When it comes to building a solid investment portfolio, diversification is key. When you own many different types of financial assets, you reduce your exposure to the risk and volatility that may befall a particular asset class. Don’t take our word for it. That’s Modern Portfolio Theory 101. The only problem is that diversification is a relative term. For a long time, the only assets regular investors actually had access to were publicly traded stocks and bonds. If you really wanted to diversify—say by investing in the private real estate market—you had to be a billion-dollar institution or a so-called “high net worth individual.” But luckily, thanks to technological innovations and subsequent changes to SEC regulations, this is finally starting to change. Today, innovative FinTech companies like Fundrise are providing everyday investors with Real Estate investment opportunities that were previously reserved for the wealthy and well connected.
Traditional portfolios are based on something called pooled fund investing. This is when money is collected from a large number of investors and used to create one massive investment portfolio, which is managed by professional money managers. The most common types of pooled funds are mutual funds, hedge funds, pension funds, and exchange-traded funds (ETFs). All of these investment vehicles allow individual investors to achieve greater growth and stability than they would ever be able to achieve on their own. That’s a good thing. However, by law, these types of pooled funds can only invest in publicly traded securities like stocks and bonds. And because these assets are so closely related, they don’t provide adequate diversification.
For a long time, institutional investors and high net worth individuals have solved this diversification problem by adding private market real estate investments to their portfolios. However, this option wasn’t available to smaller investors. The technology required to break real estate investments up into smaller pieces did not exist, which meant you had to be able to write some pretty big checks to get in the game.
But now, things have changed. And companies like Fundrise are democratizing private real estate investing.
Fundrise is an online investing platform that lets you diversify your portfolio by investing in the private real estate market. When you invest with Fundrise, it’s a lot like investing in a traditional ETF, only instead of putting your money in a pool of public stocks and bonds, you’re putting it into Real Estate Investment Trusts or eFunds, which are simply portfolios of private real estate assets. These portfolios of real estate assets are handpicked by Fundrise’s real estate experts for their ability to produce revenue, and they include everything from single family rental houses to multi-building apartment complexes.
In addition to diversifying your investments, a Fundrise portfolio also has the benefit of offering way better returns in exchange for reduced liquidity. When you invest in publicly traded securities, you can sell your assets at any time, but you can expect an annual average return of just 8.2 percent. When you invest in private market real estate with Fundrise, you have to commit to a 3 to 7 year investment horizon, but in exchange you can expect an annual average return of 12.3 percent.
The best thing about Fundrise, however, is that it’s open to just about anyone. You don’t need a credit check. You don’t need to meet any net wealth requirements. If you can afford the minimum $500 investment, you’re in.
So whether you’re just starting out, or you’re looking to modernize your existing portfolio, you need to talk to your financial advisor about private market real estate and investing platforms like Fundrise. It could unlock a whole new world of financial possibilities.
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