How to diversify your portfolio to protect yourself from market risks? (12/20)

Real estate is a bit of a cross between bonds and stocks in terms of risk and return. It moves according to its own logic, just like the other 4 asset classes presented above, although there are also times when it behaves similarly to other types of investments.

The SXI REAL ESTATE® FUNDS index gives us proof of this (145% in 18 years, not bad for a low-volatility investment). It fell very slightly during the subprime crisis, which concerned it quite directly... Well, at the same time, in Switzerland we have remained a little more sober than our American friends. And I'm not talking about wine, of course.

To buy real estate, you can of course buy your own home, or another one to rent and/or resell. This is obviously a good thing, but it is not done in the blink of an eye. There is also the possibility of buying shares in real estate companies such as Warteck, Mobimo or PSP Swiss Property for example (but these are still shares, so inevitably somewhat correlated to this type of asset). You can also buy a fund such as CS REF INTERSWISS. To keep it simple, you can also fall back directly on the SRFCHA tracker (0.87% management fees), which includes Swiss funds and shares in the real estate sector.

We have seen that E. Faber recommends 25% in stone and that its asset allocation portfolio is among the best. I find the ratio interesting. It is an investment that yields quite well in the long term, halfway between stocks and bonds. It involves risks that are also halfway between the two. And it is an asset that distributes cash.

In summary, for real estate: take advantage of the slight drop in prices and especially the historically very low rates to buy (at least) your main home and/or buy real estate securities. For the latter, there is an abundance of choice between shares in real estate companies, investment funds and ETFs. I have a preference for shares of course, but the SRFCHA ETF, which includes Swiss real estate shares and funds, is a good way to buy a wide range of players in this field without too much expense.

The advantage of real estate securities over real assets is that it is easier to arbitrage with other types of assets. It is also easier to manage. Personally, I have chosen not to include my real estate assets in my portfolio, because it is difficult to quantify them and even more difficult to trade them. I therefore stick to a real estate securities position of 10-15% of my portfolio, so as not to over-represent "stone" among all my assets, because it is already very present!