Real Estate Tokens; a Tool for Capital Preservation in Uncertain Times

Getting emotionally attached to your investment and making a decision to hold against all odds almost always never ends well. It is advisable to seek alternative assets to preserve some of your hard-earned profit.

When Bitcoin was around 60k, one of my friends boldly predicted that Bitcoin would never fall below 20k again. That statement baffled me at the time. But now in hindsight, it’s easy to see how wrong his statement was.

As the market made a reversal, my good friend refused to budge in a bid to stand by his word and seem consistent.

For him, it was a battle of “me against the market”.

It’s certain, however, that when you fight a battle against an opponent that doesn’t engage and who has nothing at stake, your efforts will only worsen your loss. Strange as it may seem, this is the case for many investors and traders who are hell-bent on multiplying their investments in the shortest time possible.

One rule of investing in volatile markets like the crypto market is to never assume you know what the market would do. The market is unpredictable. But this is difficult for an inexperienced trader or investor, especially if you have achieved some level of success in the market or are spurred on by the success stories of others to seek your own. Your investment decisions are based on false confidence rather than knowledge and discipline.

Let’s illustrate this further by looking at the four stages of competence:

The unconscious incompetent is at the bottom of the hierarchy, completely aloof. In this case, the individual, while thinking he understands the market, may not realize how little knowledge he actually has.

If you fall into this category, it might be time to re-access how you intend to manage your investments going forward.

Market downturns are always a time for learning, building, and strategizing. In light of the crypto market downturn, it is necessary to push the awareness that capital preservation is also a form of investment.

Not all investments will 10X your capital in a month and that’s okay.

What Is Capital Preservation?

It is a conservative investment strategy with the main purpose of keeping your funds in low or no-risk vehicles so you don’t lose them.

Capital preservation is usually adopted by different groups of people including:

1. Those who consider making money as less important than keeping the one they have, like retirees.

   
   

2. Those looking for a safe haven in times of market volatility, weak economies, limited alternative investment options, etc.

   
   

Using Real Estate Tokens for Capital Preservation

Tangible real-world assets like real estate are being put on the blockchain through tokenization, making it possible to buy tokens that represent a share of a real estate property like you would buy crypto. They are ideal for traders or investors who want to put a percentage of their returns into a less volatile investment.

Here are the reasons to use real estate tokens for capital preservation:

• Volatility is the key consideration when selecting assets for capital preservation and though house prices may not grow as equities, there is a low chance of investors losing their savings in a sudden real estate crash, unlike the crypto market where your investment can disappear overnight.

  
  

• Real estate Tokens combine the benefits of the stock market–high liquidity, and lower capital requirement, along with the benefit of traditional real estate investment (Low volatility than the stock or crypto market, less correlation with the public market investment performance).

  
  

• Real estate is one of the few unique assets class that can hedge inflation.

  
  

For income-producing properties, the property owners or managers can raise rents to mitigate the effect of inflation. Historically, house prices have kept up with the rate of inflation even outstripping it by 2% or 3% in developed economies.

What Category of Real Estate Is Appropriate for an Investor Whose Objective Is Capital Preservation?

Like every other investment, real estate has its risks. However, if you understand the different categories of assets and the tradeoff between risk and returns, you can reduce the risk you get exposed to.

Typically, an Investor whose objective is to preserve capital will seek lower-risk real estate investment.

Low-risk real estate investment may include properties that produce cash flow right off the boat without having to improve the property and are located in good or high-quality locations with high-quality tenants.

How to Get Into Tokenized Real Estate Investment

To get into tokenized real estate investment, you just have to choose one of the existing tokenized real estate investment platforms, then create an account and go through the required “know your customer” procedures. You can then create your wallet where you can store and manage your token.

To learn more about some of the popular real estate token platforms click here.

Also published here.