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Diversication of risk with propety ETF

  • 25-02-2021 5:58pm
    #1
    dubstepper
    Registered Users Posts: 592 ✭✭✭


    I have a pension which is in various large cap ETFs. I also have some savings invested in a private tech company. Most of my pension/savings are in shares of one form or another.



    I received an inheritance and wanted to invest it. I was thinking property but I don't want to be a landlord (also probably not enough to buy).



    Would investing it in a property ETF be considered diversification of risk? Especially given that my pension would be in ETFs such as Vanguard S&P 500 ETF.


Comments

  • #2
    Blackjack
    Registered Users Posts: 3,592 ✭✭✭Blackjack


    dubstepper wrote: »
    I have a pension which is in various large cap ETFs. I also have some savings invested in a private tech company. Most of my pension/savings are in shares of one form or another.



    I received an inheritance and wanted to invest it. I was thinking property but I don't want to be a landlord (also probably not enough to buy).



    Would investing it in a property ETF be considered diversification of risk? Especially given that my pension would be in ETFs such as Vanguard S&P 500 ETF.

    it would be diversification if you are not already invested in property however I'd be wary of what type of property you would be investing in. Working from home might be the "new normal" for a long time to come and Commercial real estate could be quite risky as a result.
    There will likely be posters here who can give a better view than I on the outlook in the property sector.


  • #3
    Jim2007
    Moderators, Business & Finance Moderators Posts: 9,981 Mod ✭✭✭✭Jim2007


    dubstepper wrote: »
    I have a pension which is in various large cap ETFs. I also have some savings invested in a private tech company. Most of my pension/savings are in shares of one form or another.



    I received an inheritance and wanted to invest it. I was thinking property but I don't want to be a landlord (also probably not enough to buy).



    Would investing it in a property ETF be considered diversification of risk? Especially given that my pension would be in ETFs such as Vanguard S&P 500 ETF.


    Yes of course and when we talk of property as part of one's portfolio we assume that you do use something like an ETF....


    However it's worth noting that the performance attribution comes primary from have the appropriate overall asset allocation. So I'd say start there and then decide where best to allocate your additional cash.


  • #4
    dubstepper
    Registered Users Posts: 592 ✭✭✭dubstepper


    Jim2007 wrote: »
    Yes of course and when we talk of property as part of one's portfolio we assume that you do use something like an ETF....


    I didn't think that would be the case. I thought diversification would have say buying a physical house. I had a concern that if there was a shock to the markets it would have hit the property ETF the same as the other ETFs.


    So would you say that it would make more sense to invest in a property ETF rather than actual property?


  • #5
    Jim2007
    Moderators, Business & Finance Moderators Posts: 9,981 Mod ✭✭✭✭Jim2007


    dubstepper wrote: »
    I didn't think that would be the case. I thought diversification would have say buying a physical house. I had a concern that if there was a shock to the markets it would have hit the property ETF the same as the other ETFs.
    When we talk of portfolio construction, we expect diversification within an asset class as well. When you buy a property as an investment you break every rule
    - Invest in a high risk asset class

    - Borrow to invest
    - Fail to diversify
    - Invest in an illiquid asset
    - Accept a low return rate.

    dubstepper wrote: »
    So would you say that it would make more sense to invest in a property ETF rather than actual property?


    Look at how quickly the REITs recovered after the last recession versus individual properties, it took years in some cases, some are still waiting and some did OK.


    All the stats assume you you have a well constructed portfolio that is diversified within the asset classes, as well as avoiding penny stocks CFD and all the other stuff.



    It's up to you in the end.


  • #6
    dubstepper
    Registered Users Posts: 592 ✭✭✭dubstepper


    Thanks Jim that is a great high level overview of the case for it.


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