Portfolio Diversification
Portfolio diversification spreads investment across multiple properties, markets, and strategies to reduce concentration risk and smooth return volatility.
| Diversification Benefit | Impact |
| Risk reduction | Lower volatility than single-asset concentration |
| Downside protection | Poor performers offset by strong performers |
| Smooth cash flows | Multiple tenants reduce income disruption |
| Market cycle mitigation | Different markets peak at different times |
| Liquidity enhancement | Can sell individual assets without full exit |
| Correlation reduction | Low correlation assets maximize benefit |
| Diversification Guidelines | Target |
| Minimum properties | 5 to 10 for meaningful diversification |
| Maximum single-asset weight | 20% to 25% of portfolio value |
| Geographic concentration | No more than 40% in single market |
| Property type limit | No more than 50% in single type |
| Tenant concentration | No single tenant over 15% of income |
| Over-diversification risk | Beyond 15 to 20 assets, marginal benefit declines |
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