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Diversifying Your Portfolio: Alternatives to Investing in Property

October 27, 2023 | Investment

When it comes to building wealth and securing your financial future, property investment has long been a popular choice for Australians. Investing in property can offer steady rental income, potential capital appreciation, and some tax benefits. It is a tangible asset that can diversify your portfolio and add a sense of financial security.

However, it involves substantial upfront costs, ongoing expenses, and a lack of liquidity. Market volatility, location-specific risks, and potential regulatory changes can also impact returns. While it offers security as a tangible asset, investing in property requires careful consideration and property management skills.

In this article, we will explore the concept of diversifying your portfolio and highlight alternatives to investing in property that can help you achieve your financial goals. Whether you’re a seasoned investor or just starting, understanding these alternatives can be a game-changer for your portfolio.

Why Should You Diversify Your Investments?

Before we explore the various alternatives to investing in property, let us first delve into the concept of diversification, and why it is a fundamental aspect of a sound investment strategy.

When you invest, you put your money in a particular asset class. An asset class is a category of investments that exhibit similar characteristics, market dynamics, and regulatory oversight. Examples of asset classes are shares, bonds, cash, and property.

Diversification in finance simply means spreading your investments across and within various asset classes to reduce risk and optimise returns. In other words, “don’t put all your eggs in one basket”, as the adage goes.

Why Diversification Matters

The Importance of Diversifying Your Investments

1) Risk Mitigation

This is one of the primary benefits of diversification. Different asset classes tend to perform differently under various economic conditions. For instance, when the property market is booming, the stock market might not be doing as well, and vice versa. By holding a mix of assets, you can buffer the impact of a downturn in any particular market. If one investment underperforms, others may compensate, helping to protect your overall portfolio.

2) Potential for Higher Returns

Diversifying your investments can also offer the potential for higher returns. While property investment can be lucrative, it typically requires a substantial upfront investment and can be illiquid. Alternative investments may offer higher liquidity and the potential for faster returns. By including a variety of asset classes in your portfolio, you can tap into different growth opportunities, potentially boosting your overall returns.

3) Reducing Emotional Stress

Investing can be an emotional rollercoaster, especially when you’re heavily concentrated in a single asset class like property. Price fluctuations, market sentiment, and economic events can lead to anxiety and impulsive decisions. Diversification can help reduce this emotional stress by spreading your risk, making it easier to weather market volatility.

4) Liquidity

Property investments often lack liquidity, which means it can be challenging to access your funds quickly if you need them in an emergency or for other investment opportunities. Diversifying with more liquid assets, such as shares or bonds, can provide you with greater flexibility and financial security.

5) Flexibility and Adaptability

Financial goals and life circumstances change over time. Diversifying your portfolio allows you to adapt to changing circumstances and adjust your investment strategy as needed. It provides flexibility in managing your wealth, whether you’re planning for retirement, buying a home, or funding your children’s education.

Now that we’ve explored the reasons behind diversification let’s look into some alternative investment options to property that you can consider incorporating into your portfolio.

Why Should You Invest In Asset Classes Other Than Property?+

While property investments have traditionally been a favourite choice among Australians, smart investors are now exploring alternative options to achieve a balanced and resilient portfolio. In fact, the latest Australian Securities Exchange (ASX) Investor Survey shows that 51% (or more than half) of the Australian adult population now holds investments beyond their home and superannuation funds.

Disadvantages of Property Investments

Relying solely on property investments in Australia comes with drawbacks. A major concern is the high entry costs, which means you’ll need a lot of money upfront. Property investments are also not very easy to turn into cash quickly if you need it.

You might also have to pay for ongoing costs like property repairs or maintenance, which can be costly. Sometimes, you could have problems with tenants who don’t pay rent on time, damage the property, or even create legal issues.

Another thing to remember is that not all properties increase in value. Sometimes there might be hidden issues with the property that can surprise you. Plus, when you only invest in property, you put all your eggs in one basket, which can make your investments riskier and potentially lower your profits.

So it’s a good idea to consider spreading your investments beyond just property to lower your risk exposure and improve your chances of making more money from your investments.

What are Alternatives to Investing in Property?

Let’s take a look at investment vehicles other than property to grow your money. These alternative options offer different ways to make your money work for you, whether you’re a beginner or an experienced investor.

1) Stock Market Investments

Investing in publicly traded company shares is a popular alternative to property investment. In fact, the 2023 ASX survey of investors revealed that 58% of Australian investors have invested in shares, and 20% have investments in exchange-traded funds (ETFs).

Stock markets such as the ASX offer a wide range of opportunities. You can invest in individual shares or diversify further through exchange-traded funds (ETFs), managed funds, and more.

When you invest in individual shares, you become a part-owner of that company. Your investment’s value can go up or down, depending on how well the company does.

Stock market investments offer flexibility and the potential for growth. They’re a liquid asset, meaning you can sell your shares and access your money relatively easily. However, keep in mind that like any investment, there are risks involved, and share prices can be volatile. It’s wise to do your research or seek advice from a qualified financial adviser before diving into the stock market and building your portfolio.

2) Bonds

Bonds are debt securities issued by governments or corporations. They offer regular interest payments and return the principal amount at maturity. Think of bonds as a way to lend money to the government or companies. In return, they pay you interest at regular intervals, and when the agreed time comes, they return your initial investment.

