When prioritizing financial milestones, most Americans focus on contributing to their 401(k) or IRA, saving to buy their first home, and stocks. Once the basics have been tackled, many will start exploring other assets such as fixed income, commodities, and even digital currencies.
Centering the majority of your portfolio on real estate — or any asset class— creates a blind spot, leaving investments vulnerable in the event of disaster or volatility.
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Financial advisors recommend that investment portfolios have a mixture of domestic stocks, international stocks, bonds, real estate, commodities, and short-term investments like Certificates of Deposit (CDs).
Recent market volatility has made some investors wary of certain asset classes, but having a robust mix of investments is actually the best protection against market tumult.
Financial advisor and media personality Suze Orman explains why diversification is crucial for success and how homeowners can protect their real estate assets.
Though real estate can provide steady investment yields, Suze Orman explains why homebuyers should look beyond the housing market when investing.
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Diversification is key to a healthy investment portfolio
More than half of Americans actively invest in the stock market, reaching record highs in 2024. A strong 70% are confident in their investment strategy and portfolio, an indication of growing financial literacy.
However, Morgan Stanley recently urged investors to seek out “maximum diversification” in their portfolio, as many banks anticipate markets will be fraught with uncertainty in the year ahead.
In a challenging housing market with waning buyer demand and skyrocketing renovation costs, expanding investments beyond real estate has never been more important. Orman delves into why it is a mistake to go “all in” on any asset, and why the housing market will see more challenges as time passes.
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“It is really important that not all of your money is invested in one asset category,” Orman said on her Women & Money podcast.
“It is not okay to have 100% of your money invested in just real estate. It is not okay to have 100% of your money invested in the stock market. It is not okay to have 100% of your money, believe it or not, invested in bonds. It is not okay to have 100% of your money invested in gold, Bitcoin, and so on.”
While it is not necessary to invest in every asset, ensuring that funds are spread out across different markets will help offset risk from constant market fluctuations.
“You need to make sure that you have put your little investment hose in almost every single one of those categories that make sense to you and your situation, but not all your money in one,” she continued.
Increasing natural disasters could threaten real estate investment yields
The intensity and frequency of natural disasters are increasing, and home insurance costs have already risen in states prone to extreme weather. Though it may seem like a regional issue, this will drive up home insurance costs nationwide, as insurers scramble to remain profitable in an increasingly difficult environment.
The Federal Reserve Bank of Minneapolis found that the average home insurance premium has jumped 39% over the past seven years, a trend that will only worsen with time.
Related: Suze Orman shares warning on housing costs for retirees
The growing environmental threat to the housing market should nudge investors to create ways to hedge risk in their portfolio — especially for real estate assets.
“Real estate is…changing in a way that I never expected it to change,” Orman said.
“There have been many wildfires, tornadoes, and hurricanes. All of these things have really put insurance companies under pressure, and a lot of you tend to think, ‘Well, it didn’t happen to me, my house is fine.'”
“But in my opinion, you are going to feel the cost of these losses from insurance companies no matter what. Whether you were close to those fires, not close to those fires, we’re all going to feel it.”
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
