Risk management: A way of comparing property investment vs other types of investment
I am thinking about a way to compare property investment with other type of investment, say cryptocurrency.
Basically, such a comparison is necessary when we have a lump sump to invest, and we need to manage the risks. How do we know which is more risky?
Nothing complicated here. We just have to compare the yield after taking into consideration the initial capital outlay and regular payment. This type of exercise is to be done before investing, so that we know what kind of risk are we taking on.
In the case of a real estate property, say, we pay $100K as the initial instalment, and $1K every month for 10 years. By the end of the 10 year, we sell it. The difference between sum paid and sold amount will be the profit. Of course, there will be other costs, like legal fees, tax, repairing, and income to be earned such as rent income. The net difference at the end will be the yield.
In the case of other forms of investments, such as cryptocurrency or equities, we can also start with $100K and DCA of $1K every month for 10 years. Just hypothetical. Then we make a calculation of projected yearly yield. Same thing, we add in the fees, staking yield etc. The amount gain when selling off everything minus all the outflow will be the profit. In the midst of the 10 years, there will be fluctuations in value, as we know in the crypto market. We need to consider whether we can stomach this volatility.
Granted, at the initial stage, there are plenty to estimate. This is where we are in effect doing work to hypothetically calculate the risk. We might have to project some figures, but it is necessary if we want to derive at a good decision.
Even after all these projections, there is no guarantee that the final numbers will be close. But at least it gives us some basis of comparison before deciding where to park our money.
Of course, these decisions also had to do with one's life circumstances and portfolio distributions. Hopefully this post got you thinking about the importance of thinking ahead when investing!
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Disclaimer: This is not financial advice, and you should always do your own due diligence before investing!
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There will be a big big divergence of ROI in both the cases, and crypto will make manifolds return as compared to real estate investment...Aslo do note that there is depreciation cost on YoY basis in Real Estate where Crypto being the future currrency has an appreciation cost with greater adoption rate on YoY basis. Other that Store-of-Value will act as catalyer in the case of Crypto.
Volatility is quite large in crypto. That is why I don't think it's for everyone. But along with that is a large possible return. Personally, I think it's much easier to set a plan and avoid looking at the price unless it's part of your plan.
I will rather choose to consider other form of investment than the crypto form of investment due to the volatility right now
The risk in crypto currency is high, so the profit is also high, and only the one who is patient and supports trading will get the profit here.
Small hearted people should invest within the property itself as there may be losses
Proper risk management is key to bring correct manifestations of things we have to manage if not we will take wrong decisions