Bonds are generally less risky than shares, which makes them great for people who want a stable income. Government bonds are considered some of the safest because governments are unlikely to fail to repay their debt. Corporate bonds offer more interest but are a bit riskier because they depend on how well the company is doing.

Bonds can help you balance your investments, especially when the stock market is uncertain. They give you a predictable income, which is good for those who want to count on regular money, like retirees. But keep in mind that bond values can go up and down, and it depends on how secure the government or company is when it comes to paying back the money. So, when you’re thinking about bonds, be sure they match your financial goals and how much risk you’re comfortable with being exposed to.

3) Cash and High-Interest Savings Accounts

Keeping a portion of your portfolio in cash or high-interest savings accounts provides liquidity and capital preservation. It’s an essential component of any diversified portfolio and can serve as a safety net during market downturns.

It means you have money that you can get to easily, just like when you keep cash in your wallet. This is important because it keeps your money safe, and you can use it when you need it. While it may not generate large returns like some investments, it’s a crucial part of a well-balanced portfolio.

4) Real Estate Investment Trusts (REITs)

If you want exposure to real estate but are not ready for property ownership, consider investing in REITs. These are trusts that own and manage income-generating properties such as commercial buildings or shopping centres. You can buy and sell REIT shares on the stock exchange, just like shares.

Additionally, because these trusts receive rental income from the properties they own, you might also receive a share of that money as dividends. REITs offer a convenient way to invest in real estate without the responsibilities of property ownership

5) Precious Metals

Investing in precious metals like gold and silver can act as a hedge against inflation and economic instability. These assets tend to hold their value over time and can be a valuable addition to a diversified portfolio.

Investing in precious metals like gold and silver can serve as a way to protect your money from the effects of rising prices and economic uncertainty. These assets tend to keep their value over time, even in an uncertain economy, making them a valuable addition to a well-balanced portfolio.

6) Diversified Funds

Managed funds and exchange-traded funds (ETFs) offer exposure to a mix of asset classes, including shares, bonds, and alternative investments. These funds are managed by professionals so you don’t need to be a financial expert.

These funds instantly spread your money across many types of investments, ensuring that you don’t put all your resources into a single type of investment.

Managed funds and ETFs offer flexibility and liquidity, making them suitable for both novice and seasoned investors. You can generally buy and sell them with ease. Whether your financial goals are long-term or short-term if you’re looking for a straightforward way to invest in a mix of things and let experts manage it, then managed funds and ETFs might be the right choice for you

7) Annuities

Annuities are diverse investment tools that provide regular payments over time. They come in fixed, variable, and indexed forms. Fixed annuities offer stable, guaranteed income, while variable ones carry more risk but potential for higher returns.

Consider annuities for financial security during retirement. Be sure to review terms, fees, and withdrawal conditions, as these can vary. When in doubt, it would be best to consult a financial adviser for guidance.

8) Foreign Exchange (Forex) Trading

Forex trading involves currency exchange for profit from rate fluctuations. It’s a vast, liquid market, where you speculate on currency pairs like AUD/USD.

Forex offers high liquidity and potential profit but also high risk due to market volatility. It is recommended to learn currency trading fundamentals, practice, and seek advice from experienced traders.

Things to Consider When Diversifying Your Investment Portfolio

When diversifying your investment portfolio, there are several important things to consider. Some of these are:

1) Your investment goals and time horizon

What are you saving or investing for? Do you need access to your money in the next few years, or are you investing for the long term? Your investment goals and time horizon will influence the types of investments you choose and the amount of risk you are comfortable taking.

2) Your risk tolerance

How much risk are you comfortable with? Some investments are more volatile than others, which means there is a greater potential for both gains and losses. It is important to choose investments that are aligned with your risk tolerance.

3) Your investment knowledge and experience

How much do you know about investing? If you are new to investing, it is important to start with simpler investments and learn more about the market before investing in more complex products.

4) Taxation on investments

When choosing investments, it’s important to consider the tax implications. Asset classes and investments are taxed differently. Tax laws can be complex and subject to change, so keeping informed or seeking professional advice would be useful.

5) The Australian economy

Economies are cyclical or go through periods of expansion and contraction. It’s important to consider the current state of the economy when making investment decisions.

The Australian investment landscape is constantly evolving, so it is important to stay informed about the latest trends and developments. Keep in mind that all investments carry some degree of risk. It would be best to do your research and seek professional advice before making any investment decisions. There are a number of resources available to help you, such as government websites, qualified financial advisers, and investment research firms.


Diversifying your investments is a smart way to manage risk, boost returns, and secure your financial future. This timeless strategy helps you build and protect wealth, especially in the ever-changing world of investments. While investing in property is a good choice, considering other options is essential to create a well-rounded and strong investment portfolio.

You could explore different investment choices like the stock market, bonds, cash, real estate investment trusts (REITs), precious metals, and diversified funds. These options allow you to customise your investments to match your comfort with risk, financial goals, and life situation.

One point to remember is that diversification doesn’t mean spreading your money too thin. It’s about carefully dividing your investments to balance risk and potential profits. When creating your investment plan, consider how much risk you can handle, what you want to achieve financially, and how long you plan to invest.

If you’re unsure about getting started or have questions about these investments, it is highly recommended to consult with an experienced financial adviser. They can give you personalised advice to make informed choices that fit your unique financial situation.

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