How do you think real estate compares to other investments? Whatdo you think investors are purchasing? Are they focusing on theanticipated returns, an inflation hedging tool or something assimple as diversification?

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Nestor RutherfordLv2

28 Sep 2019

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Scenario #6: Heidi has always been a real estate investor. Shetells her financial planner that, because she is such an expert,itâs the only asset worth investing in. However, after a thoroughassessment of Heidiâs actual performance, net of costs, her rate ofreturn over time has been about 3.5%/yr on her real estateinvesting. This is not a bad return, but her planner shows her thatdiversifying her assets into other investments will not only earnher more return over the long-term, but also reduce her risk(because real estate will not always perform well, and other assetsmay-when real estate does not do so well). Heidi just canât believethat something she is so comfortable with could not be as optimalas what her planner is proposing. 1) What behavior/bias is present?2) Why is this behavior detrimental? 3) What could have been donedifferently, or what could be done differently next time to avoidthis result?

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