It is common wisdom that prudent investing requires diversification. If you were saving for retirement, you would want to buy a pool of funds to spread out your risk. This is why many people will buy index funds that represent the market. Sure, you only hear about the superstars that bought Google or Microsoft at an early stage but you don’t hear about the many more failures. Consider this survivorship bias. So it would be foolish to have your entire portfolio riding on one stock. Yet some people have most of their wealth locked up in one piece of property in one locked in location. Taco Tuesday baby boomers in high priced areas are sitting on an equity goldmine but many are unable to tap out their lotto ticket without selling their property. Yet when owning real estate diversification also helps. You don’t know if you have a future Detroit or San Francisco in your hands. Yet some people mistake blind luck with fortune telling capabilities. Housing right now is inflated when looking at historical data.
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