John Templeton was identified as “The 20th Century’s Greatest Stock Picker” by Money Magazine. Born in 1912 in the small town of Winchester, Tennessee, Templeton went on to become a billionaire investor, forging new inroads into globally diversified mutual funds. Although his prowess for investing was in the stock market, many of his philosophies on investing hold true for real estate investors today.
Over his 95 years, he was quoted many times regarding his views on diversification:
“Diversification should be the corner stone of your investment program.”
“The only investors who shouldn’t diversify are those who are right 100% of the time.”
“To avoid having all your eggs in the wrong basket at the wrong time, every investor should diversify.”
How true is this today?
Do any of us know what the future holds? Stock markets crash, housing markets tumble, commodities climb and then drop again. As real estate investors, what does diversification look like?
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Why Diversification Matters
Just this last year I told a couple I couldn’t sell them another property in good conscience. They had already purchased 3 properties from me and wanted to take the remainder of their retirement account to buy a fourth house. As much as I would have liked to sell another house to them, I thought putting all of their retirement into 4 single family homes in one market just wasn’t a wise choice for them.
While I personally believe that buying and holding single family properties is one of the most proven wealth building strategies, I would never advise someone to put all of their savings into only single family homes. The prudent real estate investor utilizes multiple investment strategies to profit from real estate, but also minimizes the risk of over concentrating ones wealth in a particular area.
What Does Diversification Look Like?
I think diversification can look different depending on the individual.
For some, diversification may mean owning 2 investment properties in 2 different areas of town. For others, it may simply mean having a balanced portfolio of stocks, bonds, and real estate holdings. For many of us who eat, sleep and breathe real estate … it probably means buying different types of real estate (ie. residential, commercial, land) across multiple cities and states. Perhaps it means branching out into other real estate investment strategies such as private lending and other types of real estate notes.
Whatever your level of involvement in real estate, the principle holds true – diversifying your investment portfolio is not only wise, but imperative to your long-term success. As the late John Templeton reminds us, Don’t put all of your eggs (real estate investments) in one basket … lower your risk by diversifying!
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