Real Numberz Financial Freedom Accelerator Lesson 4: The “Dumb” Portfolio Diversification Mistake MOST Real Estate Investors Make (and How You Can Avoid It)
Today, we’ll dive right into this lesson because I know that about now, you are getting ready to make a “dumb” portfolio diversification mistake that even long-time Motley Fool contributor and certified financial planner Matt Frankel boldly admitted to making himself back in 2015 – albeit concerning a stock purchase instead of a real estate investment.
One of the things I love to see is when really successful, experienced investors are honest enough to admit to making a major mistake – especially one that they consider in retrospect to have been a decision that was, as Matt put it at the time, made under “clouded judgement” – so that others can avoid making that same mistake.
Wondering what in the world he did? Well, here it is:
In Matt’s case, he sold some Tesla stocks (okay, a lot of Tesla stocks) for $70. At the time he did his interview, those stocks were trading at $244 per share. Today, Tesla is trading above $500 and it’s down.
But here’s the thing that Matt admitted that is the real mistake here: He forgot why he bought the Tesla stock in the first place.
According to Matt’s interview with CNN Business, he bought Tesla shares at around $20 a piece and then sold because his judgment was “clouded” by the idea of making a pretty hefty profit when he sold at $70. However, he bought the shares in the first place as a long-term hold, not to turn a fast profit. The lesson, according to Matt, is this:
“You shouldn’t base buying and selling decisions on the price of stock…. Don’t let a quick spike in the share price convince you it’s time to hit the sell button.”
So what does this have to do with diversifying your portfolio?
Well, quite a bit – even if you have never bought any stocks at all! See, you are reaching an important crossroads on your path to control, and it’s a dangerous one for a lot of investors. You’ve done some really good work. You’ve gotten your properties loaded into the RealNumberz system and you’ve even started looking at your metrics. You have explored the data analysis potential in this system, and you are starting to see just how much time you stand to gain and how much faster you could achieve financial freedom than you realized.
You are doing GREAT! So what is my problem?
Well, my problem is this: You’re about to start thinking about diversification, and it’s not going to simplify your investing process. You’re going to start going through the options in your head and seeing those potential profits in other assets that you now have time to think about and consider because you are no longer bogged down in your real estate portfolio. You’re going to want to diversify, and many, many, many of you are going to start looking at assets that appear to offer a quick profit rather than staying focused on the investments you bought for good reasons in the first place.
That, my friends, can lead to disaster.
Now, I’m not saying you should never consider diversifying your portfolio. I am just saying that you must beware and be aware of the menace of shiny-object syndrome! Before you start looking at new asset classes, take some of that newly available time to optimize your existing asset classes. Take a close look at your current investments and do a little experimenting using the real-time data available to you through your RealNumberz account to see what you could do if you made minor, affordable, wise changes to your existing properties and how you manage them.
Then, if you still have that portfolio diversification itch (and these days, many of us do), take a look at our other asset divisions. Did you know that you can make projections about mortgage notes, lending deals, and even private placement funds and syndications using this tool? This is a great way to diversify while keeping it simple and avoiding the gamble you take when you steer blindly into a new asset class simply because you finally have a little bit of time to think about it.
Today, your assignment is simple, naturally:
Take a deep dive into just one of your properties. Explore ways you might change your returns for the better or just streamline the way you are handling a rehab. Portfolio diversification does not have to mean abandoning everything you were doing previously, and, as Matt Frankel tells us, it definitely should not mean making decisions that go against the things that brought you to an investment strategy in the first place.
Take the deep dive today and then, as a “bonus,” take a look at our automated reminder system [LINK]. This is a great way to get real-time notices when an asset is maturing or returning to you or when performance is dropping. That way, you can make decisions about diversification and strategy when the time is right and pursue portfolio optimization before the latest shiny object.
And if you still want to diversify after that, then you can move forward knowing you’ve made an educated decision and avoided the “dumb” mistake most investors make when they start adding assets in other sectors to their portfolio.
I’ll see you tomorrow!