The recent economic situation, including the historic depreciation of the yen and rising prices of commodities, has given us an opportunity to rethink our approach to money. In order to overcome these times and build stable assets for the future, it is essential to have a deep understanding of the characteristics of financial assets andreal assets, and to construct an "optimally balanced" portfolio that matches your own goals and risk tolerance. This article will explain the specific methodology from the perspective of a real estate expert.
When considering asset management, the first thing to understand are the two major categories of "financial assets" and "real assets. They each have different characteristics, and by combining them, you can build a stronger asset portfolio.
To better understand the differences between the two, the table below summarizes their characteristics.
| Characteristics | Financial Assets | Real Assets |
|---|---|---|
| Examples | Deposits, stocks, bonds | Real estate, gold, art |
| Resistance to inflation | Weak to strong | Strong |
| Liquidity | High | Low |
| Sources of Value | Creditworthiness and earnings expectations | Physical value |
Having understood the characteristics of both financial and physical assets, let's now delve into why it is important to hold these two assets in balance.
The basis of investment is diversification, which is summed up in the adage, "Don't put all your eggs in one basket. Since financial assets and real assets have different trends in price movements, risk can be effectively diversified by combining the two. In particular, under the current inflationary environment, the real value of cash and deposits will diminish, so incorporating real assets such as real estate, which are resistant to price increases, is the key to asset protection.
Among real assets, real estate investments in particular are a very attractive option that can play a diverse role in a portfolio.
In addition to stable rental income (income gain), real estate investment offers many benefits , includingtax savings, an alternative to life insurance, and a leverage effect that allows for large investments with little personal capital. Of course, risks such as "vacancy" and "repairs" exist, but these can be controlled by taking appropriate measures. For example, by selecting properties with high rental demand, establishing a systematic repair plan, and purchasing various types of insurance, risks can be significantly reduced.
| Advantages | Disadvantages and countermeasures |
|---|---|
| Stable rental income | Vacancy risk: Select properties with high rental demand |
| Countermeasures against inflation | Repair risk: Provide a planned repair reserve |
| Tax saving and life insurance effects | Interest rate rise and disaster risk: Prepare for these risks with fixed-rate loans and insurance |
So how exactly should one construct an optimal portfolio? Here are four basic steps to do so.
Step 1: Understand your current situation and goals
Objectively analyze your age, annual income, and risk tolerance, and set specific goals for "when" and "how much" you need.
Step2:Determine asset allocation
Based on your goals and risk tolerance, determine the allocation of funds to financial assets and real assets. We will consider the allocation that is best suited to you, such as increasing stability based on your age.
Step3:Select specific investment targets
We determine specific investment targets, including the use of NISA and iDeCo, as well as the selection of real estate properties that meet your goals.
Step4:Periodic review (rebalancing)
Periodically review your asset allocation in accordance with changes in market conditions and life stages to maintain optimal conditions at all times.
This article has explained the importance of an optimal balance between financial assets and real assets, and the effectiveness of real estate investment in a portfolio. In order to protect and grow assets from a long-term perspective amid unstable economic conditions, a well-balanced portfolio that takes advantage of both the liquidity of financial assets and thestability and inflation resistance of real assets is essential. Real estate investment, in particular, can be a powerful pillar of your asset portfolio, offering a wide range of benefits, including a stable source of income, inflation protection, and tax savings.
It is now time for you to take the first step to transform your vague fears about the future into concrete actions to proactively build your own future. At INA&Associates, we take each client's situation and goals seriously and propose optimal asset building plans centered on real estate. Please feel free to contact us and tell us about your asset-related concerns and dreams. We promise that this will be a solid step toward a bright future.