Asset Allocation & Diversification: Real Assets & Paper Assets

4 Replies

Good Afternoon BP,

Hope this post finds everyone healthy during this wild time. 

I'm curious how others model their total portfolio's when using Real Estate, and how they come to their conclusions about allocations and diversification. 

To be transparent, I am invested in:

Retirement Accounts:

401K invested in a fund which is mimicking the S&P 500 Index. 

ROTH IRA invested in a fund which is mimicking the S&P 500 Index.

Taxable Accounts:

Invested in the Index that follows the Total US Stock Market index. 

Invested in publicly traded REIT's and other companies.

Alternative Investments:

Invested in Crowdfunded REIT's (Fundrise, Diversyfund, RealtyMogul) as examples.

Hard Asset Investments:

Physical Real Estate. 

My current asset allocations are:

  • Retirement Accounts: 32%
  • Brokerage Account: 23%
  • Alternative Investments: 7%
  • Hard Asset Investments: 38%

This was not by design, this was just how it ended up. I try to keep a 70%/30% allocation between Non-Traded Crowdfunded REIT's and the Stock Market (excluded retirement accounts). Ratio is skewed at the moment as I been dropping excess cash into the markets to take advantage of cheap index shares. But I will rebalance and get it ideal later in the year.

I have 0 bonds or treasuries in my portfolio, all 100% equities. (Some would say that is stupid and dumb, but I am still at my growth stage and not fearful of market drops like we are having now) 

Now with my added hard asset(s), I'm having a hard time trying to figure out, what would be an ideal ratio, or allocation split, between Equities (Stocks), Bonds and Physical Hard Real Estate, with Non-Traded Growth / Income REIT's?

How do you all structure yourselves? How do you look at your portfolio's of total assets (paper and physical)? Just curious how other investors are modeling their portfolio's and what metrics or criteria you use. I'm honestly just saving capital until I see a great deal on a house, while still passively investing into the Stock Market through retirement accounts and my own taxable brokerage while still dropping cash into Non-Traded REIT's in order to have a balance during volatile times in the stock market.

Looking forward to everyones thoughts!

I would say I am in similar situation as you....and i did not plan this asset allocation it just happened as my real estate portfolio and 401K, HSA, and IRA grew over time.

40% Stock equities -Tax advantaged or deferred 401K, HSA, IRA

10% Stock/Money market - brokerage account

50% active real estate

I hope to pull out as much equity out of my active real estate portfolio and start investing it in syndicated deal.  This will do a couple things, allow me diversify away from residential real estate and make my overall portfolio much more passive.  Once I do this my allocation will be.

25% active real estate

35% passive real estate

30% stock equities

10% cash/money market

I cant say there is really a right/wrong answer to this question....but I see the real estate as sorta like bonds in my portfolio. (this depends on what type of syndication deals that I do) then I leave stock equity that tax advantage as more aggressive growth. Keep a fair amount of cash as reserve for the active real estate and for liquidity. Open to feedback from anyone....keep in mind I like diversification so I am not going to open up a self directed IRA and move all stock equities into real estate.

I thought I was the only one who looked at Physical RE as a replacement for bonds :)... minus the liquidity factor. 

Thanks for your input, nice to see I'm not the only one thinking about this. I suppose you're right, in that there isn't a right answer. 

I've debated with myself in trying to keep my total RE holdings at about 35% and Total Stock Portfolio at 50% and Alternatives like crowdfunded RE at 15%

I don’t see crowdfunding necessary as alternative is real estate.  Alternative to me would be like commodities (gold), collectibles, peer2peer lending or even hard money lending.  I think u can find better syndication deals outside of crowdfunding (just my opinion).  As far as RE diversification I would look at it by sector: multi family, residential, commercial, industrial and self-storage. Also, the syndication or crowdfunding deals can be quite different....some I would consider like equity and other are more like bonds.  Finally, u mentioned the liquidity of real estate...I would look to stagger your hold periods so they are coming due at different times.

for me I am trying to move towards more passive investment so shifting from active REI to syndicated deal or NNN over time.

@Yuuj V.    I often refer to my list of passive investments in MF RE (syndications) as a ladder of MF.  I am old enough to recall older retired folks who had a safety deposit box that had their bearer bonds and a pair of scissors.  Each month they would clip their coupons and visit the teller.  

I think of my list of MFs the same way.  Most pay me monthly or quarterly (some do a bit better and some a bit worse) and one or two seem to sell every year.  I put part back in the bucket and seem to have plenty to live on.  One of these days I may actually a have to pull funds from the "retirement funds".  OK, those RMD will force that in a few years.

Yes, I toss them into the really good Bond buck!  


Charles LeMaire