Diversifying Portfolios with Tokenized Real Estate Assets
There is no exercise routine that fits every person. If you’re looking for a bodybuilder routine, you'd probably spend 5 days a week in the gym. If your goal is to lose weight, you'd surely go for a more balanced routine.
Possibilities are endless and there’s no magic formula that solves everything.
The same thing could apply to diversifying your clients’ portfolios, as each one has their own specific financial needs and objectives. Some will probably be willing to risk a higher percentage of their capital, while others will be more conservative and prefer an orthodox portfolio management.
So, as a financial advisor, you need to keep up on all the investing options available to be able to find the right diversification of investments strategy in every case, and ultimately help your clients achieve their goals.
With that in mind, today we will explore two of the latest buzzing trends in investing, which are real estate crowdfunding and property tokenization, and the many problems these growing models can help solve for your clients.
A Well Balanced Portfolio
There are as many formulas as advisors to balance an investment portfolio. However, most financial advisors diversify investments between bonds, local and international stocks, cash, hedge commodities (specially gold), and real estate.
The latter is a great investment choice in a long-term scenario, but usually avoided by many due to its lack of liquidity. Yeah, buying and selling real estate is a process that takes time… A lot of time.
This led to many investors and even their advisors to leave traditional real estate out of their portfolios. And we don’t blame them. It is hard when you don’t get to see any return on your investment over a 10-year period, or sometimes even more.
As a result, portfolios used to be made up of stocks, short-term bonds, and a bit of cash for any unforeseen events. As for real estate, it was usually relegated as a secondary investment, and not a main protagonist.
In any case, diversification of investment played a key role in lowering investor’s risk. Even the most daring of your clients probably have part of their portfolio in safer bets, like government bonds or some equivalent investments. Don’t they?
Tokenized Real Estate Shook Things Up
In the last few years, technology has transformed the investing landscape. The world is swapping to digital assets by the day, and tokenization became the technology that changed the entire narrative.
What is tokenization specifically? In a few words, is the conversion of an asset into digital form and fragmenting it in parts of equal value called tokens. The entire process is backed by the blockchain technology, which guarantees high-standards of security and transparency.
Tokenized real estate solves most of the traditional real estate problems. How so? Since tokens are a little part of an asset, people can invest with much less initial capital and still perceive profits for its fragment of ownership.
At the same time, if a person wants to sell their share of a property (or tokens), they can do it to multiple investors, thus liquidity won’t be an issue.
Another inconvenience that people faced when getting into the real estate market was the limited catalog of properties available. Traditionally, to start investing you had to find the right property, at the right price, and at the right time.
Through tokenization, now you can buy real estate thousands of miles away from where you live, without compromising a big load of money.
This way, real estate can become a key component of a portfolio, bringing stability, attractive returns, and liquidity. All at once. And the best way to achieve this is through tokenized real estate crowdfunding, a system designed for big and small investors alike.
Adding crowdfunding to the equation
The crowdfunding concept is relatively new (the first case dates from 1997, ish), but it has expanded to all kinds of industries and professions, and real estate is no exception.
Nevertheless, it was with tokenization that the crowdfunding system propelled. Thanks to smart contracts, all processes are automated, and investors do not have to worry about anything but receiving the profits once a project is finished.
In essence, smart contracts are programs developed on the blockchain. Their main function is to execute every condition pre-established, and simplify the connection between buyers and sellers. Their best attribute is the hard-coding in which they are written, which basically replaces project managers and other middlemen involved in these operations.
If an investor doesn’t want to wait until the development is done, they can sell their share beforehand to another interested party and recover their investment. As simple as that. Small and big clients will benefit from this unprecedented liquidity.
Rebalancing Your Portfolio
As a good financial advisor, it is important for you to keep track of each of your clients’ portfolio and make every effort to rebalance it once in a while.
Diversifying your recommendations towards real estate can be challenging at first. But once you get how tokenized assets work, it will be a point of no return. Fret not, equities and bonds will still be part of your portfolio. But with tokenization, real estate will become the rising-star asset.
Our platform offers you a catalog that balances different kinds of real estate projects that suit every one of your clients needs. You’ll be able to stay updated on their investments while searching for new opportunities for them.
You have now the perfect tool to diversify a portfolio and lower the risk without compromising returns. Go for it.