Benefits Of Diversifying Your Investment Portfolio

A ‘diverse investment portfolio’ is something you may hear and immediately attribute to the stock market. It generally means buying across a range of different sectors, with different company sizes like small-cap, medium-cap and large-cap securities.

But this idea of diversification is also applicable to the property market, and there are several benefits of property diversification.

However, a diversified portfolio doesn’t automatically mean it’s a healthy one. Diversification requires patience and a deliberate, measured approach.

In this post, we go through the benefits of diversifying your investment portfolio and how Patrick Leo can help:

Investing in different locations

Locations are like stocks – they have a certain level of risk attached to them. Buying in a growing suburban neighbourhood of Melbourne, for example, which has good access to schools and public transport, is going to be a very low-risk investment, and the gains will likely be small but steady.

Buying in a city where the growth is caused by other, less tangible factors could be more risky. Just take Byron Bay, for example, where the housing market has fluctuated enormously. Known for its particular lifestyle, Byron Bay house prices jumped from an average of $1.3mil to $3.5mil between 2019 and 2022. Incredible gains for those who bought early, but steep losses for those who bought late; since 2022, prices have crashed to $2.4mil, making it a highly volatile market with an increased risk.

We’re not saying that investing in higher-risk locations isn’t something you should completely avoid – but the beauty of diversification is that you can invest a small amount of your portfolio in riskier assets, with the large majority of your portfolio in low-risk ones.

Buying different property types

Diversifying also allows your investment property portfolio to expand into different types of property, making you even better prepared for economic uncertainty. An investor who only buys large 4-bedroom homes may experience difficulty filling them if the city or suburb goes through a youth exodus, or becomes unaffordable for average families.

Benefiting from diverse strategies

So, you’ve acquired a decent property portfolio of positively geared assets, and the extra income is really rolling in. But this creates a problem: higher taxes. Diversification also applies to strategy – investors can mix up their strategies and include a negatively-geared property in order to offset high taxes.

Looking to diversify your portfolio? Get in touch with Australia’s property experts at Patrick Leo. We’re a team of leading property advisers who are committed to helping you on your path to abundant wealth, having helped hundreds of clients achieve the same. Get in touch with our team and get started today.