Why property should form part of your diversified portfolio

Julie Brownlee, Fsp Invest, 27 May. 2015

Tags: property, investing in property, listed property, diversification, investing, property etfs, reits, property companies



To give your investment portfolio the best chance of success over the long-term, diversification is a must.

Diversification involves spreading your investment capital across a number of different asset classes. For example, shares, bonds, commodities and cash.

You should also add some listed property into your portfolio.

Read on to find out why and how you can do it…



Why property is a good addition to your long-term portfolio


Whether you’re a conservative investor or more of a risk taker, property is a good addition to any portfolio.

Don’t think you’ve already ticked this box if you’ve bought your own home. Your home shouldn’t count as part of your investment portfolio.

There are a number of advantages of including property in your investment portfolio. The main benefit is it’s a way of adding income to your portfolio with relatively small downside risk.


So how can you invest in property?


There are a number of ways you can invest in listed property…

REITs
Real estate investment trusts (REITs) are property investment companies. Their REIT status means they must distribute a large portion of their profits to shareholders in return for tax breaks.

This is good news for you in the form of dividends.

Property ETFs
You can also invest in exchange traded funds (ETFs) which focus solely on property. These ETFs aim to mirror the performance of property indices on the JSE.

You’ll also receive dividends pay-outs from investing in these funds.

Individual property companies
You can look to invest in other listed property companies on the JSE. There is a fair few to choose from.

But some property companies don’t pay dividends. They may choose to invest their profits into expanding their portfolios. Over time, the company’s share price should rise to reflect this.

So there you have it. Why property should form part of your diversified portfolio.

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