day-to-day management of your investments. In those cases, you are optimizing for return AND stability. Chasing the highest possible return is not always the best option because it comes with demand on your time, effort and capital you you might not be able to make. 

Happy to chat in detail especially as I'm writing an article on risk-adjusted returns and portfolio development for real estate assets. 

@Sandeep Anand ,  each of those individual categories you’re looking to compare are actually very wide, and contain hugely different possible investments with completely different risk reward profiles.

For example, you can find a very conservative non-public REIT that has much less risk than a high-yield junk bond. And you can also find the complete reverse with a barely junk bond vs. an opportunistic ground-up development non public REIT.

 So it’s not possible to say “The risk/reward of A is always better than B”.  You have to look at the individual deals/investment details. 

Originally posted by @Sandeep Anand :

I maybe wrong but I thought Fundrise and RealtyMogul have funds for non accredited.

Both of those sites have funds for non-accredited investors.

DISCLOSURE.  I'm a toe-dipper with a small sum of money invested in those funds and other Reg A+ and Reg CF offerings.  If all goes well, I'll ramp up my financial commitment in a few years.  If all does not go well, I'm prepared to lose my invested capital.  Having skin in the game focuses one's attention on the game.

@Ian Ippolito  I follow your very analytical blog and have learned a great deal from it. 

So let's assume I am a passive investor that has come into 30k  as risk capital distinct from my portfolio of investments (retirement accounts etc.). I know maybe average in various asset classes I have mentioned regarding real estate plus a great deal more about listed liquid assets in the stock market. 

I have a propensity to take the risk if there is a greater reward and I am looking to generate returns for a longer-term time frame of 5 - 7 years.

How would I go about making my investment decision to deploy this 30k purely as an investor?

Thanks Sandeep, and I'm glad to hear that.

That's helpful to hear your personal situation. It sounds like this 30K is not going to make or break your retirement, and is something that you're willing to take more risk on.

1) how upset would you be if you lost the entire 30 K?

2) is it okay to keep the 30K completely illiquid and inaccessible for the next 5 to 7 years?

3) Am I right to assume that in the rest of your portfolio beyond this, it's already balanced for risk the way you want across public markets (like stock) and private markets (like real estate)?

1) how upset would you be if you lost the entire 30 K?

Yes a little maybe more but will not jump in front of a train.

2) is it okay to keep the 30K completely illiquid and inaccessible for the next 5 to 7 years?

That's a possiblity. I am buy and hold even in my stock holdings.

3) Am I right to assume that in the rest of your portfolio beyond this, it's already balanced for risk the way you want across public markets (like stock) and private markets (like real estate)?

I would say I think yes for public. No private market investment yet.

@Sandeep Anand risk comes from not knowing what you are doing, thus there isn't one risk matrix.

If you know a lot about the auto industry, buying up auto part manufacturers junk bonds carries less risk than a REIT for you as opposed to me.

Your circle of competency drives the "risk" (probability of losing capital) of each asset. 

From a Keynesian Beauty Contest view, I'd rank them 1,3,4/5/2 from least to most risky, keeping in mind that #3 is passive, until it isn't and that there are too many variables to accurate differentiate between #2,4,&5.

I dont like the concept of this question to be honest.  I feel like the trick is to know what you want to invest in and then learn enough about it to make sure that you minimize risk while increasing your return.  I do not think that investing in real estate makes sense unless you are willing to do this. That being said I wanted to remain truly passive and didnt want to learn a lot about it but just wanted real estate exposure to balance my portfolio I think the funds offerings from RealtyMogul and Fundraise make sense, they seem to be relatively balanced and set up to generate income regularly.  Disclosure I have a small amount in Realtymogul in their Mogul Reit 1 and it pays out slightly less than 8% annualized on a monthly basis, this isnt to say it will always perform but so far it has done that for me however it is highly illiquid and it probably will remain that way. 


I think you have the essence of this discussion. It is about assessing different investment options and then deciding which is the least risk and max returns.

So say if RealtyMogul returns 8% in the past. How does that compare to a listed reit fund. 

If you were deciding now to invest how would you assess risk vs. Return in Findrise, Realty Mogul, Public reit fund.

Originally posted by @Sandeep Anand :

If you were deciding now to invest how would you assess risk vs. Return in Findrise, Realty Mogul, Public reit fund.

Looking back is easy because hindsight is always 20-20. In the most recent past, the Reg A+ REITs from Fundrise and RealtyMogul have had yields in the higher single digits, while according to Investopedia, ETF REITs have had yields in the lower single digits. Publicly-traded REITs are repriced constantly during market hours, while non-traded REITs have no secondary market (so pricing is based on net asset value, which doesn't change that often).

Foresight is a little harder. How will these various alternatives perform in the future? If I could read tomorrow's newspaper today, I would be able to answer that question (except that if I really could read tomorrow's newspaper today, no one is every going to know about my ability :-)).

In truth I didn't evaluate it that carefully. I should have but my investment is very small compared to my net worth and is from my risk pool.  For a clearer understanding of my thoughts on this money check out this article I wrote for dollar stretcher


This investment was from my luxury tax fund and I tend to throw that money around. For example I have some in cryptocurrency some in crowdfunded start ups on startengine and wefunder and I put another chunk with a wealthfront and Robinhood both of which are roboadvisors (if anyone wants a referral to either let me know and I'll hook you up.)

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