Real estate investments are an important component of a well-balanced portfolio. (UBS)

For a vast majority, housing is a crucial stepping stone on the path to reaching financial lifetime goals and an important vehicle for passing on wealth to future generations. This is especially true for HNW Black investors. Half grew up in households that emphasized real estate investing and nearly six in 10 currently invest in real estate, income properties, or vacation rentals, according to a UBS survey of 3,000 multicultural investors (MCIs).

“We found that, primarily, HNW Black investors prefer real estate to other investments because they believe it is likely to stay ahead of inflation and hold its value,” says Melinda Hightower, Head of Multicultural Investor Client Segments at UBS. “On the flip side, we discovered their portfolios are 26% allocated to stocks, on average, revealing an opportunity to grow their wealth by taking advantage of stock market gains.”

Housing is an important component of a well-balanced portfolio. Owning a primary residence can help you to protect your financial plan from some shelter-related inflation. In addition, your personal real estate properties also provide you with access to borrowing capacity through mortgages and home equity. Even so, real estate is an illiquid, indivisible bulk asset with high transaction costs, so it can be difficult to adjust exposure to it easily, says CIO report The role of home ownership in asset allocation.

Local real estate investments benefit from a strong local economy, but if your local market isn’t doing well it may be difficult to sell your home for what it’s worth—and a poor local economy could also hamper your earnings potential, dealing a “one-two punch” to your finances.

“Well-diversified real estate investments have a strong long-term track record of beating inflation, but if you are investing in individual residential properties your mileage may vary,” says Justin Waring, Investment Strategist Americas, UBS. “This is why we recommend complementing your housing investments with a well-balanced, globally diversified portfolio of stocks and bonds. Stocks and balanced portfolios have consistently beaten inflation, and by a wide margin.”

Waring suggests three steps to creating a well-balanced portfolio in addition to real estate investments:

1. Get more out of your cash. Investors seeking safety during ongoing market volatility can look to cash alternatives and fixed income for higher-yielding alternatives to cash. For example, savings accounts can offer a much higher yield than money market funds in the current environment, with a similar level of liquidity. See the Liquidity strategy: Refilling for 2022 and beyond and Liquidity strategy: Guard against inflation, help protect against recession risk, and increase yield for much more.

2. Reduce your cash allocation. Investors can use borrowing capacity to serve the same role as cash while reducing the drag on returns. See 10 reasons to put cash to work and How borrowing can help you meet your goals for more.

3. Increase your allocation to risk assets. When it comes to enhancing your portfolio's real return, globally-diversified stocks are a great place to start. Private markets (including private real estate investments) can help you add to the stock market’s growth potential, as long as you are willing to take on greater volatility and accept some illiquidity risk. Several choices for maximizing your portfolio’s growth potential—including private markets and portfolio leverage—are explored in the Implementing a Legacy strategy report.

Talk with your UBS financial advisor to see how these steps fit into your investment strategy.

Main contributor: Kerry Breen


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